Cashless Payments Without Borders: Developments to Move Money Around the Globe Quicker

Increased international trade and the global health crisis has meant considerable recent development in the cross-border payments space. Real-time messaging, instant payments, APIs and end-to-end-traceability have been widely adopted out of necessity. Will they last, and what can we expect to see in the next 12-24 months in the cross-border banking space?

Transcription:

John Adams: (00:08)
Welcome again, this is cashless payments without borders developments to move money around the globe quicker. I am John Adams from American Banker and our panelists are Greg Murray, Head of Payments, Receivables and Emerging Payments at Santander Bank, and Molly Shea, the Senior Vice President and Head of North America at Western Union. I was hoping you could describe your positions, jobs and some of your responsibilities.

Greg Murray: (00:35)
That sounds good. First of all, now I know what it's like to be in the spotlight, that's right in my eye. So thank you for having me today. Greg Murray I have worked with Santander Bank for about three and a half years, but I have had about 35 years in the payment space, primarily with other money center banks. And I am very curious, I have learned quite a bit already from folks in this group in the non-bank space including Molly next to me who has shared a lot of good perspective and it's gonna be a good conversation today. I started my career in payment operations worked for about eight years. So, I kind of know how the donuts were made and then I worked into a product management role and I have been doing that pretty much ever since Molly.

Molly Shea: (01:18)
Great. Thank you Greg and thank you John, for being hosting us here on the panel. Very excited to be here. Once again Molly Shea I am Head of North America for Western Union. I have been with Western Union in the payments industry for 27 years. And that's 27 years with an iconic brand like Western Union that has it existed for 170 years. So I now like to say that I have been with the Western Union for 15% of its lifetime, I think that sounds a little more appealing than 27 years in the industry. I spent my first half of my career with Western Union really planting the flags for our brick and mortar retail locations across the globe 200 countries and territories. And in the last 10 years I spent a significant amount of my time expanding our digital assets. So really growing our online and mobile apps in Asia Pacific region spending four years in Singapore.

Molly Shea: (02:14)
So excited here to share I am super excited to have met Greg because Greg and I are a unique persona, we are both what we call global citizens. I don't know if Greg would call himself that but I call him that we both have spent a significant amount of our time living internationally. We both have families that live abroad still, my daughter is a university in St. Andrews in Scotland and I believe you have got family living still in the Philippines. In the Philippines, it's a unique perspective here. We have got payments types of business type payments, perspective from Greg and then consumer to consumer which is a big need across the globe.

John Adams: (02:54)
What is the state of cross border payments today? What trends are you seeing?

Greg Murray: (02:59)
So just to pick up on what Molly just said, we are going to hopefully offer you some complimentary perspectives, Molly from the perspective of remittances which is primarily a consumer oriented space and I will offer you some perspective from the business to business or B2B space that we cater to the banking world. When we have compared notes, we realize there is a lot of commonalities and a lot of similar trends developments that serve both of those two dichotomies. But I am gonna talk a little bit about some of the unique instances as it relates to the B2B space. So let me just start with framing this all out. When we talk about B2B commerce we are talking about global trade using some statistics from the UN conference on trade and development.

Greg Murray: (03:47)
It is pretty impressive to see just how much trade has grown despite the pandemic. So in 2021, they have reported about 28 trillion in global trade around the world. And that's about 25% up from 2020. Now, 2020 was off a bit of an off year given the pandemic. But when you compare 2021 to 2019, that growth rate is 13%. So the point I am making there is that trade which is really settled in many respects through the world of payments is obviously a huge and growing space. And despite some of the history you have seen in recent years around nationalism and for instance the UK Brexit and sort of countries taking more internal approach to things you can not escape. The fact that we are living in a global economy and goods and services pretty much everything in this room probably was sourced from another country somewhere.

Greg Murray: (04:38)
So obviously you need to settle that trade somehow and that trade is typically settled and I am sure many of you know, this already through a rather complex network of correspondent banks sander is one of them as are many of the banks that I've worked for in the past. And I can tell you that it sounds simple on the surface, but there is a lot of considerations that have to go into that, including credit risk, liquidity risk management, time zones, you could send a payment to settle a cross border, export or import, let's say in US business day, but it doesn't really arrive until Asia until Asia's next business day. And that's complicated even further by a lot of the banks and the national clearing systems operating on either a batch basis or with certain limited operating hours, right. We are gonna talk in a few minutes about, the trend toward real time and that's going to happen, but where we are today is to answer the question that John raised is we are still in a state of relative, I wouldn't say, primitiveness, but it's certainly compared to where the world is going. We have heard from folks on crypto. The world is changing fast and we we are gonna find ourselves needing to adapt very quickly.

Molly Shea: (05:49)
And I would add within the remittance space, there is been robust growth just in 21 alone, remits grew to low and middle income countries to 589 billion. So almost a 7% or slightly over 7% growth. And that's coming off a very resilient 2021 where growth was down about 1.7%, but really just shows the demand. And that demand coming from migrants trying to send money home. In fact, we saw principal increase significantly per person as the needs for money on the receiver side, increase just as much as things like cash stimulus in the us that help propel a lot of people to have extra money, to send home. So very resilient. And we really do see 20, 22 having low growth, two to 3% as estimated by the world bank. Continuing on the strong economy, as we think about looking forward we are gonna talk a lot about migrants in the migrant space, but also people like Greg and I who have needs, there are tremendous needs for consumer to consumer that are not met today. So not only rural bank remittances, but when you think about just other people to people sends that demand is there.

John Adams: (07:07)
There is a perception that there is a competition between banks and FinTech. What are your thoughts on that?

Greg Murray: (07:13)
Well, actually just before we go to that John, I did want to build, if you don't mind just build up on sure. Molly's points that so a lot of what the remittance providers like Western union do is they handle corridors from developed countries to developing countries. So for example, I was born and raised in the Philippines and I know that a lot of people who immigrate from the Philippines to the US send their salary or port parts of it back to the Philippines, to their families, and they use folks like Western union. And part of that is just because that when you think about the infrastructure in many of the developing countries, those clearing systems are also in need of modernization. And we are finding that on top of that, if you look at global trade, this is the business to business trade, most of that growth is also in developing countries. So there's definitely a need for us to anticipate that as we move toward the future, we need to look not only at where most of the high tech senses exist today, which is in the developed countries and apply it to the developing countries. And we are starting to see that already with some countries taking a lead in terms of putting in real time systems ahead of the US, even which is quite remarkable.

Molly Shea: (08:22)
Yeah, I would add there, Greg, that one of the things that we have worked on for the last five years is really getting away from aggregators. We no longer do batch we are real time to a significant number of the accounts that we pay out to which really paid off during COVID. A lot of countries were on lockdown, people could not go to a retail location to pick up cash. So a lot of it was then diverted to people's bank accounts or wallets. Wallets are very prevalent, there is three or four very popular ones in Philippines alone. The ease of not having to leave your home to send the transaction, a lot of locations in the United States, Canada were closed during COVID as well. You could go online or go to a mobile app, send money, your recipient could receive it online real time. And that's the other beauty of the C to C business is we do have a lot of these direct connections where we can send money real time, which is pretty exciting.

Greg Murray: (09:21)
Very good. So thanks for that segue there, John, but just to go into your question about competition versus.

John Adams: (09:27)
Sure. Yes, there is that perception that there were odds and what you thought about that.

Greg Murray: (09:34)
Yeah, I think that there's definitely competition and I think there are a number of companies, some of whom are represented in this forum. I can think of visa and master garden in particular that have seen the value and the high stakes at stake in the payment space, visa bought up earth port not long ago. MasterCard took on trans fast. We have in a prior capacity, I have worked with earth port and I've seen them as competitors in many respects, not specifically earth port but visa. But I've also seen them as enablers as well to help banks that don't perhaps have the coverage that they would otherwise like to. So in a prior life, I worked for an institution that partnered with earth port to expand into some 20 or so countries that the bank I worked for at the time wanted to get into, but wasn't equipped to actually set up bricks and mortar and establish, you know, the necessary connectivity to local caring systems.

Greg Murray: (10:31)
So working with earth port, we collaborate with them to be able to enable us to achieve that reach. So I think that there is both competition and collaboration. I also think that if we look at the fintech's specifically, some of the more, I look at obviously visa and MasterCard as major payment as providers with huge networks. But when I think of other fintech's that have entered the space relatively recently, I think what they have done is very similar to what Molly and her company have done, which is they have really helped force banks like ours to really figure out how to make the user experience simpler and I give credit to folks like PayPal, some 25, some odd years ago who really create a very simple interface in order for people to move money domestically.

Greg Murray: (11:18)
Whereas if you, at the time compared it to how a bank would ask someone to move money, you would have to put in account numbers and specific bank addresses, have to make sure the name matches the account number, all of the stuff you are doing on the fly. Whereas what PayPal approach they took is let's get all that hard work out of the way first, let's make sure we know what the who is a person's name, what their name is where they bank, what their user ID is or their email address, their phone number. They do all that hard validation up front penny test the transactions. And then after that point, it's as simple as just a couple of buttons and you are done. And that's where I think that the banking C has not perhaps done as well as some of the fintech's. And that's where, why when I think of a FinTech as a competitor, I also think of them not only as an enabler for things like the networks that we all try to connect to, but also helping us think differently about how we interact with our customers.

Molly Shea: (12:13)
Yeah, and I would add speed to market and really using enablers is very important. We partner as well with visa, MasterCard when it was earth port we partnered with them to really enable us to get to far reached places that, that we didn't have access to, but they had enabled prior to us adding those locations. And what I would say is that it's really about innovation and customers. You take iconic brands Sant, Western union visa, MasterCard all the banks. What we represent is we have got customers and when you combine strong brands like that and really enable and give the customer choice, it really get drive innovation customers push us to provide the services that they want and need. And we constantly have to be looking ahead what is it that they are looking for?

Molly Shea: (13:05)
How do we make it easier for them that end to end experience is so important. They're looking for speed and reliability trust that those brands bring. And we all have to be on top of our game to make sure that we are delivering it and that the newer fintech's, I like to say we are the original FinTech, but being 170 years old, there is a little bit of legacy there as you banks can all understand and appreciate, but we have to be one step ahead of how do we anticipate that next need? What is the next ecosystem that we need to add to our financial platform to make sure that we are providing that to our customers prior to the competition. So I think the more you can collaborate and cooperate with other entities that can enable services or features that you don't have the sooner to market that you will be and really satisfying your customers.

Greg Murray: (13:54)
Yeah, I would add to that where you mentioned Molly speed transparency, those are continue to be challenges we face in the business to business space and I am sure it is the same consumer space. And where all the reason why we have some of those challenges when you really boil it down to its root. Cause it's all about the information that a accompanies the payment and whether it's complete or whether it's going to trigger false compliance positive. So for example, if a sender hasn't included the full address that the money is going to, or if they have not provided the person's full name or if they have used an acronym that unbeknownst to them is also on the OFAC filters, there's a high likelihood that that payment will have to stop for review before it actually gets processed.

Greg Murray: (14:48)
So in addition to, although those are exceptions, right, they do create a perception that the system is broken. And even though that's the exception, ultimately it is something we have to address. And I think it boils down to finding ways in which we can improve the information. Now, a gentleman, Mr. Ruman at the session on regulatory a few minutes ago mentioned and I know it was tied more to the crypto space, but he had mentioned a concept that I think we ultimately could benefit from by working with companies that perhaps are in this room or elsewhere around how we get better information on the people that are trying to pay each other so that, when that information is passed through whatever rails that ultimately settle that transaction, we minimize the friction that is created when information is lacking or is incorrect.

Greg Murray: (15:36)
So if we know our payment parties ahead of time, we know whether they are good or bad, whether the information is complete the likelihood of making the process smoother will ultimately be a goal that we can achieve. But again, it takes, bright minds like many of the folks in this room. I I would be curious if any of you went during the break have some thoughts on that. We would be all open to that. And that's where it goes back to collaboration and partnership because there is no one company, no one bank, no one would remit that can do everything all at once.

John Adams: (16:07)
what are some of the opportunities in cross border payments as you, as you look ahead?

Greg Murray: (16:15)
We are talking here about perhaps what's coming next.

John Adams: (16:21)
So some of the cross, yeah. What are some of the cross border yeah. Where you see opportunities for new markets, new products.

Greg Murray: (16:27)
Yeah, I am gonna probably answer that best from the perspective of what people don't often see. And again Molly and companies like hers have done, as I said earlier, great job on what you can see, like the simplicity of the user interface, the transparency over how much it's gonna cost, the certainty that the person is gonna get the money, but there is a lot of stuff that goes on underneath that user interface layer that today as I mentioned earlier is not what it could be. It's helped us get from telex to today. If I actually used to, in my payment operations days, I am dating myself, but I actually used to run the telex group. So, swift is one example, right? So for those of you who are not familiar with swift, it's a global bank cooperative about 11,000 banks.

Greg Murray: (17:15)
Centra is one of the top members as or many of the money center banks and it's typically has served itself as a standards body to make sure that we can move away from freeform telex, for example, move into standards as to how what payments, what fields should exist for which payments. But it's also been a messaging service to this point to help banks connect with each other and instruct each other on behalf of it's clients as to what money needs to move, where now swift has traditionally been what we would call a store and forward type of concept where money move, the instructions move in sequence, but swift is actually gradually moving toward much more of an instant or as they call it a seamless and frictionless strategy. And the first part of that was actually manifested maybe I wanna say five years ago or so in the construct of end to end payment tracking reference number, just like we have been able to track packages like from FedEx and ups for years, we never really had that mechanism in the bank space until swift came in worked with the banks and figured out a way to make it happen.

Greg Murray: (18:19)
So that has been live now for a good five years or so that provides someone, whether it's an individual or a company that's paying for goods or receiving goods or receiving payment for goods provides with transparency over where the payment is at any stage, how much in the way of fees have been charged by the banks in the chain. Ultimately a confirmation that the beneficiary has been paid now that's good. It's certainly better than what used to be there, but it is much more during the fact set of information. What swift is working more closely toward now is before the fact. So finding ways to, for example, revalidate the information in the payment before it actually gets sent. So that information the account number at the destination bank is incorrect, the payment does not go until we get the correct account information, that way you avoid the fact that, or the opportunity for people to say they didn't get the money, right.

Greg Murray: (19:17)
They are also working on something called swift go, which is a low value sort of instant payment system that essentially leverages the connectivity of what they call anchor banks in each country to deliver payments in low value through the local real time systems. So there is a fair amount that is going on with swift as it relates to improving the way in which the environment today operates. There is a few more things I should share too. One is market infrastructures. So a lot of the countries that we all make payments to have clearing systems, just like we have in the US Fedwire, chips, EPN and so forth. There is a new concept that the clearinghouse and the European or the EBA clearing system have put together in conjunction with swift called IX B international cross border. And it's essentially means to link the two real time systems in the US and in Europe.

Greg Murray: (20:14)
You have also got CPO which is the single European payments area that has traditionally refrained from accepting and processing payments where one leg out, meaning one leg of the payment is outside of the European union. Well, now they're considering entertaining those payments to make it much more attractive to have more and more payments that are cross border nature, come through all the, all the infrastructure that SEPA has set up. And then finally, we have banks that are looking at their own internal infrastructures, figuring out why is it that we need to make, if we're trying to pay a customer of ours in another country, why would we not try to do that more on our books? If we already have the ability, if we have the network, we have the accounts we have the clients, a lot of that is tied to many banks that have branches around the world use separate DDA systems. So making a payment from one DDA system to another is not quite as simple as it might sound, but banks are starting to look at that. I know Senti Andera is working with our Pago next franchise to achieve exactly that. So there is a lot going on between the messaging systems the market infrastructures and the banks themselves, which most folks don't necessarily see, because it's kind of under the covers that I think will ultimately improve where we take this business in the future.

Molly Shea: (21:29)
Those are tremendous accomplishments and if you look at what you have mentioned, like SEPA and some of these others you have got in the Asan countries, you have got a lot of partnership, Singapore, Malaysia, India, Philippines, starting to collaborate more to create these networks where you can do real time payment. So these innovations are significant and the complexity that we have in CTOC and know your customer we have made tremendous progress. We have a lot of real time risk assessments etc. But what we do is complicated and the regulatory just compliance that we do to stay compliant and really make sure that we keep bad money out of the system is tremendous. And I think in larger payments these types of advancements are gonna be really significant in driving that speed and really that just really making it transparent.

Molly Shea: (22:26)
That's the biggest thing that when you think about the global environment and not knowing exactly, if you are trying to send tuition to your daughter's school, not knowing exactly how much they're gonna receive and just really meeting all those customer needs and, and having mechanisms that are not gonna have lifting fees on the other side, but the customer's really gonna know the value that is being sent, what the exchange rate is how quickly it is gonna get there. These are all innovations. I think that, I think we are gonna much closer. I think that a lot of technology is there. I just think we have a little bit further to go to put it all together and really get there. But I think we are on a paving road to get there.

Greg Murray: (23:06)
Yeah, I would agree.

John Adams: (23:09)
Now, is there still a role for cash in the payment system?

Molly Shea: (23:14)
I I will take that one. If you don't mind, Greg, 27 years with Western union and I always thought, yes, cash is gonna go away. I am gonna be out of a job here, I am still there. And it's amazing how to prevalent it is, especially in, developing countries and you, cash is still king there. And even in the US, you would be surprised at how much we pay out in cash. The demand is still there for immediate cash payout. If you think about Venmo paying your friend, you can't get that in cash. It is very complicated and a lot of lifting fees in order to do that. So there is still a need for cash. How long that's gonna last? But, if you think about just the last two years with COVID, even within our business, where we have omnichannel presence, so you can walk in and get cash, or you can get it to your wallet or your account.

Molly Shea: (24:09)
We saw a lot of our customers pivot and they did move to account. But guess what? In 2020, late 2021, 2022, we have seen them go right back to retail and their preference is cash. There's something about, especially within the migrant communities, there is something about walking into a store where someone speaks your language and handing over that cash, knowing it is going to your loved one. And then on the recipient side, sometimes it is a social aspect. I am gonna go pick up money. My son, my daughter has sent this to me and there is pride associated with it. And there is also just use cases. We talked a little bit, there was a question about El Salvador and the crypto and how it is gone and remittances, there are crypto. The reality is you can receive it in crypto but there is really no use case. There is nowhere to go. There are some places, but you can not then go turn around take that to the TDA and get your groceries for the week. Not a lot of places accept it. So cash is still gonna be king for a while. The beauty and I think everyone needs to be prepared is to serve all use cases whether that be Fiat, any currency around the globe accounts or cash is gonna be important for the immediate future.

Greg Murray: (25:21)
Yeah, I can just see myself. And the next time I take my car to the valet and having to say, well, I can tip you, but do you have Venmo? Right. Instead of being able to whip out like five or $10 and say, here you go.

Molly Shea: (25:30)
Actually, I went to a lemonade stand recently and I didn't have cash. And I said, do you take Venmo? And the little 10 year old said, yeah. Yeah. So just ask.

Molly Shea: (25:38)
It's Generational, like cash use your cash too.

Molly Shea: (25:40)
I think you're right.

John Adams: (25:44)
We have got a couple of minutes left. We have any questions from audience one over there, somebody to my left.

Audience Member 1: (25:58)
On that topic, I am curious as to your opinion on CBDC as a use case on the consumer side for cross-border and B2B cross-border.

Greg Murray: (26:10)
I will take the, the latter part of that question. So I have been in the payment space as you can tell from the background for quite some time. I do see, I was chatting with someone actually earlier who is in, who is much more into the crypto space than I am, but, we were talking about the various use cases that where crypto makes sense. I certainly see that there is a use case for for it being an asset class and source of investment. I still struggle a little bit, to be honest with you as to whether especially given what I have shared today. So far with respect to cross border payments and where we are headed in terms of real time payments, which is really where we are going, whether an additional stream of value like a CBDC would make a difference because ultimately when you are able to connect real time systems properly the transfer of value is instant.

Greg Murray: (26:58)
There's no liquidity risk. There there's no speculative risk. It's just almost like I hate to use the old analogy, but it's like handing someone cash right there. It's the transfer is done. So, there is probably much more to it than what I am sharing and I am not by any means the expert in CBCs, we are looking into it and trying to stay close to how it's evolving in the regulatory space, but as a form of supporting cross-border and the effectiveness of cross-border payments, I see we are heading in a better direction as it is that will ultimately in create that instant transfer of value.

Molly Shea: (27:36)
And I guess I would just add for us adding a crypto would be just like adding another currency. So if we saw the need and on the receive side or even on the send side that was required, we would just add that as an additional currency within our network. So it would be fairly easy to move to, but when you get into other things like investing, etc. That is little different and we are not there yet, but it's very interesting space to watch. We are definitely watch it very closely. And as soon as places like El Salvador, if tomorrow, there were a use case for it that people could actually utilize that and pay for goods and services would probably be there.

Greg Murray: (28:17)
There is a question over there.

Audience Member 2: (28:18)
Hi there, so if you are making the remittances faster, real time, does that mean you are eliminating some of the intermediaries and lowering costs and is that cost being passed along to the consumers? That is part of the crypto use case is that it was less intermediaries. It was more cost effective for somebody to send money directly to somebody else and not have to, if I am sending a thousand dollars to my daughter, she actually gets a thousand dollars. So the question is, are you eliminating intermediaries? And are you passing that cost savings then along to those consumers?

Molly Shea: (28:52)
So, I would definitely say in the case where we have real time connections, the cost has come down has not eliminated banks still do charge us to load accounts. And what I would say on the send side, it depends on how that money is being sent. So if you are using a debit card or you are going right from a bank, or if you are sending cash, there is an agent. So there are still parties involved, but I would definitely say that is your cheapest option as you as the more intermediaries that we remove, the more cost there is to get back to that consumer.

Greg Murray: (29:25)
Yeah, and time is up but just to add to that, to try to answer your question from the bank perspective, I think that's happening already. I think you met, I mentioned what swift has done around being able to provide transparency through this tracking mechanism which essentially displays all the fees. And I think what that's done is it's not only good for the consumer in the businesses, but it's also good for the industry as a whole, because it exposes if you will fees that are applied along the way. And, as we start to move to real time instant settlement, and those intermediates disappear, right? Because you can debit and credit on the same clearing system, then we should see those right now. I think those prices are coming down as a result of that transparency, but I do see that we could get to a point where you are only paying for the sending and potentially the receiving, but not all the stuff in the middle.

John Adams: (30:12)
Well, thank you. Thank you, Greg Molly for doing the panel, it was very interesting and up next we have a coffee break.