What Next for Cross- Border Payments?

 An Interview with Ebru Pakcan, Head of Payments, EMEA, Treasury and Trade Solutions, Citi GTS

Citi recently conducted a survey amongst over 250 companies across Europe, Middle East and Africa (EMEA), which aimed to re-assess some of the challenges associated with cross-border payments. Making cross-border payments efficiently and cost-effectively remains a basic need for companies operating internationally, so Citi was keen to understand the challenges which exist today and how the bank can help. Some highlights of the survey results are illustrated below, but in addition, we are delighted to talk to Ebru Pakcan, Head of Payments for the EMEA region at Citi.

Were you surprised at the results of the survey?

Whilst not on the whole surprising, I was and continue to be fascinated to see that some of the basic payment needs never seem to change. I was particularly interested to see that so many treasurers said they continued to experience often considerable challenges in cross-border payments, perhaps unaware of the opportunities that exist to resolve these issues. For example, 34% of respondents indicated that they did not have visibility of the FX rates used for currency conversion, and 49% of companies hold non-resident accounts simply to make payments to offshore beneficiaries. These statistics alone illustrate that for a large proportion of firms, cash management has considerable complexity and a lack of visibility over important information required for benchmarking and accounting purposes.

As a result of this complexity, it is perhaps less surprising that such a large proportion (68%) of respondents indicated that they are intending to rationalise the number of accounts and currencies that they maintain, with 38% emphasising that this is a very important consideration. Some currencies create more challenges than others, particularly in Eastern Europe and Russia, and parts of Asia such as Korea. While regulations are changing in regions that have traditionally been more difficult from a payments and cash management perspective, significant challenges still remain.

Are there specific industries or business sectors for which cross-border payment needs create a greater business imperative

The reality is that most multinational corporations will have cross-border payment needs to cover supplier, distributor, expense payables, insurance, freight and duty payments, amongst others. Specialist operations will also have cross-border needs, such as dividends, stock options and employee compensation schemes. These issues extend not only to commercial enterprises but also to public sector bodies. Consequently, we see cross-border payments as a universal need for all types of organisations.

What about specific geographies? Do you see companies based in certain countries having more complex cross-border payment needs than others?

Multinational corporations headquartered in North America and Western Europe have had to support payments in multiple jurisdictions for many years. Over the past 10 years, however, and particularly over the past 3-4 years, companies based in emerging markets, and therefore without EUR or USD as their base currency have become multinational in their scope, and therefore have some common, and some unique challenges associated with cross-border payments. For example, we are seeing growing cross-border payment needs amongst non-bank financial institutions and corporates in the Middle East. [[[PAGE]]]

How does Citi help to manage the challenges of cross-border payments of clients globally?

Citi’s Global Transaction Services (GTS) division is the transaction banking engine within Citi that provides tools and solutions to help our clients better manage their working capital, trade and payments. Within the GTS suite, for over 25 years, WorldLink® Payment Services has been enabling our clients to issue payments in more than 135 currencies and in over 200 countries through a single window. WorldlLink is the number one cross-border payments service in terms of its coverage and service, leveraging Citi’s global network. Companies do not have to maintain local currency accounts, which brings a variety of benefits:

• The complexity, reconciliation effort and authority management requirement is reduced;

• Companies can centralise their liquidity more effectively as the number of accounts is lower;

• A variety of risks are mitigated, such as counterparty risk, by reducing the pockets of cash held with various banking partners; fraud risk, as the number of paper-based processes is reduced, and currency devaluation risk, as cash is held in a smaller number of ‘core’ currencies.

There are further benefits of the WorldLink solution. For example, it supports the full range of payment methods, so companies can select the most efficient payment method according to the currency, urgency and value of a payment. The reporting and reconciliation tools are highly flexible, providing transparency, control and automation of payments and payment information flows globally through a single channel. [[[PAGE]]]

You mention that WorldLink supports domestic payment methods in a wide range of countries. Have you needed to create customised solutions to support the needs of individual markets?

As the solution has been developed over many years, WorldLink has significant depth of capability, including supporting the needs of local markets. For example, in the UK, we introduced the ability to fund and instruct cross border payments via BACS, the UK’s domestic ACH, 3-4 years ago, providing a flexible way to accept client instructions adapted to the marketplace, as opposed to clients needing to use a separate platform. As we continue to develop WorldLink, the aim is to maintain capabilities that are as consistent as possible across Citi’s global footprint.

To support the wealth of payment methods and local clearing requirements over such a breadth of markets and currencies takes many years of experience and ongoing investment, in which Citi is unparalleled in our development of WorldLink.

What are the effects of globalisation and convergence on payments?

Although we are seeing payments convergence within the Eurozone with SEPA (Single Euro Payments Area) there is a growing volume of trade and commercial flows denominated in EUR outside SEPA, which will continue to be treated as cross-border payments. Furthermore, the volume of flows in more exotic currencies is growing, which adds further to companies’ cross-border challenges unless they use a tool such as WorldLink. To support our clients’ expanding requirements, we are continuing to add new currencies to the platform on one hand, whilst also enabling clients to make SEPA payments through the same channel.

How have you developed the solution to ensure that it is closely integrated into your clients’ technology infrastructures and easy to use?

WorldLink is a powerful payments engine with advanced capabilities that uniquely positions it to meet the complex requirements of a multinational company with a wide range of needs. For example, it supports cross-currency conversions for over 4,000 currency pairs, and it can operate on a non-account basis.

Given such extensive features and functionality, we have focused our attention on working closely with our clients to review their processes end-to-end, identifying areas for incremental added value. One such area of focus is in supporting file upload and integration with ERP systems to enhance straight-through processing for clients with varying volumes of transactions, while still providing the convenience and intuitive approach of a browser-based screen.

How do you see your clients’ cross-border payment needs continuing to develop in the future?

In addition to the basic needs highlighted through the survey, companies are seeking more detailed reporting, recognising the value of the information that Citi can provide. Part of the value of this is to enhance straight-through processing, but also to automate the reconciliation process and creation of the inherent FX deal in cross-border payments. Consequently, we have a role to play across the information value chain, a responsibility which we take very seriously in the ongoing development of our solutions.

Treasurers and finance managers are also seeking to reduce payment costs by taking advantage of the most appropriate payment method for each payment. For example, ACH payments are attractive in many situations, although not for urgent payments, and using WorldLink, treasurers can take advantage of the most cost-effective solution according to their specific requirements.

What investments are you undertaking to meet the evolving needs of clients?

We have a simple goal: to deliver quality through innovation. As the leading cross-border payments service provider globally, we invested in a major research and product development programme, resulting in our Next Generation WorldLink solution. New capabilities are being rolled out to our clients as they become available.

I mentioned extensive information and cost efficiency as two priorities for our clients. These are two key areas of innovation for us, amongst many others. Next Generation WorldlLink aims to provide clients with equivalent or better control and transparency as domestic payments, while eliminating hidden costs through smart distribution capabilities.