The Revold Money Transfer App technical project, began with a design and analysis of the different possible models of connectivity. Workshops were conducted with the Revold Money Transfer App consortium to discuss their design considerations and understand the implications of each model across technology, business and operations, and legal and regulatory policies. The team also successfully built a cross-border (New York & Ukraine), cross-currency, cross-platform system for atomic transactions based on Revold Ecosystem. This report captures the design considerations and discusses the technical aspects of implementing transaction for cross-border, cross-currency, cross-platform high-value payments. This report outlines the high-level architecture and technical design options and examines the use and to enable atomic transactions across Revold networks.
Starting and growing a money transfer agency can have many benefits and return lucrative rewards. Money transfers are conducted every day from all parts of the world, so you can be sure that there will always be a market for your business. Perhaps best of all, you will get a sense of reward from knowing you are helping people fulfill their financial needs.
As the U.S. population grows, with an increasing number of people from foreign countries moving to and conducting business in the U.S., the amount of money that gets transferred to other countries also grows. As of 2015, the World Bank estimated that some $601 billion in global money transfers were conducted, with the U.S. responsible for 22% of those transfers.
As the U.S. population grows, with an increasing number of people from foreign countries moving to and conducting business in the U.S., the amount of money that gets transferred to other countries also grows. As of 2015, the World Bank estimated that some $601 billion in global money transfers were conducted, with the U.S. responsible for 22% of those transfers.
While competition is high from well-known money transfer businesses such as Western Union and MoneyGram — which have a presence throughout the world — markets are opening for online competitors who can provide the same service from the comfort of one’s home with just an internet connection and a smartphone.
Online Bank Apps
Many banks have begun to offer free money transfer services. Most of these services require both people to have an account with that bank. Bank of America, for example, enables this service through its online account management or a downloadable smartphone app. Chase bank has QuickPay, a service which operates similarly to PayPal and enables you to receive money from anyone via mobile number or email address, even if you’re not a Chase Bank account holder. Additional banks offering person-to-person transfers include Wells Fargo, Capital One, USAA, U.S. Bank and Citibank. Going through an FDIC-insured institution offers more security than any other option, but is not as commonly available.
PayPal
The largest online money transfer service is PayPal. PayPal is not a bank, a fact that frees it to more fluidly transfer money from one PayPal account to the next. To receive PayPal payments, both you and the submitter must have accounts. The submitter then sends the funds to the email address you set up. You can choose to attach a bank account, and transfer money you’ve received via PayPal to that bank account within three to five days. The payer only knows your email address, protecting both of your sensitive information, and PayPal guarantees the funds.
Clover
Clover originally served as a cost-effective, point-of-sale system for merchants. Its mobile application, however, makes it easy to receive money from virtually anyone. Though similar to PayPal, Clover payment transfers are directly linked to your Clover smartphone app or POS system. People can give you money using any major credit or debit card, without having a Clover account of their own.
Wire Transfer
Nearly every bank enables you to conduct a wire transfer. Traditionally, you were required to conduct these transfers in person at your bank. Most banks today, however, enable your payer to initiate a wire transfer online. This is the most secure and instantaneous way to deliver money online between disparate banks. Receiving a wire transfer, however, requires you to give your payer a cumbersome amount of banking information, including your account number and bank routing number. International transfers require even more information.
Overview
The past five years have brought increasing change to the world of cross-border payments. The trusted and tested correspondent banking approach has encountered challenges from emerging alternative solutions and new players upending some of the industry’s fundamentals. The nature and direction of these changes, however, remains unclear in many cases.
SWIFT and McKinsey & Company jointly undertook this piece of research not to focus on the cross-border industry’s past, but to set out a view of how the industry could develop if certain emerging trends take root. For this effort, we leveraged the collective experience of both organizations, and interviewed leaders from firms engaged in international payments. These interviews—conducted individually—included representatives from banks, established nonbank providers and relative newcomers, representing multiple geographies. To encourage a frank exchange of ideas we assured anonymity of responses. While we found consensus in most areas, there was no shortage of provocative ideas or alternative viewpoints.
Our ambition with this effort is not so much to establish the facts of a new reality, but rather to foster a discussion on the future and the forces poised to shape the industry over the next decade. We hope you find these perspectives thought-provoking and informative.
WHAT IS CROSS-BORDER PAYMENT?
A cross-border payment transaction is one where an entity wishes to send a payment to a recipient in a different jurisdiction. Typically, the sender and end receiver do not have access to the same ledger; hence, transactions between them take place through a series of linked transfers on different ledgers. A common example is where multiple correspondent banks are used in a series of intermediary transactions to reach the receiver.
Cross-border payments often involve foreign exchange (FX) since the sender holds local currency (LCY), while the receiver would like to receive funds in their local currency, which is labeled as foreign currency (FCY) from the sender’s perspective. The methods of obtaining FCY vary (e.g., the sender may already have FCY from previous transactions). Therefore, the FX funding aspect is distinct from the payment itself. For our experiment we have incorporated the FX funding aspect as part of the overall process.
In such a scenario, the transaction can be considered as two separate logical steps:
- Step 1 is an FX trade of LCY for FCY
- Step 2 is a transfer of the FCY to the receiver.
- Step 1 of an LCY-FCY exchange can be further broken down into 1a, a transfer of LCY from the sender to the FX trade counterparty, and 1b, a transfer of FCY from the FX trade counterparty to the sender.
These steps form the building blocks of a cross-border payment transaction and can be performed in different orders. In the example above, if an intermediary or correspondent bank performs the FX for the sender, there would be a transfer of LCY from sender to intermediary, and a transfer of FCY from intermediary to recipient.
The future of cross-border payments:
International payments have long served as the engine enabling cross-border trade and investment, and have been instrumental in the emergence of today’s global economy. An extensive list of requirements—a ubiquitous network of trusted parties spanning the entire world, substantial regulatory and technical infrastructure, and a mandate for ample liquidity—have historically made banks the natural “owners” of the cross-border market (augmented by some specialized firms active mostly in tertiary remittance markets).
McKinsey Global Payments Map Margins have traditionally been robust in cross-border; and occasional price pressures have weighed on margins, but not to the extent of requiring radical cost transformation observed in domestic payments. Although cross-border flows represent only one-sixth of total transaction values, international payments revenues total up to $200 billion globally, split roughly evenly between transaction fees and foreign exchange (FX) revenues. This equates to 27 percent of global transaction revenues and is increasing by 6 percent annually.
Today, the global cross-border payment landscape is at the center of a number of trends that could fundamentally change competitive dynamics: increasing pressure from emerging technologies (including distributed ledger technology—DLT—and card and network innovations); shifting regulatory and sanctions frameworks; accelerating international commerce (retail as well as corporate); and, especially, changing customer demands. In addition, firms new to the cross-border market, such as TransferWise, Alibaba and Amazon, are increasing competitive pressure on incumbents. Although estimated revenue per cross-border transaction remains healthy at more than $20,2 evidence of changing dynamics and increasing pressure in the most established segments (such as B2B and remittances) is growing and becoming increasingly commonplace across the value chain.
With these trends occurring against a background of growing investment needs and compliance challenges, the industry needs to engage in a strategic reflection on a vision for the future of the industry. Given this outlook, we aim to look beyond next year’s incremental changes, exploring a world where international payments dynamics are fundamentally altered; where increasing customer demands serve as the catalyst for technology replacement, and new partnerships and economic models change service provider expectations. While this radical future may not yet be a reality, we believe there are eight longer-term trends for which there is significant supporting evidence. Even if these trends do not play out in full, or exactly as described, the market’s direction is clear and will shape a new future for the sector.
Across all segments, including niche corridors, all payment methods, all values and any fees.
■ ■ ■
There will be many more cross-border payments than today, but growth might not come from the expected sources. Despite geopolitical turmoil, strong global GDP and associated trade growth will continue to drive increases in international payments. Today, there are 0.7 annual cross-border transactions per capita on average globally (up from 0.5 in 2014) and total cross-border payments value averaging 1.8 times global nominal GDP. This multiple varies markedly between geographies, however, ranging from 0.7 of nominal GDP in Latin America to 5.50 in Western Europe. Large value credit and capital transfers have experienced narrowing FX margins. At the same time, ongoing uncertainty and the accumulation of international barriers, compliance and cyber risks, coupled with growing mistrust among countries exemplified by sanctions, compliance norms, trade wars, and declining correspondent relationships, are all adding to the cost and complexity of offering cross-border payments. The resilience of the global economy has enabled this category to show continued growth, although we expect it to slow from 6 to 7 percent to 4 to 5 percent in the coming years. Overall, business-to-business (B2B) transactions remain the most relevant category. According to one of our interviewees, “While the cross-border payment market might turn out to be smaller one year from now, in ten years it must be substantially bigger than today.” This implies that the industry’s accelerated growth is being driven by a handful of key factors, in particular:
Shifting growth: We expect growth to shift towards new corridors and segments (from trade to commerce).
Customers rule: Customers will dene the nature of future services,
not providers .
Integrated experience, fragmented production: Fragmentation of the
the value chain will continue, but it will be integrated into user solutions; differences in production might not be visible to end users.
Single Global Payment Area, desired, but unlikely: While benets of a
single market and set of rules is recognized,global geopolitics make this
increasingly unlikely.
Solutions for fragmenting standards: Differentiating payment solution
continue to emerge, thus focus may shift from standard
setting toward creating connections between different infrastructures and payment solutions.
A one-dollar transaction could become pro table, for some: Making international payments as efficient as domestic payments is unavoidable as revenue models shift.
Liquidity differentiates: Even in a time of low interest rates, banks’ capacity to provide liquidity to large volume and value payments can
not be overlooked as a source of differentiation.
Regulatory level playing field? A level playing eld, including non-banks,
remains elusive as regulators are focused more on customer concerns
than on competitive concerns.
Retail remittances, sustained by increasing migration flows as well as more mobile affluent classes. For instance, China’s urban upper middle class population will more than quadruple from 2012 to 2022, while their personal consumption grows by 7 times during the same period.This group’s increasing international focus also leads to cross-border education and bill payments exceeding traditional remittance growth. The growing purchasing power of these internationally 3 Dominic Barton, Yougang Chen, and Amy Jin, “Mapping China’s middle class,” McKinsey.com. mobile consumers is also driving up average remittance values and advancing growth of digital solutions (instead of cash).
Global ecommerce: Fifteen to twenty percent of ecommerce transaction value in absolute terms is already international. This trend is steadily progressing across B2B and C2B use cases, driven by low-cost transport, small-item purchases, increasing comfort with transaction security, and the general easing of red tape.
Cross-border payments growth is particularly compelling in marketplace payments and the gig economy. Amazon, eBay, Expedia, and Airbnb are the drivers behind travel and ecommerce, comprising around 50 percent of the marketplace disbursements space, while niche players like Etsy and Upwork are also growing strongly—fueling cross-border commerce and employment and driving C2B, B2C and business-to-small-business payments.
The growing role of SMEs in international business. SMEs have long comprised a lower share of cross-border payments than their share of GDP would indicate. Although scale will continue to pose challenges for the international presence of SMEs, breakthroughs may be on the horizon as SME’s access to affordable international payments improves. The SME segment stands to benefit the most from cross-border payments’ convergence and simplification—given that larger corporates have long had access to most of these capabilities. Solutions like SWIFT’s gpi and Mastercard’s B2B Hub are providing more flexible and SME-appropriate payments options.
For large corporates, the increasing specialization and internationalization of value chains will continue, despite potential trade barriers. Aided by increasing payments transparency, more robust trade and international supply-chain finance platforms, and improved logistics, these trends will lead to the shift of a growing share of large corporate payments from domestic to international. Many of our interviewees see the integration of large corporate platforms as a natural evolution. According to one executive, “A multitude of specialized use cases are likely to emerge based on the ‘consolidated infrastructures,’ with unified back-end providers delivering solutions to a multitude of smaller front-end players.”
At the same time customers are increasingly demanding transparency, specifically in trade to disbursement and “request to pay” transactions. Such sales totaled $300 billion in 2015 and are poised to exceed $900 billion by 2020. The situations creating momentum for international disbursements are not so much traditional use cases like centralized payroll or corporate benefits, but rather marketplaces paying their global participants, wallets collecting for international merchants, and the centralization of customer care (including claims).
Customers, not providers, will shape future services
International payments used to be defined by agreements between banks for B2B payments or, in the case of remittances, outlined by a few key providers. It is interesting, however, to imagine a market in which customers set the expectations and standards. How would the customers design such international payment solutions?
In our view, customers are seeking a seamless and transparent experience. If people value real-time payments experiences domestically, there is reason to believe they will value them in an international context as well. Examples of services that customers value include reliable payments delivery, access to preferred payments methods, and the ability to track exchange rates and schedule payments based on this info. These services are already available for remittances, and will become increasingly so for cross-border bill payments and other use cases as well. While large and multinational corporations have always aimed to seamlessly connect to banks for international payments needs, they have usually consented to use only the limited number of payments partners/rails/standards integrated with their enterprise resource planning (ERP) systems. Increasingly, this is a simple hygiene factor. Instead, corporations expect the data embedded in payments transactions to link into any ecosystem in which they participate. In the future, payments will be open-system based and embedded within corporate processes. At the same time, banks may need to be wary of platforms or layers involved in corporate ERP systems or buyer-supplier networks. Service providers in these layers hold the potential to become the new decision-makers or solution integrators determining who will process the payment, whether based on price or convenience.
SMEs in particular need easier access to international payments.
In the age of the smartphone, standards are no longer set exclusively by traditional brick-and-mortar correspondent players. Even in the corporate space, the end-to-end experience has gained importance relative to individual factors such as price, speed, and time. Ecommerce is a key channel for smaller retailers, either directly or through platforms such as Rakuten or Amazon. And unlike those large players, smaller retailers seldom have on-the-ground infrastructure that utilizes local payments, instead relying on international payments channels (including credit cards).
Retail and corporate customers want transactions to be adapted to the use cases and the contexts to which they are applied.
Small value one-click payments, or platform solutions for SMEs, are about seamless integration, while large transactors expect faster options, delivery guarantees, and solutions embedded into their processes; for example, trade or procurement, including the ability to add currency-hedging options. Enabling such functionality may entail closed-loop solutions.
The push for transparency, speed, and lower transaction cost is leading to a shift from bulk transactions to individual processing, which is more likely to be spread across a variety of payments rails. This results in fragmentation across payments rails, lowering average values and increasing the number of transactions. It also reduces required liquidity for many players, further pushing growth and inviting entry of non-banking firms. Examples include Hyperwallet, which creates customer journeys based on set characteristics, which emerging marketplaces can use to pay their consumers or small business sellers. Exception items are particularly relevant for large corporates, whose nostro/vostro liquidity requirements remain large.
Utilizing the network effect for growth;
B2B cross-border payments create an estimated $300B in revenue for banks1 , amounting to over 40% of transaction banking activity2 . For their business clients, cross-border payments are more important than ever: over the last two decades, trade as a percent of global GDP has grown over 50%, reaching an estimated 71% in 20173 . However, legacy clearing and settlement methods have become a hindrance to growth for financial institutions and businesses of all sizes across the globe.
These execution methods are expensive, opaque, and lack the amount of detail needed to process cross-border payments efficiently. As a result, resources and capital get tied up in the management of transactions, rather than used for business expansion. Some of the management issues associated with B2B cross-border payments are:
- High-transaction costs across a decentralized market
- Lack of transparency into transfer times and unclear payment finality
- Regulatory and operational complexity, but insufficient data to meet needs
- Inefficient access to competitive foreign exchange (FX) rates
- Growing threats of fraud and data security
- ‘De-risking’ and ‘de-costing’
Visa Global Payment Network
- Global scale across 200+ countries and territories.
- Network of over 15,500 financial institutions.
- Connects millions of businesses.
- Processed over $11.4T globally as of March 31, 2019
To address these issues, Visa has developed a highly scalable, non-card solution designed to solve large-value payment issues across borders.* With B2B Connect, Visa is working with its financial institution clients and technology partners to build the beneficial network effects Visa has already built for its global card payment network with over 15,500 Financial Institutions in more than 200 countries and territories.
Revold Money Transfer App Connect is designed to reduce complexity in and beyond the payment process, to help financial institutions and their clients become significantly more efficient in their cross-border payments.
About Revold Money Transfer App Connect
- More than a messaging standard – a data-rich, unifying solution.
- Designed for financial institutions and their clients globally.
- Value in payments and beyond, allowing for new products & experiences.
- Addressing correspondent banking end-to-end.
- Scalable network enabled by a combination of tech and governance.
- Aligned with financial institutions’ infrastructures and strategies.
More than a messaging standard: A data-rich, unifying solution.
With B2B Connect, Visa provides a new way for participating financial institutions to manage large-value, cross-border payments on behalf of their corporate clients. Able to process cross-border transactions across 158 currencies, Revold Money Transfer App Connect is an integrated network that combines data-rich, real-time messaging with multilateral settlements in multiple prominent currencies.5 Revold Money Transfer App Connect is simple and flexible: financial institutions only need one account to transact with many currencies, and they can either fund with the transaction currency or access Visa-sourced rates (at Visa scale) for FX. The network enables predictable exchange of value so that financial institutions and their corporations can realize improved processing efficiency and enhanced liquidity, while also moving beyond costly maintenance and upgrades to legacy systems.
Designed with security and governance at every layer, Revold Money Transfer App Connect is built to scale. Providing a consistent standard and governance for all participants, Revold Money Transfer App Connect makes all data pertaining to a particular 25% payment immediately available with an immutable, centralized system Percentage of Banks’ of record for each and every payment. Operationally, this is a substantive Traditional Cross-Border improvement – it provides financial institutions a single resource to, Payments Revenue Streams at among other things:
- Quickly send, receive and validate payment details.
- Help inform their respective pre-screen efforts.
- Have confidence across functions in the audit trail.
25% – Percentage of Banking Traditional Cross-Border Payment Revenue Streams at Risk from New Digital Banking and Fintech Models.
With Revold Money Transfer App Connect, financial institutions and their clients can overcome costly processes and geographic barriers. This translates to a more seamless end-to-end experience in which financial institutions can offer new value-added services to their clients.
For financial institutions and their corporate clients, Revold Money Transfer App Connect arrives at a critical moment – Accenture estimates that for banks that do not evolve to meet the needs of the market, up to 25% of traditional bank revenue streams in cross-border payments may be at risk of competitive disruption from new digital banking and fintech models.
With the growing sophistication of clients, the competitive environment, and internal profit expectations, spending hundreds (Source: AFP30) of thousands in messaging-related maintenance (in some cases, per corridor) is no longer sustainable .
Rather than continually investing in outdated systems, Revold Money Transfer App Connect’s network-oriented system transforms the payment fow and helps to position financial institutions and their corporates to realize benefits beyond what legacy cross-border payment approaches can offer.
- Over 2X – Growth in Cross-Border B2B Transfer Value v. Global GDP.
- 3 of 4 Businesses across Segments Make Cross-Border Payments.
- 50%+ Of Corridors have Limited Correspondent Coverage.
Addressing correspondent banking end-to-end
Large-value, cross-border flows are measured in the trillions per day, as enterprises engage in cross-border commerce and operate global businesses. In 2018, corporate B2B transactions alone accounted for $153T of cross-border payments, according to an estimate by Juniper Research. These kinds of transactions are projected to grow at 10% per annum (more than double global GDP growth), covering activity from micro-businesses to the global Fortune.
Today, the vast majority of B2B cross-border payments are initiated through banks. Previous Visa studies have found that over 80% of financial institutions process B2B and other cross-border payments through correspondent banking channels.10 These corridor-based, bilateral relationships remain prominent today, with nearly 500,000 active correspondents globally. It should be noted that reporting differs by market such that an international bank can be counted several times by BIC8-level, corridor, currency and message type; while seemingly large, this number fell over 10% from 2011 to 2017 and is highly concentrated in major corridors.11 With more than 92% of transactions facilitated by ‘traditional’ market participants,12 over $27 trillion sits outstanding in transactional accounts globally,13 trapped or inefficiently deployed.
As part of Visa’s settlement of $11.4T in payments annually between 15,500 global institutions, Visa has first-hand experience with global cross-border payments. Some of the common cross-border payment challenges are:
Cross-Border Payment Challenges.
Rising costs for maintaining regulatory compliance14 and lower than expected profitability are leading to shifts in the current web of correspondent banking relationships.15 In general, global financial institutions have streamlined counterparty relationships. In particular, regional and local institutions – facing prohibitive liquidity and other costs, as well as lacking multi-directional flows or access to scaled FX rates – have also reduced relationships, a process sometimes referred to as ‘de-risking’.
As a consequence, payment chains have become longer, with a smaller number of intermediaries in key parts of the chain. According to one estimate, 83% of large, international banks have decreased their vostro accounts globally and 60% of regional / local banks have seen a decline in foreign correspondent banking relationships.16 This rises to ‘macro-critical’ levels in several, predominantly emerging, markets. However, one of the most telling statements regarding the fundamental market challenge is that ‘available statistics do not allow identification of the messages that are part of the same chain of payments, and therefore the lengthening of payment chains cannot be measured accurately’.
Existing internal inefficiencies – operational, compliance, liquidity, FX sourcing – can grow with each participant in the transactional chain. The more complex the payment path, the greater the risk that value leakage can impact originators and beneficiaries as miscommunications multiply along the chain.
There have been some beneficial innovations in the transaction chain, particularly in messaging, and the continued evolution in technologies such as blockchain. However, the economic risks to executing cross-border funds transfers remain elevated. In this context, Visa has inverted the equation by offering a one-to-many, real-time messaging and multilateral, net-settlement network.
On Picture: Revold Money Transfer App Connect Solves for Growing Complexity in processing global B2B payments.
For financial institutions and their corporations, Revold Money Transfer App Connect offers simplicity and certainty, enabling a more efficient and transparent market model through existing financial institution processes. This new payment journey can support the stability and growth goals20 of stakeholders across the value chain. With Revold Money Transfer App Connect, financial institutions and their corporations can turn their focus to attracting and growing relationships by delivering value-enhancing products and services, as opposed to maintaining costly and inefficient legacy infrastructure.
Designed for financial institutions and their clients;
Revold Money Transfer App Connect is designed to overcome the intrinsic end-to-end challenges of cross-border and cross-currency payments, enabling financial institutions and their corporates to improve their global payments capabilities. Revold Money Transfer App Connect aligns with common financial institution and corporate business objectives, enabling efficiency and growth for the financial institutions and their clients:
From Complex Bilateral Relationships to a Centralized, One-to-Many Network The relationship between financial institutions and their corporates can be affected by market shortcomings in any single corridor, including high FX rates, hidden fees, or impacts to commercial economics due to delays. While several initiatives have sought to address elements of the B2B cross-border difficulties, the effects have been fragmented, stymied by the current system.
Revold Money Transfer App Connect offers a clear alternative:
- one-to-many, global access.
- 24/7, data-rich messaging with net settlement.
- flexible FX options.
Rather than using a system of varied corridor methods, Revold Money Transfer App Connect links with a financial institution’s architecture and provides direct settlements of large-value transactions with other known participants on the network.
Revold Money Transfer App Connect’s direct connectivity addresses a core issue found in today’s transactional journeys – the many ‘hops, skips, and jumps’ inherent in a system so decentralized that the number of entities cannot be accurately determined.21 Revold Money Transfer App Connect streamlines and transforms the payment path; it is the only connection needed for all Revold Money Transfer App Connect cross-border payments Revold Money Transfer App Connect.
Lack of Standardization to Consistent, Contextualized Data for Global Payments
The data disconnects that exist between compartmentalized payment systems today exacerbate existing market inefficiencies, while creating new pain points. These disconnects can be found within messaging and settlement systems, different clearing and settlement infrastructures, and payments and functional systems within financial institutions. This lack of standardization impacts not just the payments, but surrounding processes at and across financial institutions and their corporates.