Improved cross-border payment infra still has a long way to go: Movin Jain

Movin Jain, cofounder of Skydo talks on the challenges in international payments

Skydo Technologies is a Reserve Bank of India-licensed cross-border payment aggregator firm. Its customers are small and medium businesses servicing customers globally. The firm works with banks to help them manage their invoicing, payments and reconciliations. Movin Jain, cofounder of Skydo, interacted with Raghu Mohan via email on the challenges in international payments. Edited excerpts: 

 

SWIFT recently announced that its blockchain-based shared ledger is ready for initial use, with 17 banks preparing to pilot live cross-border transactions using tokenised deposits. How will this improve certainty in international payments? 

Uncertainty and slowness in cross-border payments stem from jurisdictions having their own regulatory structures, and banks having their own processes and risk thresholds. When an overseas client uses their bank to send a payment to an Indian bank account, the payment passes through various systems, each having its own risk and know-your-customer requirements and time zones. A blockchain ledger with tokenised deposits can remove a lot of these inconsistencies, because it creates a common framework for the banks involved as well as the actual money movement (tokenised deposits instead of different currencies and time zones).

 

Does coordination between banks necessarily mean faster payments for exporters? Where do delays occur? 

Not necessarily. There are first- and last-mile delays, which do not originate from coordination problems between banks. Each bank has its own cutoffs and service-level agreements, and usually retail customers are at the lowest tier of these. Take, for example, a marketing agency. For the bank to receive a single foreign payment into a client’s account, the back office needs to reconcile the transaction in its Nostro account (which helps a bank track how much of its funds another bank holds), map it to a customer, get required compliance details from the customer and then process the payment. This type of delay won’t go away just by improving coordination between banks and it needs a deeper transformation of banks.

 

How do advances in the cross-border payment infrastructure improve the experience for small and medium enterprises (SMEs)? 

It (cross-border payment infrastructure) has improved significantly in the last few years, with multiple new players, significant investor interest and leaps of regulatory evolution. However, there is still a long way to go. Ultimately, for an SME or small exporter, receiving payments is an administrative job. If they spend two hours back and forth on every payment, it takes away focus from growing their business and serving their customers. With improvements in cross-border payments infrastructure, this back-and-forth can be completely eliminated and payments can enter autopilot mode. This can also make revenue and cash flow more predictable, making the business more robust.

 

Your views on compliance and the 24/7 payment infrastructure. 

Compliance checks at most banks and fintechs are still largely manual. There are systems to detect suspicious transactions, but once it is flagged, the transaction needs to be reviewed by a human. This means that payments can only be processed during office hours, and subject to enough human bandwidth being available. Forex conversion is usually confined to the market (forex) operating hours, which is only about six to seven hours per day, and only on business days. This means that payments that arrive outside of these hours will need to wait several hours or days for the market to open. So, to build 24/7 payment infrastructure, compliance, forex conversion and reconciliation need to be automated.

 

How are banks and payment platforms translating these improvements for our exporters? 

They firstly need to monitor and improve customer-facing outcome metrics, ensure that customers are aware of the costs and delays at every step of the process, before the payment arrives. Secondly, they need to keep themselves accountable to customers through feedback and escalation channels, so that customers can demand clarity when something feels wrong. Lastly, regulation needs to open up further to allow for more competition and level playing ground between banks and fintechs.