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The Digitalisation of International Payments, Güven Aytaş, EMBank

Güven Aytaş of EMBank provides unique insight into the evolution, need and benefits of Real-Time International & Cross-Border payments.

There is a very good expression: “Money never sleeps.” Money is definitely on a constant move, just like 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 match this era, businesses still have some challenges and thus, 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 an old, but recurring story. International payments have always been an essential part of international trade that requires forward-thinking 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 the painfully slow transportation of goods. Coins and currencies came next, but they still had to be exchanged and transported physically. ‘Clearing a payment’ from afar was impossible.

In the late 19th century, telegraphy was invented as a communication network spread all 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 now familiar method: the wire transfer. Telegraphs filled with transfer details were sent to and from offices, with payments being made without any physical exchange.

With the advance in technology, banks have upgraded the wiring method into Electronic Fund Transfer (EFT), bringing the establishment of many other networks such as SWIFT, SEPA, and Target2. Current international payment systems are more advanced than ever, but still lack effectiveness in terms of time and operational costs.

Today, with the arrival of B2B e-commerce and cross-border payments, volumes are at their highest ever. According to a recent article published by MarketWatch, the global e-commerce market volume measured 8.52 billion USD in 2021. It is estimated that this volume will reach almost 18.77 USD billion by 2027, with an average annual growth rate of 14.1%.

The Need for Real-Time Cross-Border Payments

On a consumer level, let’s suppose a family in India is sending money to their child studying in Canada. This may sound like a simple transaction, but it is much more complicated than it seems. 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 involving at least two or three banks 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, B2B payment schemes are not much different and may be complex. Moreover, businesses are much less tolerant of struggling 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.

Telegraphy has evolved into Application Programming Interface (API) with digitalization. APIs are tiny software that encapsulates and transmits 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 [email protected] to arrange a telephone call.

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