Mike, what are the main reasons EM payments are so costly and complex to undertake?
A lack of transparency on pricing and services, fragmentation due to connectivity difficulties and limited liquidity are the key reasons. Payments via EM currency corridors typically require on-shore FX conversion, which makes the payment process more complicated than same-currency payments. Limited liquidity clearly adds to the difficulty – especially for large payments – and many EM markets have bespoke requirements related to capital controls that require specialist knowledge. All payments are messy…it’s just amplified in EM.
Why is lack of transparency and difficulty in complying with regulatory obligations also a serious problem with the way EM payments are made?
The combined impact can increase costs significantly by reducing straight-through processing rates in corridors where the lack of transparency already makes price discovery and benchmarking difficult. Increasing customer expectations on speed of settlement are putting additional pressure on delivery timeframes to emerging markets, where recent developments like real-time payment systems require increased automated or STP processing.
How have large banks traditionally managed cross-currency payments and what are the inefficiencies associated with the outsourced settlement arrangements they have been putting in place for many years?
Banks have typically managed currencies in three segments; for more liquid currencies they trade in line with the normal market conventions and settle via their own branch network, or, where they have the volume but no branch,] they open a nostro with a corresponding bank, manually fund the account and the correspondent settles the payment. Alternatively – and this segment accounts for between 50 and 100 currencies depending on the bank, they outsource the FX trade and settlement service to a payment partner. All three segments have pros and cons, but the outsourced segment is the most problematic. In this segment margins are simply too high, due to a lack of price competition or transparency. Regulatory reporting is a growing problem that many banks are in denial over and innovation – due to the huge challenge of integrating with the partners banks need to optimize their payment offerings – is almost nonexistent.
Are there any other sources of friction in current FX payments processes that you have identified that also need fixing?
Many of the challenges come down to connectivity. Banks are great at many things, but innovation is probably not one of them. They really need fintech partners to help build out the innovation in the ecosystem, but the costs and complexity associated with building direct connections to multiple providers is significant. The simple act of connecting more efficiently – via the AbbeyCross platform for example – can address many issues like a broader market view of pricing, or increased choice of settlement rails. We believe the need for a better partnering and approach to connectivity is crucial.
You launched AbbeyCross to offer an enhanced user experience with greater provider choice, enhanced price transparency and a more efficient settlement experience. How difficult has that undertaking proved to be?
Working with banks isn’t difficult if you understand how to do it, and with our experience, we do. But it is slow and process-heavy, as you would expect. That said, we have benefited from great traction with visionary banks like Bank of America and BNY Mellon, and we now have increasingly progressive conversations with a huge tranche of fast following banks that see the logic on our approach. Existing payment partners and the newer tranche of payment fintechs love our approach. We are overwhelmed by their response to us, as a potential sales channel and as a team that gets the way banks function. There is a real desire among banks and MSBs to improve their FX payment offering to emerging markets, and at the same time there are modern payment businesses that have invested in robust platforms that satisfy the needs of financial institutions. The key is reducing the technical barrier to integration between them, and that’s where AbbeyCross comes in.
Olann, the AbbeyCross ABX platform consists of two products. Please tell us a little about what they each do.
ABX Studio addresses the regulatory and service/price transparency challenge for banks in that it provides unique FX market pricing data specifically for payments. For those using it now, it’s generating greater transparency, useful insights and enabling much-needed benchmarking capability for their regulatory functions and with clients when price benchmarking matters.
ABX Sync uses the same data set, from the same providers above and is fully permissionable for both banks and partners. This service and pricing data on the Sync platform gives users the ability to execute FX trades and transactions, send payment instructions to payment partners and push the required settlement and pricing data into middle and back office functions.
How would you summarise the main benefits of the platform and why it’s a real game changer for the industry?
For bank clients consuming market data and analytics via ABX Studio, the platform provides benchmarking capabilities for currency corridors where this visibility has traditionally not been available. It also enhances regulatory and supervisory compliance by storing supporting evidence for pricing queries, and offers greater insight into the capabilities and choices in the wider market. Payment partners pricing into the platform can expand their reach and visibility with key clients and prospects, and simplify the delivery of that data through AbbeyCross’s flexible platform and distribution methods.
When it comes to bank clients executing FX and payment instructions via ABX Sync, there is a significant reduction in integration and platform maintenance costs, while also increasing speed to market and mitigating contingency risk. And they gain visibility not only for FX pricing, but also settlement service data like delivery timeframes, transaction limits, payout rails and permitted flow types – for both existing and potential providers. Payment partners can access more customers, more quickly, and benefit from a channel that goes beyond FX pricing to shed light on settlement capabilities that many have invested heavily in, but struggle to convey to bank partners.
What types of firms are you targeting in the cross-currency trading and settlement space?
We have three main verticals for those clients consuming FX rates via our platform and originating FX trades and payments – banks, MSBs and NGOs. Many banks have reached a point where their FX proposition for outsourced payments is ripe for change, and they view AbbeyCross as the most effective means of making that change. For MSBs and NGOs with material flows to emerging markets, price and service competition is very important, so too is streamlining operational and trading processes across a number of providers to different markets. Our platform is focused on the wholesale market, and therefore we do not target corporates directly.
What are the latest developments with the AbbeyCross solution and what can we expect to see next as you roll out new features and functionality?
Based on client requests, we have broadened our dataset and platform functionality to include non-USD-based pricing against exotic currencies. We are also working with clients and payment partners to incorporate important payment service level data such as delivery timeframes and permitted flow types to aid route selection via our orchestration capabilities. This will also be available via Rest API. And we are working with newer tokenised and digital settlement providers to offer access to these services through our platform without requiring new build on the part of the bank.
Partner Viewpoints
We asked a selection of firms that are working with AbbeyCross to tell us a little about some of the issues associated with Emerging Market payments and what developments they would like to see to improve the situation.
CROWN AGENTS BANK
Colin Digby is Global Head Strategic Client Coverage, Emerging Markets FX & Payments at Crown Agents Bank (CAB) which is a UK-regulated, certified B Corp bank and provider of wholesale foreign exchange and cross-border payment services connected across developing, emerging and frontier markets.
What are some of the key challenges you have been facing in the Emerging Market payments space when acting for a bank?
A key challenge that we face when working with a bank is its ability to fully engage technically through APIs or directly through system integration. Resource or budgetary constraints often delay technical integration projects and despite a strong desire to work with CAB, banks often take a lot longer to fully integrate and therefore the realisation of the value add we offer is consequently delayed. Functionality within a bank to work with multiple providers of FX Payment services can also be an issue due to the bank’s existing system constraints.
ABX is a new idea in the payment space. Why did you choose to work with AbbeyCross?
We chose to work with AbbeyCross (ABX) because we believe that they offer a new paradigm in the Bank EM FX space, led by a proven team of FX specialists. Additionally, ABX provides a unique opportunity to deliver a single integration point for banks, which in turn seamlessly delivers access to additional FX partners, such as CAB, much more easily. The ABX payment layer also enables banks to enhance their payment capabilities and the decision criteria associated with their partners. Much of this functionality simply doesn’t exist within many of the banks today, so we fully expect this to enhance CAB’s ability to service clients needs.
To what extent do you feel that more transparency of service and/or price for these services will shape the future cross-currency payments market?
There is a huge demand from banks to achieve incremental options for service and greater transparency of pricing. Single partners not only deny them these opportunities to deliver this, they also result in a single point of failure. Contingency is equally important. Greater levels of competition and enhanced service levels will result in better products and client service.
CORPAY
Mark Frey is Group President of cross- border solutions at Corpay which is a global S&P500 corporate payments company that helps businesses and consumers pay expenses in a simple, controlled manner.
What are some of the key challenges you have been facing in the Emerging Market payments space?
One of the key challenges we face in growing our business amongst larger financial institutions is that each bank comes to the table with its own legacy technology infrastructure. Even if we build a custom integration with each to connect directly with their technology respective technology platform, the banks themselves often don’t have the necessary resources from their technology teams to integrate with us. What AbbeyCross does is provide a single point of integration for each bank to connect with multiple counterparties, thereby creating somewhat of a marketplace for these institutions to engage a range of suppliers via one single integration.
Why did you choose to work with AbbeyCross?
AbbeyCross understands the space in a holistic fashion. They understand the compliance, technology and market needs of the bank clients as well as the service providers like us that provide liquidity and payment execution on the platform. We speak the same language so it a seamless conversation when it comes to working together to solve the unique challenges that our shared financial institution clients have.
What are your priorities when it comes to improving FX payments?
Our primary goal is to provide direct market access, improved liquidity and payment execution for northern hemisphere banks who are required to make payments to the developing world and southern hemisphere for their clients. In all cases, we want to offer technology automation that reduces friction and transaction costs so as to deliver an improved customer experience and more reliable, cost-effective payments.
What impact on your business could substantial improvements to the EM payments process have?
We expect that our partnership with AbbeyCross will allow us to streamline the onboarding process and fast-track the technical integration of working with financial institutions, allowing us to begin working with more banks, more quickly.
DANDELION PAYMENTS
Daniel Canning is Managing Director at Dandelion Payments which is a diverse cross-border payments platform, delivering real-time payments to bank accounts, mobile wallets, and cash pick-up locations.
What are some of the key challenges you have been facing in the Emerging Market payments space when acting for a bank?
A major challenge for banks in the Emerging Market payments space is access to exotic currencies. Dandelion offers on-demand liquidity as it holds inventory in many exotic currencies around the world. Due to the significant flows that it manages into those currencies, Dandelion offers highly competitive rates. Dandelion is a complete Emerging Market payments solution because it delivers access/competitiveness to the exotics together with the industry’s most capable payment rails into 198 countries, including unmatched real-time connectivity and best-in-class compliance.
Connectivity or new integration is always a changeling for a bank when dealing with a non-bank FI. What do you think they could do to make this easier for payment partners or FinTech’s?
Dandelion flips this question around and proposes a highly flexible solution to banks offering a multitude of ways to connect or send payment instructions, from SWIFT-formatted files to a modern, highly configurable API connection.
To what extent do you feel that more transparency of service and/or price for these services will shape the future cross-currency payments market?
Transparency and speed are the two key characteristics that are modernizing the cross-currency payments market. Traditionally, cross-border payments have been slow with little transparency re: the status of the payment and little predictability/certainty re: the availability of funds and how much local currency the beneficiary will receive. Dandelion solves all of these problems through 100% direct connections to domestic payments rails to deliver end-to-end traceability, speed, and on-time arrival, with the guarantee that there will never be any correspondent or intermediary fees.