The Digitalisation of International Payments

There is a very good expression: “Money never sleeps”. Definitely, money is on a constant move, so are our lives. Moreover, the Covid-19 pandemic has turned us into digital beings with an intense need for convenience and speed. While individuals can enjoy seamless payment technologies that fit this era, businesses still have some challenges in catching up to do, especially in international payments. The volume of international B2B payments is colossal, but the service often lacks speed and convenience.

This is but an old story recurring. International payments have always been an essential matter that requires contemporary solutions throughout history. Let’s take a glance at the evolution of international payment solutions.

Evolution of International Payments

The barter system was the first method of cross-border exchange. A bartering operation on an international scale was dependent on painfully slow transportation of goods. Then came coins and currencies, but they still had to be exchanged and transported physically. ‘Clearing a payment’ from afar was unattainable.

In the late 19th century, telegraphy was invented as a communication network spreading over the globe. Originally a telegraph company, Western Union stepped forward with a solution to remove the physical dependence of transferring money by introducing a familiar method; wire transfer. Telegraphs filled with transfer details were sent to and from the offices and payments were made without any physical exchange.

Parallel to advancing technology, the wiring method has been upgraded by banks into Electronic Fund Transfer (EFT) and many other networks have been established such as SWIFT, SEPA, and Target2. The current international payment systems are more advanced than ever but still lack effectiveness in terms of time and operational costs.

Today in B2B e-commerce and cross-border payment volumes are at their highest rates ever. According to a recent article published on MarketWatch, the global e-commerce market volume was USD 8,52 Billion in 2021. It is estimated that this volume will reach almost USD 18,77 Billion by the year 2027, growing at an average annual rate of 14.1%.

The Need for Real-Time Cross-Border Payments

On the consumer level, let us suppose a family in India and sending money to their child studying in Canada. It may sound like a very simple transactional operation but it is way more complicated. The family needs to order their bank to send Indian Rupees into their child’s bank account in Canada in Canadian Dollars. A correspondent banking network with at least 2 - 3 banks involvement is needed to complete this transaction. It takes not only time but a considerable cost or deduction on the original amount due to fees requested by each bank.

While this story is consumer-focused, the B2B payment schemes are not much different but can be complex. Moreover, businesses have much less tolerance to struggle with their international payments done in traditional methods resulting in slow settlement and high fees and commissions.

Expanding the scenario to an international B2B payment with huge amounts and different currencies, the operation will not be effective at all. Apart from time and operational costs, timely payment is very prestigious for a business and has a remarkable effect on the working capital which may necessitate lending options in times of shortage.

Benefits of Real-Time International Payments

B2B payments have a new form now.

The telegraphy has evolved into Application Programming Interface (API) with digitalization. APIs are tiny software that encapsulates and transmits any information between different backend infrastructures. They work in real-time and enable automation without the need of a human for confirmation. The fintech revolution over the last decade has paved the way for APIs to be used in banking as well, hence real-time international payments.

A business with the ability to make international payments in real-time can benefit from:

• Instant clearing: The payments are done in the blink of an eye with regulatory compliance.
• Lower operational costs: Commission rates are much lower with fewer touchpoints required for transfer.
• Sustaining the time value of money: Global inflation or market fluctuations become obsolete in forex operations.
• Working capital management: In-house operational costs can be covered without a delay.
• Cash management: Cash flow can be monitored and managed for more accurate strategies.
• Prestige: As a well-functioning component in the B2B ecosystem, a business gains trustworthiness.

What Does EMBank Provide?

Businesses have started to work with Payment Service Providers (PSPs), instead of banks, to conduct real-time international payments. PSPs are fintech institutions licensed to use banking APIs to offer seamless alternative payment methods. They use platforms to build their infrastructures on. This is where EMBank steps in providing the base platform for PSPs.

At European Merchant Bank, we are well aware of the need for digitalization in payment technologies. We have been adapting ourselves digitally to offer API platforms for seamless international payment operations since 2021 and receiving integration requests that exceed our expectations.

As a member of SWIFT, Target2 and SEPA, EMBank provides alternative payment methods especially in euros as a clearing bank able to complete instant settlements.

If you are in need of real-time international payment services, please send an email to info@em.bank to arrange a telephone call.