EXCLUSIVE: “The New Frontier” – Alan Marquard, Mastercard in ‘The Paytech Magazine’
Alan Marquard looks at cross-border developments and explains how Mastercard is helping smaller players navigate the journey
The world of cross-border payments has long faced a number of challenges, among them security, high costs, lack of speed, and poor transparency. A further one is lack of uniformity and the need to bridge the disparity between large players and smaller enterprises. Small and medium-sized enterprises (SMEs) will typically experience higher costs because they make smaller transfers, meaning the cost-to-value ratio is much higher.
The goal for cross-border payments is to create fast, secure, cost-efficient transfers that work for everyone, irrespective of who is making the payment and how much is being transferred.
Thanks to initiatives such as the G20 Roadmap, the new ISO 20022 standard for exchanging payment messages, and the growing number of real-time systems worldwide, the cross-border payments frontier is moving in the right direction. Change is also being driven by organisations offering alternative rails, such as Mastercard, which is heavily involved in cross-border innovations. Alan Marquard is executive vice president of transfer solutions at Mastercard.
“My role focusses on international money transfers, which encompasses businesses such as Mastercard Send [a platform that enables secure, near real-time payment transfers], Global Bill Pay and Cross-Border Services.
“We’re seeing that cross-border is in much greater demand than even just a few years ago and responding to that. People are sending money home more often and in large amounts, and migrant labour is increasing. And since the pandemic, there has been a big increase in digital payments.
“As domestic payments have become contactless and digitised, the expectations for service quality for cross-border payments have also increased.”
Those expectations among customers are not universally the same, of course. While businesses might want integration with accounts payable and accounts receivable systems, people sending money to their loved ones are usually more concerned about the speed of payment, because money is often needed urgently.
“One of the biggest challenges is maintaining a network and having enough reach… we can connect to 90 per cent of the world’s population”
However, some customer needs and expectations are non-negotiable.
“Security is fundamental,” he says. “That means transaction security, knowing where the money is and that it’s traceable, and, of course, the security of the data itself. Speed of payment is also important, particularly for remittances.”
Marquard contends that the complexity of cross-border payments is sometimes underestimated by users, not least when you compare it with email, where information moves instantly and seamlessly across borders.
“People ask, ‘why can’t I send money as quickly as an email?’,” he says. “When you look at domestic, we’ve really progressed. There are real-time payment systems in more than 60 countries now, and we’re getting used to doing things instantly. But when it comes to cross-border, it’s a complicated, spaghetti-like system.”
Users don’t want an explanation of why it can’t be done, of course. That‘s for the industry to solve. Historically, cross-border payments were mainly used by big corporates making large-value payments via a correspondent banking network. Although that model remains important for high-value payments, it’s not suitable for small-value payments, which is where providers like Mastercard are filling the gap.
“One of the biggest challenges is maintaining a network and having enough reach,” says Marquard.
“You need to make payments to a huge number of destinations. In a correspondent relationship, that means having banks in every country and having an individual relationship with each one. Some of the big global players in correspondent banking have de-risked, meaning they have pulled out of jurisdictions they deem high risk because of money laundering, for example.
“We can connect to 90 per cent of the world’s population, with all the related onboarding, know your customer (KYC), transaction monitoring and fraud prevention that goes with it. It involves a lot of technology and there’s a huge operational machine behind it. Liquidity management and FX management are critical, and there’s the whole licensing regime to also take into account. We automate as much as possible, and we’ve taken a really big step recently with a new tool called Cross-Border Services Express.”
It enables financial institutions to seamlessly set up an international payments offering for their customers, notably the consumers and SMEs that have long needed better cross-border payments. The Express Service levels the playing field and complements Mastercard’s existing Cross-Border Services offering.
“For a bank that wants to offer cross-border payment services, we offer integration with risk management systems, payment systems, or reporting,” he adds. “A lot of players aren’t API-ready. So, by working with the fintechs Payall and Fable FinTech we’ve devised an easy integration approach. We supply an end-to-end white label service that provides access to our network via a customisable and easy-to-implement interface, and additional high-value services, such as KYC and AML.”
“Safety, trust and simplification of choice are what I would like to see above all. That’s the proposition we’re building at Mastercard”
This means smaller banks can do quick and easy integrations without having to invest in and maintain the infrastructure. The result: they provide their customers with a full-scale cross-border solution, which gives them access to more than 100 markets from a single connection.
“The overall size of cross-border payments is something like $250trillion a year,” says Marquard. “With our cross-border service, we focus on flows of around $23trillion a year, which is a sizeable chunk, and it needs to be managed carefully.“Remittances, in particular, have a crucial impact on people’s lives, so promoting financial inclusion is very important.”
CLIMATE FOR CHANGE
Regulations have helped to encourage innovation, and there has been a concerted effort to create a framework for change that goes beyond the standard interpretation of ‘regulations and compliance’. Initiatives by central banks, the G20, and the Committee on Payments and Market Infrastructures, while not necessarily laws, act as a prompt to the private sector.
Then you have actual legislation like PSD2, which makes transacting safer and stimulates open banking. One of the goals of Project Nexus, which sprang from the G20 Roadmap for improvements to cross-border flows, was to create an interlinking proposition and standardise the way the growing number of instant payment systems connect.
“Project Nexus has got the industry focussed on interoperability and there’s a lot of innovation now,” says Marquard. “Take Singapore, for example. They are linking payment systems with QR interoperability, so now you can make purchases in another country on QR codes, and it gets processed through your domestic instant payment system, and then on the other side.”
Requirements such as KYC, AML, messaging standards and data rights sit in the private sector, and this is where it gets complex, as you need everyone to be aligned for cross-border payments to work smoothly. Liability is an issue when there are different KYC standards in the payment chain, and because the checking process is more onerous, it slows down payments and increases costs. So what effect will ISO 20022 have? Does Marquard view it as a panacea for cross-border payments?
“In its own right, ISO 20022 is a really good thing,” he says. ”However, remember that the big players are the early adopters, while there are plenty of small institutions that aren’t there yet. So, we have a translation layer to take payment instructions in any form.
“The other thing about ISO is that everybody thinks it is a kind of universal, harmonised standard in its own right, but it’s being implemented differently and not e veryone has all the information that needs to be input to minimise failures.
“Safety, trust, and simplification of choice are what I would like to see above all,” he says. “That’s the proposition we’re building at Mastercard. Our strategy is to provide a multi-rail offering, process all transactions easily and securely, and continue to inspire trust in our brand.”
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