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International payments - Trends and solutions for today’s global market

And at this time, I'd like to formally welcome everyone to our July webinar focusing on the topic of international payments, trends and solutions for today's global market hosted by your U.S. Bank Global Treasury Management partners. My name is Brianna Dunn, and I'm from U.S. Bank's Global Treasury Management learning and development team, and I'll be moderating today's webinar.

Before we go ahead and get started, I'd like to go ahead and introduce our presenters for today. We have Bryan Schneider as well as Adam Towers. Bryan is one of our vice president working capital consultants within our global treasury management group.

As one of our newer members of the team, he brings over 20 years of experience in payments, corporate cash management, and fintech sales and partnerships. His primary focus is to help organizations increase efficiency, reducing costs as well as risks, while maximizing return on platforms and technologies that support existing processes in place.

Adam Towers is our additional speaker today and is our group product manager for international treasury management solutions, where he leads the development of our next generation of international payables solutions including Swift GPI. Adam has spent his career focusing on driving innovation around international payments, previously leading across a cross-border payments product management organization for American Express, where he actually launched both a financially successful import/export financing product, as well as a forward-looking blockchain product.

So needless to say, it's going to be a well-rounded discussion today as we take a closer look at the current state of international payment solutions with current market conditions and how we continue to evolve with the cross-border payment needs. So with that, I'll hand it over to you, Bryan.

Great. Thank you, Brianna. So thank you all for joining today's call on the current trends and solutions related to our international payments. Before we dive into today's current content, Adam, perhaps you can give us a little bit more insight into the five themes that we're going to be covering on the call.

Thanks, Bryan. So as you mentioned, five things we're going to talk about today. The first one is international payment evolution, where we've come from, where we're likely going. We're going to talk about the uncertainty around exchange rates, which is very prevalent right now and uncertainty around cash flow, which is, again, a big challenge for businesses right now.

We going to talk about employees being stretched and things that your banking partner can do to help, particularly with international transactions. And then the final theme we're going to talk about today is the lack of control and transparency in international payments and some of the tools that you should be considering when doing international transaction banking. So, Bryan, we'll talk about those five key things. Why don't we dig into them? Should we jump to international payment evolution?

Sure. Sounds great, Adam. All right, so some of the first challenges that we think of related to international payments are in a few categories, one, on the cost side. So as many of you have been involved in treasury services and cash management, given the corresponding baking model, we often saw really high costs related to cross-border payments, not only at the transaction level but also at the foreign exchange and interchange level, and then the related listing fees before the actual beneficiary received the payment.

So the current and the past model for cross-border payments has certainly been a challenge given the correspondent banking network. I just wanted to touch in. I saw a recent report from Smarter Payments Tracker, and I was actually surprised to see that nearly 100% of cross-border payments, including remittances, so more consumer-based cross-border payments were conducted via correspondent banking in 2012. So 100% through correspondent banking back in 2012.

But that figure has dropped by 20% as of 2019. So we're certainly starting to move away from the more classic, old-school model of the correspondent banking network, which tended to be very costly. So it's good that we're starting to see some movement there to give all of us more options as it comes to payments and reducing costs.

From a speed perspective, the other challenge, of course, is the payments often stepped into or had multiple lags, if you will, to the cross-border payment experience before it reached the beneficiaries. So we went from a more of a days model to receive a payment in some cases for cross-border payment. And currently, given a lot of the new payment rails, real-time payments being launched in over 50 plus countries, we're starting to see, finally, cross-border payments happen in seconds.

And I'll touch on the last challenge here at least as it relates here in terms of the evolution of international payments relates to visibility. So in the old model, it was very much a send and forget experience, right? It was extremely difficult to know where the payment is in process. We didn't have visibility into where it was even across the correspondent banking network, so a lot of frustration, lack of visibility, and limited ability to track for finality and confirmation of receipt. So with that said, Adam, perhaps you can provide more insights and experience regarding how these challenges are becoming overcome.

Yeah. Thank you. So let's talk about payment types. So Bryan already talked about the fact that correspondent banking's international [INAUDIBLE] has been the dominant way to make international payments for years. Obviously, prior to that, we had checks, drafts, cash [INAUDIBLE], the base products. Those still exist, but they're starting to go away.

And correspondent banking, international wise, even that is starting to be replaced in some ways. So the first one I want to call out is low value versus high value. So increasingly, businesses are looking at low value payment methods.

And so what are those payment methods? Things like-- ACH, internationally ACH. The payment methods that are designed for bulk payment rounds, where the cost per item is very important to you, when you're doing lots of payments, small changes in those costs and per payment, can have a big impact. And so if those payment methods are great for-- big bulk payment rounds, and often, you will be careful to sacrifice some things that are available in the high payment value-- high value payment rail like wires. So things we might get there would be tracking of your payment end to end, faster speed of delivery, and sometimes businesses are willing to sacrifice those to save money. And ACH or low value payments is a great way to do that.

The next one is paying local versus US dollar. Increasingly businesses in the US are looking to pay vendors overseas in their local currency. There's many reasons why you might do that, and we'll talk about some of the challenges for that later, but the reasons why you might do it is it could give you more clarity and control over the exchange rate. If you send US dollars to a bank account overseas that is not in US dollars, one of the banks along the way will convert that money into the foreign currency. If the bank account on the other end is not in US dollars it will get sent with others, and it most likely will be converted at a rate that you're not aware of, and it can have impacts on where you've actually delivered the right value to your lender.

So having control and clarity over that exchange rate is very important. And then--


Trend we're seeing in the market and new payment rails that are starting to appear. So there's blockchain payment rails, Ripple, is increasingly being used, stable coin, and rather than digging into all of these, the key thing you need to know about these payment-- rails is they're new and experimental, and they're trying to attack two of the key problems associated with-- actually, tracking all three of the key problems associated with international payments-- cost, speed, and visibility. Because blockchain payment or a ripple payment, for example, often it's less expensive. Often it's instant or real time, and it has complete tracking all the way from sender to receiver. So these are some key-- solutions to consider-- based on where we're going with international payments.

Bryan, I'm wondering if you believe that a poll lined up?

Yes Adam, thank you. So we'd love for your participation here-- with the poll question, and it's a great way to stay-- engaged and also for all of us just to learn from our peers and-- what's really going on in the marketplace. So the poll question is, it comes from-- out of curiosity, is how many in the audience have initiated a cross-border, low-value ACH the past 12 months? It's a yes or no question. So how many in the audience have initiated a cross-border, low-value ACH in the past 12 months?

Sp I'm actually just going to keep an eye out here as folks start putting in their responses and their answers. I will tally those up here in a-- few more seconds--

Bryan-- as the-- I mean you're down there. You're almost at the end. I was just going to say so loan value is a great way to do bulk payments-- and save money per payment.

Absolutely. For a fraction of the price of, certainly what we've seen wires, which was then-- $10 to $15 on average.

So it looks like time's up. We should be getting-- the polls ended. We should be getting a tally here-- any second. So all right. There we go. So we've got 14 folks that have in fact initiated a low value ACH-- cross-border payment, and about 38 that have not of the folks that have participated. So it's great that we're leveraging those particular capabilities and rails to reduce costs and use them in the appropriate situation. So we really appreciate your-- feedback and input and also so that we can all collectively just get a better sense of how we're all essentially leveraging these-- payment types.

And Bryan, just to jump in here, it's kind of interesting that we've all could feels like that percentage steals from the same goal process as the stat you mentioned before, where cross-border-- correspondent banking has dropped 20% and been replaced by other payment methods. Here looks like about somewhere around 20%, maybe a little more, have used internationally ACH for a low value payment method. So it looks like the trend is somewhat continuing reality.

Great, great point. All right, so now that we've covered some of these challenges, let's move things along and look at some additional challenges. And perhaps Adam, you can help just kick things off diving in, giving your experience in the foreign exchange markets.

All right. So-- uncertainty about exchange rates. So clearly in this environment with-- questions about what's happening with the economy, there is going to be volatility in the exchange rate between countries. Interest rates are changing, exchange rates are changing, and that can have a big impact on businesses. Based on changes in pricing, you can see your cost for purchasing goods overseas increase-- or decrease. You can see your revenue from subsidiaries overseas or from-- customers overseas change as well based on that exchange rate. But they have a very big impact on your cash flow which means that particularly during times like this when there's uncertainty about what's going to happen you need to be thinking about what your strategy is with international payments.

Bryan, perhaps we should talk about the [INAUDIBLE]

That'd be great. Maybe just before we dive in there, it's definitely something from a foreign exchange perspective that a lot of us are needing to learn more about, right? There's interchange fees, there's central bulk purchases of foreign exchange. So given your experience, can you just share a little bit more detail on some of the benefits and solutions that you're seeing for things like sending local currency versus US dollar or forward contracts and other strategies that you've seen?

Yeah, absolutely. So let's talk about local versus US dollar. So on the price line you talked about the benefit, being able to have greater control over your exchange rates, being able to have more understanding of exactly how much is going to get to your destination. So clearly there's some benefits associated with sending your recipient's local currency. However, there are some challenges associated with it. If you're making payments or receiving invoices in-- a foreign currency, the value in US dollars can change. So you'd be thinking about what do I do in terms of sending payments in local versus US dollar, how-- am I going to manage that volatility?

And then a couple of ways to do it. So one of, obviously the decision is local versus US dollar, often when you're work with vendors who've had many customers talk to us about how they negotiate with their vendors and in which-- currency they use. Our recommendation is always to if possible, be invested in both currencies. And that gives you more control over-- what's the right currency to make a payment in in time. So that's local versus US dollars.

Next thing that you should be considering is derivatives. So there are two I've put down here, and I would say they involve some credit risk. You should talk with your banking partner about these solutions before you jump into them, but the first one is called contract. So a forward contract essentially allows you to lock in an exchange rate for-- a period of time, and it sort of allows you to say, for the next quarter I need to lock in today's exchange rate, or the forward exchange rate today. And-- that can be very helpful. It means you can control-- whether the exchange rate goes up or down, you can lock it in right now and avoid that uncertainty.

Options are a similar in that they lock in an exchange rate, however, it gives you the ability to exit that exchange rate that then uses spot rate, although it does come with some-- penalties to do, there are some costs-- for doing that. So I would say-- here are three options, so choosing the currency that you want to do business in is a good way of managing uncertainty, evaluating whether you want to get involved in forward contracts, or options, and of course speaking to your bank before you jump into any of these. So Bryan we've talked about--


I was just going to tee up-- that's I think extremely helpful. You know, I'm sure we've got a fairly diverse group of folks when it comes to foreign exchange. So we may have some experts like yourself and just folks that are looking to understand-- more about the strategies that you've touched on. So-- thank you. With that being said, let's take a little bit closer look at one of the other challenges that actually is related to cash flow and cross-border payments.

So-- if we're looking to reduce the uncertainty in cash flow when it comes to international payments, what sorts of things should-- we be thinking about? Right, so in terms of best practices-- regarding cash flow management solutions would be to one, definitely look to leverage your existing online banking platform. Right, that would certainly be-- an easy place to start to ensure visibility into end of cash flow.

Now, of course there's other opportunities as well from leveraging different tools and platforms. So for example, there's a huge movement, especially given the current pandemic and the COVID environment to have EP automation. So you know, invoices are-- just showing up at the office and folks-- aren't there. It's-- helping with facilitating even-- the payments that are flowing out of the organization, with a lot of in-house checks now starting to move towards outsourced-- checks or electronic forms of payment, AR automation and the like.

So the second one I would touch on is related to increased visibility-- in the online banking platform by aggregating all your accounts into one view right, into one dashboard if you will, for both your domestic and your cross-border accounts. There's a number of ways to do that, and certainly-- encourage you to reach out to your-- banking partners to get a better insight into how you can aggregate all of your accounts into-- one view into your banking portal.

Thirdly I would touch on another consideration is to make the move more towards real time. A lot of you are probably hearing about APIs, or application programming interfaces, which-- is going to give us access to that data that's not scale, when we're used to getting batch feeds. Now, batch fees are going to be fairly common in low value payments and things like this. But the ability to-- truly get real time updates when you can should certainly be taken advantage of. So-- keep that in mind, and definitely start pushing towards real time integration and real time updates.

The last I'll touch on here as it relates to cashflow and for-- on the international banking side is perhaps to also consider real time FX speeds in your respective dashboards or making platforms. So with that said I'm going to transition to the treasury management systems, and things to be thinking about a lot of-- our clients are certainly out there using these very robust-- tools and feature functionality that's sitting on top of existing ERP systems.

So-- most often we'd see fairly robust, if you go feature functionality in a module within a treasury management system that provides cash forecasting, actually sat in a recent-- presentation webinar by Trivium to present on their cash forecasting tools, which looks at past forecasts versus what actually happened. And then improving the models and tweaking the models based on-- those findings or the-- deltas of the differences between forecast versus what actually happened. So again, important to-- consider if you're not only leveraging those sorts of tools within potential trigger management systems effective give you some of the additional visibility that's often needed to make-- more accurate decisioning.

Then the last piece again I'm going to touch on what we touched on just in the bullet before, integration. Right, so if at all possible, always continue to look for that intraday reporting, not so much end of day reporting, if you're getting NT940s definitely pushing towards the NT942s, 53s, you know I'm sure a lot of us are familiar with a lot of other different reporting abilities-- for intraday. So that's a top priority.

And then as much as you can getting that one dashboard one view and being able to have actionable data through to one platform is the best practice that-- I would stress-- in this particular category. So with that view then Adam, perhaps you can give us a little bit more view into speed of international payments as well as with the global cash platforms.

Absolutely. So speed is pretty straightforward, international payments are typically a little slower than domestic payments. So-- the speed of payment can have a big impact in your ability to accurately forecast. So working with your bank to improve the speed of payment-- can be very helpful here. Next what I want to talk about is global cash forecastings, or global class platforms rather. So banks like U.S. Bank have platforms where you can plug-in multiple banks from around the world into one place, and that's what you see here on the right. So first of all, I think we'd all love to have the balance on the screenshot on the right here.

I think what-- this is really meant to be showing to you is that if you used a tool like this, you can have multiple views of your balances wherever they are around in the world, no matter what bank they're with around the world. And in this scenario you've got a number of tabs. So you've got the currency tab at the top, that's what's reflected at this point, and so you can see across all your banks-- what cash positions you have by currency. And you can see here, not perhaps you want to say, I'm overdrawn in British Pounds, and so you can actually click on view and dig into that. You can see that I'm a little high in Euros. So Maybe I need to do a trade and move money from Euros to GDP, and you can look at by country or by bank. You can create custom views, so-- plugging multiple banks into one user interface, whether it's a cashflow management system or a system provided by your bank, like U.S. Bank, can be very valuable to help you have the ability into what's going on around the world and make decisions in real time.

All right Adam, perfect thank you. So let's move along and explore the-- next challenge in supporting cross-border payments, which takes us really into today's current environment given the current pandemic. And that's related to the fact that employees are stretched. Right, so they're wear multiple hats, be it working with different payment systems, and reconciling, negotiating terms, and virtual work, things like this. And then on-- the limited time side of course just trying to do more with less in the environment is certainly-- challenging. So-- you know, with lots of balls in the air and less time to manage, and perhaps you can just touch on some of the solutions to consider for these types of challenges.

Yeah. Absolutely. So we've pulled out five solutions here. The simplest one to implement is templates and batch payments. So this involves setting up recurring payments, like let's say you do a payroll run, setting up all your employees, their bank accounts, the amount you pay in the system, so when you're ready to do a payment run, it's just a few clicks. So the simplest way to save time.

The next one would be file import. If you can pull the file out of your ERP or wherever your accounts payable information is and load that in, that's another-- way. The next few add more complexity but with that complexity comes more efficiency. Right, so-- APIs and file integration is a great way to make sure that our systems talk directly to your systems. So you can make payment runs with a couple of clicks.

And then international banking validation, so what this is is when you make payments to different countries around the world, those countries have different requirements. So if you're making payments to China, you need purpose of payment for example, and those requirements vary by country. And so you want to make sure you're working with a banking partner that validates the information you're providing, and can make sure where there's a specific country or requirement, that they're prompting you to fill in the correct information because if you don't pull that information in upfront, and frankly I don't expect that you all know the-- different requirements for every country around the world, so your bank should know that, and they should validate the information you're providing, so that when you send the payment you should feel confident that it's going to get to the other end.

And SWIFT GPI, I'll call out SWIFT GPI, U.S. Bank is going live with SWIFT GPI very soon. We're looking forward to that. Essentially that allows you to track your payment all the way to the beneficiary, and also see who took fees out along the way, who converted it, and make more informed decisions based on better tracking information.

Perfect Adam. Thank you. So just in the interest of time, I want to just quickly move through. A couple of-- this last item and then just wrap up with-- just a summary of what we've seen. So the last challenges here related to unexpected exchange rates unexpected fees and delays by overseas banks, a lot that we've actually touched on because of the-- correspondent banking networks, the-- lifting fees that are associated with them, and then the delays of the beneficiaries receiving the payment. So since we touched on a lot of that, Adam I'm actually going to transition back to you to touch on, again, some of the-- items we've touched on a bit here, and then we'll-- move-- toward the summary.

That makes sense. I think in the interest of time, we've covered a lot of this. So we talked about US dollars as local currency and the benefits-- and challenges of each. We talked about SWIFT GPI being able to track payments and have more control-- over it. We didn't talk about foreign currency accounts. Foreign currency accounts are a good way to receive foreign currency, decide whether you want to then match that to say that Euro payment up with an outbound, Euro payment. So it gives you more control over when you convert your money. And-- global cash platforms, we talked about that already, where you saw the balance across multiple accounts all around the world.

All right. Nice-- recap. So let's actually just transition into summarizing what we've talked about here today. So-- what are the key strategies or considerations would be to pay in local currency, right, the benefit of better rates, happier vendors, and more control on your FX.

Sure. Next we should leverage tool to simplify your international accounts, whether it's a treasury management system, the global cash platform, you should leverage those tools to simplify your international accounts.

And then also consider lower cost payment channels. It sounds like we had about 28 or so percent of our folks here that are already using these cross-border ACH. So definitely consider the lower payment rails, border cross payment rails.

Great. And optimize the hedging strategy that is right for you. Think about what is your risk tolerance, and what tools do you want to put in place to manage that risk.

And then, last but not least, it's potentially aggregating all of your different payments across-- if it's course of the day or course of the week, you can work with your banking partners to get better FX, or foreign exchange rates, as you look at combining your payments and more of a-- bulk payment file in a bulk funding.

So with that being said, and before we wrap up here, I just want to thank everyone-- for joining. I'd like to just touch on also what the next upcoming webinar is going-- to be. So as part of that conversation we're going to be talking about the latest on-boarding tools and some of the benefits it provides you. So including our new real time dashboard with ongoing activity that keeps you up to date throughout your implementation, how we've created a collaborative approach to manage and accelerate your on-boarding experience, and also talking about some of the additional information we've had so far in 2020 to help you during times-- in securely completing and executing documentation with electronic signature. So a robust platform for helping you through the implementation phase, knowing where you are, and then also executing on our document.

So Adam I'd like to thank you for joining us today and sharing your expertise and insights. It's always a pleasure to have you join us, and thank you to those of you who were able to dial in and be a part of the discussion today. Really appreciate you participating-- with our poll question, and we look forward to seeing you all next month, Thursday August 20 at 1:00 PM central time for the future of digital on-boarding for U.S. Bank clients. So be sure to watch out for the invite. So take care, and-- we will connect again soon. 

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July, 2020

International payments

U.S. Bank leaders discuss trends and solutions for today’s global market


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