• There’s more demand for lower value, high volume payments to be settled over the automated clearing house network at lower costs
• The T+2 settlement cycle is decreasing, while the demand for instant payments increases
• SWIFT’s gpi creates transparency in the payment chain

Siddharth Chandani (SC): We are at SIBOS, speaking to Clayton McDonald, head of sales for the global payments division at INTL FCStone. Your division facilitates payments in more than 140 currencies and in over 75 countries, but you leverage the existing correspondent banking relationships, which have in the past not really stood the test of being transparent. How are you ensuring transparency and making the cross-border payments experience more transparent for your clients?

Clayton McDonald (CM): We provide the pricing for the conversion of the currencies up front, so clients know exactly how much local currency they will receive on the back end of the transaction. Our correspondent network that we manage, which is over 350 banks globally and 175 countries, we have direct relationships with. For conversion of the hard currency to local currency, we ensure in that process the exact amount of local currency is received at the beneficiaries account, thereby showing transparency in the entire chain.

Additionally, we are members of the global payments innovation (gpi), the SWIFT gpi initiative, which now shows tracking from the origination to the destination so that a client can see where in the chain that payment is at any time.

SC: Broadly, what trends do you see in the correspondent banking model, and how are these changing the trends impact on your business?

CM: In the correspondent banking cycle, we're seeing a condensing of the payment cycle. So whereas, previously, the norm was always a T+2 settlement. You would send the funds and hope two days later the funds arrive at the destination. That payment cycle is decreasing. There is more demand obviously for instant payments and things along those lines. There is also an expansion of the automated clearing house (ACH) model of transactions, where before many transactions would settle over the correspondent networks via real-time gross settlement (RTGS). Now there's more of a demand for the lower value, high-volume payments to be settled over the local ACH models at lower costs. So, you have both a compression of the cycle of the payment, time and fees essentially as what the market is seeing. 

SC: You mentioned that there's a huge demand for real-time settlement and payment, and with these domestic payment infrastructures adapting to meet these real-time domestic needs, the impetus on cross-border is even greater. First of all, what are the priorities for your clients? And, second, how does one balance the speed, risk and accuracy in making cross-border payments?

CM: The priorities for the clients that we've heard are all focused on security more than anything. Although instant payment is certainly a very popular topic currently in the transaction banking world, our clients tend to focus more on price transparency, security and transactions more than they do instant payments. Showing the transparency on the pricing side, so the client knows exactly what the costs are up front and ensuring that there’s security in the payment chain, tend to be more of the focus for the clients that we cover.

SC: Let’s take the client from a retail perspective. From an individual customer who's making a payment, for him, what matters is his payment is cheaper. But what is the side of the story for the wholesale/corporate side of your clients? Because they are looking at faster speed rather than costs.

CM: The corporate clients tend to be more focused on security and price transparency, than the speed of the transaction. We've been at many conferences recently where they just start managing these together. 

SC: Managing this seems to be a trilemma, right?

CM: Exactly. But if you put them in order of importance, instant payments would probably be the lowest focus. Obviously, they do want the payments to be there in a timely fashion and as quick as possible, whether it be instant or whether it be T+1, there's no huge difference. 

SC: Which segments of your customers are growing the fastest? And where do you see tremendous opportunities?

CM: We see a lot of high volume, low value demand now in the payment cycles. Many corporates that need to make disbursements of a large number of payments, which tend to be channeled more through the ACH markets than they do over the RTGS networks. We're seeing a large demand for that type of payment.

Gpi has really taken off recently as a topic of discussion that shows transparency in the chain all the way through. If you look at gpi itself, it's a very interesting product. Previously, before gpi existed, essentially, you would send US dollars out, and if the funds weren't received on the local level, your only recourse was to go to your global bank and say, “Where's my payment?” And then essentially, the payment will go through the investigation chain, but you really never knew where the payment was. You had to wait for the investigation team to come back and tell you what had happened with the intermediary network.

Gpi is made that much more transparent. And so for us as a company that sends wires out to 175 countries on a daily basis, it was as if the light was turned on. We can now see exactly where those dollars are in the payment cycle over the gpi tracker. The focus now is going to be on how to get that information to the end users, to the corporate client base.

There are clearly some of the larger corporates that are members of SWIFT’s gpi and there are members of SWIFT that have access to the gpi. But the vast majority of the corporates out there don’t have that access, so they will be relying on their payment provider, whether it be a bank, or a fintech, or a payment service provider or whoever to show them that information. There's going to be a big demand for that information and showing that information to the clients. You hear that in a lot of forums of the transaction banks themselves on developing products. That, in itself, will solve many of the issues with this instant payments’ discussion because the client will at least see where the payment is in the chain.

SC: You are a non-bank gpi participant. In a system, which is dominated by the banking community itself, how do you see the uptake of this gpi service within the non-bank community?

CM: I can't really speak for the non-bank community itself. For us, as a non-bank financial institution, that is such a big piece of the transaction banking market and local currency. I can say for us, it's a very important development. We put a lot of resources and invested a lot of time into developing our gpi capabilities to be able to show that both to ourselves for our own settlement, but also to our banking clients that use our services. Being able to have access and show the tracking all the way through is something that's been very important for us. I can't really speak for all. 

SC: One area where you have your place is the highly competitive market rates that include all the costs into one quoted foreign exchange rate. Can you explain the pricing model behind it and also relate that to your proprietary platform?

CM: Essentially, what we are trying to do is show one price up front to the client so that the rest of the costs in the chain are all covered on our side. That cost is essentially shown directly to the client, to the bank and the bank's corporate, so that the client knows exactly how much it takes to convert that currency to the end currency to receive in the local market.

In the other option, which is sending dollars, as those funds are clipped along the way, you never know how much will be taken out in the intermediary bank chain. But additionally, when the funds arrive at the destination – and many cases have no control over the exchange rate that is given – sending one amount of dollar and receiving an amount that you're unsure of has been a big problem. What we've tried to do is solve that problem by providing that price up front. 

SC: What is your key takeaway from the conference this year?

CM: It seems to me that gpi has become much bigger. We joined gpi after the Geneva conference, which was three years ago. In the next two, there were obviously a lot of discussion about gpi, but this one in particular, the topic of gpi seems to have really arrived. 

The data is really interesting and how much of it goes over the gpi chain now. Additionally, in 2020, all banks, whether they're full gpi members or not, will be required to provide confirmation of the payment having arrived at the beneficiary. That is a big turning point as well at gpi. This conference continues that discussion. SWIFT has done a good job in developing the gpi and rolling it out to the banks that want to share more transparency in the cross-border chain. Clearly, with the other crypto currencies, fintechs and things that are out there, it's important to make sure that the traditional banking rails are kept up to date and current.