The Future Of Cross-border Banking And The Impact Of Global Financial Networks – Written by Ingrid Riehl | December 16, 2022 | ! Home slider,! Latest industry news, authentication and identification, credit information, credit management, cybersecurity, digital banking, digital currency, digital identity, digital lending, digital onboarding, digital payments, digital technology, digital wallet, digitization, digitalization of the economy, financial inclusion and Financial Literacy, Financial Services, Industry Trends, Knowledge, Mobile Apps, Mobile Lending, Payment Platforms, Payment Services, Payment Technology Solutions, Trends | 0 |
An interview by The Paypers with Giovanni Angelini, President of Europe and Africa at Western Union. He shares his experiences and thoughts on the future of digital wallets, real-time cross-border payments and what to expect from this space in 2023.
The Future Of Cross-border Banking And The Impact Of Global Financial Networks
As more consumers take advantage of digital wallets and banking apps, how will this impact the overall digital customer experience?
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One thing is certain: as an industry, we are now operating in a new environment. Over the past two years, the pandemic has brought about enhanced developments that would have taken years to materialize. This is a new landscape, where customers, who have become increasingly “agnostic” in the use of payment platforms and channels, increasingly value speed, flexibility and transparency, to make their money transfer decisions.
With customers sometimes willing to switch payment and financial services providers after a single deferred transaction, or when a website is down for a few minutes, investing in new and innovative ways to improve the customer experience is essential. At the same time, strong compliance capabilities to address the rise of fraud are essential and a strategic priority.
The complexity of moving money and information around the world is often underestimated. We’re all used to paying friends or splitting restaurant bills in an app. The cross-border reality is much more complex. It’s even more complicated because, in the case of Western Union, we have 20,000 “corridors” or pairs of countries that we serve. When it comes to speed and compatibility, we as an industry have made great strides toward this goal.
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So real-time is one of the elements that the industry should be looking to achieve in the next year and next decade. We need to find our “holy grail”: a solution that allows cross-border payments to be instant, affordable, global, and in a secure environment.
How can we move forward? The payments sector has always been at the forefront of innovation. However, the challenge in Europe and around the world is to ensure that consumer protection and transparency encourage innovation that will allow the industry to provide the payment solutions that consumers demand. For this reason, policymakers should review regulatory barriers to private sector adoption of new technologies. Striking the right balance is therefore more important than ever, especially in Europe.
More broadly, in the next 10 years, as an industry, how can financial services providers achieve the right balance between digital and physical customer experience?
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We strive to bridge the gap between the digital and retail worlds. The sector needs to invest in a true omnichannel experience for customers across the board. Customers are also demanding more flexibility than ever before. At Western Union, we want to implement a single digital architecture for retail. This, along with the expansion of our ecosystem, including our digital banking app, will allow our customers to have more options to engage with us through the channel of their choice for a truly end-to-end experience, even the channels they switch mid-way through. Deal.
Our platform will be able to identify a customer no matter what channel they use – and treat them as customers versus transactions.
Financial inclusion, meeting the needs of the hundreds of millions of unbanked and underbanked people around the world, must be a top priority for companies in our sector, including Western Union. As divisions increase around the world, the last thing our societies and economies can afford is to deprive large segments of the population of access to vital financial services.
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New technologies can enhance financial inclusion. Take Africa, where mobile phones have enabled millions of people to access financial and other vital services and helped the continent leapfrog a whole stage of technological development. However, we must do more. The World Bank has identified financial inclusion as a key opportunity to reduce extreme poverty and boost shared prosperity, and the G20 has committed to advancing this issue. A sustained push at national, regional and transnational levels to leverage the combined power of governments and financial service providers, a renewed focus on financial education, the digitalization of social payments and other policies being implemented at scale, are all key initiatives in this effort.
We’ve evolved many times over our 171-year history, but we’ve always remained a global technology and financial services company. From starting the first consumer-to-consumer money transfer business in 1871, to our digital banking app this year, we are always changing, adapting and evolving. Today, we have a digital and retail footprint that provides payments and financial services in 200 countries and territories around the world.
We recently launched Evolve25: a three-year strategic program that will see our company evolve from primarily focusing on cross-border remittances to being a global leader in branded payments and accessible financial services for consumers, serving the world’s aspirational populations. We see great opportunities in achieving this strategy.
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Our account payment network operates in over 100 countries with over 5 billion accounts. We see this as a strategic asset and driver of future growth. We continue to invest in our cross-account payment capabilities, adding new markets, and when it comes to real-time delivery, 70% of the principal is delivered to the account in real-time.
In Europe, we recently launched our integrated digital banking and international money transfer app, which represents a new way to do digital banking and transfer money globally.
A global leader in cross-border and cross-currency money movement and payments. The Western Union platform provides seamless cross-border flows and its leading global financial network connects more than 200 countries and territories and nearly 130 currencies. We connect consumers, businesses and governments through one of the world’s most expansive networks, reaching billions of bank accounts, millions of digital wallets and cards, and a large global network of retail locations. In the first part of our series on demystifying cross-border payments, we provided an overview of the landscape. Today we’ll delve into the mechanics and some of the economics of moving money across borders.
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The movement of money around the world has come a long way. Originally, people would transfer money to another country in one of three ways:
However, all of these methods presented problems – they were ineffective, unreliable, dangerous, and often expensive. It took 100 years before major developments enabled efficient cross-border payments on a global scale.
In the early 1930s, the German Postal Service developed the first large network of teleprinters, which enabled the electronic transmission of written messages. Banks can use it to communicate with their counterparts abroad to settle transactions. As a result, telex became the primary means of facilitating international money transfers in the developed world until the 1970s.
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In 1973, 239 banks from 15 countries came together to develop a better way – the Society for Worldwide Interbank Financial Telecommunication (SWIFT). SWIFT, based in Belgium, created a common language and model for payment data around the world, which has since served as the default network for communications around cross-border transactions. Today, SWIFT is used by more than 11,000 financial institutions in more than 200 countries and regions around the world.
However, telecommunications networks alone have not solved the other basic requirement for reliable cross-border payments – a means of transferring money between separate systems.
Currencies are closed systems, so banks had no way to move money from one country’s local payment system to another. As a result, financial institutions have developed a new financing mechanism to solve this challenge – correspondent banking.
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If Bank A in one country wants to transfer money to Bank B in another country, each must maintain an account with its counterpart. During international transactions, there is no physical movement of funds – instead, bankers deposit accounts in one jurisdiction and debit the corresponding amount in another jurisdiction.
A problem arises when banks want to make international payments to all countries and all banks globally. For this to work, they would either have to create their own branches everywhere, or have thousands of direct relationships and hundreds of accounts to manage. Only a few of the world’s largest international banks come close to achieving this, and even they constantly struggle with a range of local requirements challenges from a technology, infrastructure and regulatory perspective.
Facing painful practical difficulties, banks often have to conduct transactions with intermediaries, also known as correspondent banks. In some cases, more than one correspondent bank may be involved in the process – especially when moving funds to and from emerging markets. But as the number of correspondents in the chain increases, the transaction time and transaction costs also increase.
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This combination of the SWIFT communications network and correspondent banking relationships has been the method used to move money across borders for the past 40 years. This is why more than 80-90% of the income generated by cross-border payments still exists
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