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Correspondent banking traces its roots to the Italian Renaissance and trading routes through Florence. The Payments Podcast speaks with Alan Koenigsberg, Global Head of New Payment Flows at Visa Business Solutions, and Rob Eberle, CEO, Bottomline, to discuss the new world of cross border payments, the good and bad of the traditional correspondent banking model and how some of today’s tech giants are bringing new options into the market.
Rich Williams: Sibos season is with us once again, with banks from all around the world focused in on where the industry is heading, what is new and what will make the biggest difference in an increasingly digital world.
Following the record-breaking Sibos event in London last year, with 11,500 delegates and 300 exhibitors, COVID-19 has fundamentally changed the format. Instead, everyone is switching to their screens at home this year to continue the hunt for the latest insights and plan their way forward around their payments and financial messaging strategy.
Today, we will be discussing the subject of cross-border payments, the good and the bad of the traditional correspondent banking model, and how some of the tech giants are bringing new options into the market.
Hello, I am Rich Williams, host of the Payments Podcast, and to elaborate on the aforementioned topics today I am delighted to be joined by Rob Eberle, CEO of Bottomline Technologies and Alan Koenigsberg, Global Head of New Payment Flows at Visa Business Solutions. A very warm welcome to you both, and welcome onto the channel for the very first time.
Alan Koenigsberg: Thanks, Rich.
Rob Eberle: Yes, thank you, Rich.
Rich Williams: So, Rob, let's begin with you then, if we may. Now, correspondent banking has been around for some years. In fact, I read recently that it started back in the 15th century from the trading routes through Florence. So, what is the particular interest in this area from Bottomline's point of view, please?
Rob Eberle: Well, thanks Rich. Bottomline focuses on making business payments simple, smart and secure. For three decades, we have taken on some of the biggest pain points in business payments. We are all about working with customers and partners to find a way to do things better, smarter, faster and more securely. Our goal is always to surprise and delight the customer.
In the context of the digital transformation facing banks and businesses around the world, our track record in solving these problems is particularly valuable. We have scaled and helped scale various payment networks around the world, including Paymode-X in the US, faster payments access models in the UK, and SWIFT globally, where we are now one of the largest independent SWIFT processing companies in the world.
So, to your specific question, we see cross-border as one of the big industry pain points which Bottomline loves to take head on. Across-border payments should be as easy as a domestic payment. It is not today, but we can make it that way, and that is why this has become an area of interest.
Rich Williams: Fantastic. Thank you, Rob, and Alan, same question to you, please. So where does Visa's particular interest in correspondent banking lie?
Alan Koenigsberg: So Rich, again, thank you to you and Rob and Bottomline for the invitation to join you today. I must say, I really enjoyed listening to your question. Rob and I are young men, so we weren't really around in the 15th century, I would say maybe the 16th century. But, again, we just love being here with you.
I would like to start answering the question and talking about all of this on a much larger scale. At Visa we believe global commercial payment flows represent over $120tn in payment volume per annum and really pre-COVID. I want to unpack that opportunity a little bit more for you.
When we broadly speak about this, we speak about it in three major categories. First, card-based payments, which we believe is around a $20 trillion opportunity. Domestic accounts receivable and accounts payable solutions, about 90 trillion, and then those cross-border payments, which we are talking a lot about today, which is a little bit over $10 trillion.
But, whatever the category, interestingly the needs are relatively consistent. Businesses want to be paid and pay securely and efficiently. So let's talk a little bit more about the massive 10 trillion opportunity in the global high-value cross-border payments space as it is a real growth area and very competitive as well. In fact, according to a survey commissioned by Visa, almost 6 in 10 respondents, 59%, expect their overall revenues from cross-border payments to increase in the next 5 years and as a result of faster payments. Nearly a quarter of those respondents expect to see faster payments drive up their revenues by as much as a quarter.
Today, the correspondent bank relationship works really through a bilateral relationship structure. This process is often perceived as clunky or unreliable, offering limited client transparency and visibility of those transactions. The process of transactions is really often unacceptably slow and expensive. Receiving banks don't know for certain when payments will arrive and therefore can't give the right kinds of status updates to their beneficiaries. The amount of money involved may change as a result of exchange. Furthermore, many corporates worldwide still really have to rely, believe it or not, on branch visits to check the status of their international payments, which really should be unacceptable considering the rapid pace of innovation within the technology space today.
So just let me summarise by saying some of the biggest pain points challenging the B2B cross-border industry from a banking perspective really could be narrowed to four things. A lack of visibility on payment tracking. Speed, the inability to offer next-day to same-day payments. Predictability of payment timing, and, finally, payment analytics. Looking at it from a corporate point of view, the visibility of payment tracking and faster, next-day payments can be also high on the priority list. Further to this, corporates look to banks for assured compliance support, AML, KYC, when making international payments and expect to be able to manage them through one online platform. So there is an increasing need for innovation, change and for the process to be streamlined whilst still maintaining safety, security, trust, and, of course, scale.
Rich Williams: Thank you Rob and Alan respectively for your views there on that first point. Pretty comprehensive, I think we can agree. Alan, I think given the sheer value of the transactions that you mentioned earlier on, it is no wonder that Visa are so interested. So moving on slightly, although in the same vein, what are Visa doing right now to address some of the issues that you mentioned in the correspondent network?
Alan Koenigsberg: Thanks again. Listen, at Visa we are helping to define the future of B2B payments and we are really excited about the opportunity to help financial institutions and their corporate customers in this space.
Visa B2B Connect has been developed to address the industry challenge that I mentioned earlier. We leverage many of our core capabilities at Visa, such as security, globality, settlement and robust compliance infrastructures to really reimagine a better way to conduct cross-border payments that are high value around the world. Visa B2B Connect is a global, multilateral network which simplifies cross-border payments significantly by facilitating predictable transactions between the originating of many banks. We are solving, through B2B Connect, relative challenges that we hear every day, which are really transparency and predictability, and one of the most important ones is finality and consistency of data and all at a lower cost.
Enabling efficient cross-border payments is particularly important to businesses managing imports and exports. Visa B2B Connect will help participating financial institutions to transact efficiently, managing their other payment services and products. So what is changing? As explained earlier, today the correspondent bank relationship works bilaterally. With Visa B2B Connect, we are bringing our expertise, assets and experience to manage a global multilateral platform and ecosystem. B2B Connect is built upon enterprise blockchain infrastructures that facilitate financial transactions on a private commissioned blockchain network. Our goal in building B2B Connect is to provide a product that breaks down geographic barriers and that is scalable, meeting and exceeding the high standards of the industry where compliance and controlled government and security, of course, are of equal importance.
Rich Williams: Thank you, Alan, and Rob, what role does Bottomline play in all of this, please?
Rob Eberle: Well, thanks Rich. Visa is a fantastic partner to be working with, a forward-thinking, innovative company with a fabulous executive team that is always trying to solve new problems. We have been working with Visa over the years in a number of areas across the payment value chain. For this effort, we are the technical enabler, certified by Visa to add participants to the network. We have built a single API to connect to any bank anywhere in the world and a simple subscription model. We have done all the testing and heavy lifting up front to provide an easy way for any bank anywhere in the world to link up to the B2B Connect payment rails.
The engineering we have put in place means you can use the same messaging files you send today across SWIFT in the corresponding banking network. All you need is a communication line, and if you are not a Bottomline customer today- If you are, it is even easier as this link will already be in place. Bottomline will take the files in whatever format and apply intelligent routing and tracking to open up the Visa B2B Connect for your business. A new modern approach to cross-border payments is just one API away.
This is not an all or nothing proposition. When you want to keep selected payments running through to SWIFT, we simply pass these through. When you want to redirect traffic- For example, one we hear a lot is the expense of maintenance of exotic currency corridors. We do exactly that through Visa, and all in an easy-to-use drop-down menu.
So to get going it is a short enrolment form with Visa, a smoke test with Bottomline, and we can be live within three months.
Rich Williams: So gents, we have had a fair amount of detail to digest so far in the first couple of questions. So, for the benefit of our listeners, how do they actually get going with the Visa B2B Connect platform? Alan, let's begin with you, please.
Alan Koenigsberg: There are multiple ways, and I am going to let Rob go into how we partnered with Bottomline specifically to really enable a much easier experience to enable the B2B Connect framework around the world.
First of all, B2B Connect is not as much a product as much a brand-new payment rail. It has really been multiple decades since Visa has launched a brand-new payment rail to conduct payments, and in the cross-border space we recognise and appreciate that financial institutions don't have the discretionary dollars to allocate to build brand-new connectivity, etc., around a brand-new rail of this kind. What we have done is try to shorten that curve. By partnering with leading organisations like Bottomline Technologies, we really can do that. In respect of the comments that Rob just made, embedding our technology with Bottomline, enabling those sets of APIs really does shorten the curve, both from a user experience on the financial institution side and on a technology side.
Rich Williams: So, Rob, what is the view through Bottomline's lens on all of this?
Rob Eberle: Well, you are right. You said a moment- There is a lot of detail, but we have streamlined that detail and made this simple. What happens is our teams typically hold a meeting between the bank, Bottomline and Visa to go through the set-up, making sure we are helping to solve some of the operational challenges that banks are facing today.
Visa focuses on the new payment network, settlement roles, FX revenues and the enrolment process, which can generate a compelling business case very quickly. Bottomline takes the customer through the options for implementation and testing by taking on their current workflows and adding the intelligent routing and tracking I mentioned previously.
Once a customer commits, our implementation lead time is only three months maximum, and in some cases it might be just a matter of a couple of weeks. The reason it can be so easy is that customers are already connected to Bottomline, often through what we call our Universal Aggregator solution. You see the exact same files, the exact same message formats, the exact same workflows and the exact same communication links. We do all the file adjustments to redirect traffic you want to go to the Visa B2B Connect network and the traffic you want to continue on its way to SWIFT. It is the same even for banks who are not connected today. They can use the single API we have built, certified by Visa, and Bottomline will do the rest, exactly the same files that flow through us and onwards to the Visa B2B Connect network or elsewhere.
Perhaps the most important thing with respect to getting going is the network is already in place. This is really unique. A lot of times with a network, the challenge is, "Well, I am in, but who else is on it?" Because B2B Connect leverages Visa's global network, as a sending bank it is not a question of are the recipients on the network? It is already leveraging a massive network in place that is available here, now and today.
Rich Williams: Thanks, Rob, and is there any early feedback from the market that you would be able to share?
Rob Eberle: Well, absolutely. We had our sales kick off earlier this year, and across all regions the feedback has really been positive. It is not hard to start with or trial because it runs alongside existing SWIFT operations and could be used selectively for any corridors you want. So it is a really easy platform to say, "Let me try that to see if it works. Am I able to simplify things for my customers, am I able to generate revenue?" The most exciting feedback is you only need the centre bank to be on the network, as I just mentioned, so enrolment and the build-up of the network can be done in-flight as early adopters start to plug in, move money and use the network.
Rich Williams: Thanks, Rob. Alan, again, any early feedback from the market for us?
Alan Koenigsberg: Well, there is an enormous amount of feedback, thanks for asking. I mean I think one of the key things we continue to look at is the consumerisation of B2B payments. It is incredible to see how much innovation is taking place really for us on the consumer side and how that is really bleeding into the B2B space. Corporates and financial institutions alike don't see B2B as something that is insurmountably unsolvable, that the way to conduct B2B cross-border payments, frankly, in the end, should be scalable, low-cost and easy to use as making a consumer payment around the world. The second part that I continue to hear from financial institutions is, "Alan, this is a great democratiser", that making it simple to work with Visa and work with companies like Bottomline in order to enable a payments network that offers us alternatives in the cross-border space is extremely powerful. So we are hearing very good feedback into a market that welcomes another player.
When we first launched B2B Connect in late 2019, the platform was initially available in 30 markets. The initial strategy was to bring originating and receiving banks onto the network through direct bank sign-ups and accelerate connectivity through a process of partnerships with hubs such as Bottomline. Today, B2B Connect is available in over 80 markets in just over a year, in territories, and have complemented that with key enhancements on the open side, on the open receive side, which essentially means that we want to provide our early adopters of B2B Connect 100% certainty through our correspondent partners that 100% of the payments will be sent through the network to the beneficiaries. The other side of that offers B2B Connect, its scale and overall network is very rapidly allowing us to originate with financial institutions, again with that 100% certainty, and the ability to reach all of their banks or their corporates in all of our approved markets.
We have also upgraded our FX capabilities to provide our clients with more FX rates and faster. Visa B2B Connect shifted from a daily rates update process to updating every 4 hours for our settlement currencies, and at Visa we continue to conduct research using sample sizes of over 5 to 600 banks and interviews across the corporate space.
Globally, nearly 13% of banks still use, again, branch visits as their main channel, providing access to corporates to check payment status. Figures, more than prominently in the US, but also in Russia, Nigeria and China. The features proceed to get banks, again, the highest return on their investments. Again, our visibility, at over 83% of banks agreeing. Payments at least by the next business day valued by over 70% of banks. Predictability of payment timing valued by over 69% of banks, and data analytics, by greater than 50% of banks. These are the exact figures we have really built into B2B Connect around the world.
Rich Williams: Thank you, Alan. So, gentlemen, the final question for you both today is a fairly simple one but you will have your personal touches to it, I am sure, and it is just simply what is your parting message for the listeners? So, Rob, let's start with you, please.
Rob Eberle: Well, sure. My parting thoughts are simple. Try us. Rarely do you see something with as much value for as little operational change or technology investment or deployment. Just try us. Book a discovery meeting with the payments team who know the B2B Connect solution well, and we can show you how easy it is to hook up into the new network and offer your customers a better way of making cross-border payments around the world.
Rich Williams: Alan, same question for you.
Alan Koenigsberg: I am really bang on the same place as Rob. I think talk to us at Visa. Book a discovery session at Sibos, or post. Connect with us. We are delighted to talk about doing some pre-analytics, nostro assessments, being able to sit down and look at what the overall expense opportunity reduction is, what the overall opportunity from a competitive perspective is. Bottomline covers the technical enablement and Visa runs the network, but the commercial business case, really that is extremely compelling. We have a number of automated tools to reflect that. One of our regions, funnily enough, is calling it, 'Make it a $1m plus test', where the improved service and settlement controls and operating cost reductions, new FX revenues and inbound message credits payout, improved global reach are rolled into a strong business case to start making payments through B2B Connect.
Rich Williams: Thank you Rob and Alan for your combined thoughts today. A thoroughly exciting and engaging podcast, I am sure we can all agree.
Rob Eberle: Well, thank you, Rich.
Alan Koenigsberg: Rich, thanks again, and thanks to Bottomline. Appreciate the invitation and have a great Sibos.
Rich Williams: Now, despite the personal and professional challenges of the pandemic, which everyone in the industry is still adjusting to, the need to continually adjust and innovate never disappears from the world of business. Learning about the Visa B2B Connect approach for cross-border payments is a great case study of this renewal in the industry. You can find more information on this via the Bottomline website, in our dedicated Sibos section, and, of course, if anyone wants to meet this week at Sibos, albeit virtually, please do get in touch through the Sibos page and we will book a discovery session with you.
Unfortunately, that is all we have time for today. As usual, you can listen to more episodes and all things payments at the touch of a button using your preferred provider. Don't forget to hit that subscribe button to make sure you don't miss any future episodes, and we will see you all next time.
Listen to this episode on how partnerships with other organisations not only can help grow and innovate your business, while creating a customer experience worthy of retention.
A new multilateral payment network designed to deliver predictable & transparent cross-border transactions. It provides an avenue to improve your cash position by taking trapped liquidity out of the correspondent network in these challenging times for your domestic market lending.