As the global economy becomes increasingly interconnected, the demand for efficient, secure, and transparent cross-border payment solutions has surged. BNY, with a history spanning over 240 years and a strong presence in Asia Pacific, has been at the forefront of this evolution.

Jennifer Barker, global head of treasury services and depositary receipts, believes BNY’s pioneering innovations set new standards in the industry, and the bank is focused on leveraging technology to lead in the cross-border payments space, particularly in the Asia Pacific region.

The evolution of cross-border payments in Asia Pacific

Asia Pacific has witnessed a dramatic shift in the cross-border payment landscape over the past decade. Barker noted that, "10 years ago, high-value transfers were the predominant method for cross-border transactions in the region." These high-value transfers typically referred to large, significant payments, such as those related to corporate or institutional transactions, which were processed through traditional banking channels like SWIFT (Society for Worldwide Interbank Financial Telecommunication). However, the introduction and mass adoption of new technologies, such as application programming interfaces (APIs), super apps, and fintech solutions, have revolutionised the industry by enabling faster, more efficient, and more accessible payment options.

"Asia leads the world in digital adoption and faster payments," Barker stated, highlighting initiatives like Singapore’s PayNow, Thailand’s PromptPay, and India’s Unified Payments Interface (UPI), which processed approximately 130 million payments in 2023. PayNow and PromptPay are real-time payment systems that allow users to transfer funds instantly across different banks and mobile wallets. These systems have dramatically reduced the time and cost associated with cross-border payments, making them more accessible to both businesses and consumers.

She added that these systems are not just innovative in their own right, but they are increasingly being interconnected. For instance, Singapore and Thailand have linked their payment systems, allowing for more seamless cross-border transactions between the two countries. Furthermore, the Nexus project, an initiative by the Bank for International Settlements (BIS) Innovation Hub, aims to connect multiple countries' payment systems, including India, Malaysia, the Philippines, Singapore, and Thailand, creating a multilateral network that enhances the efficiency of cross-border payments across the region.

In addition to these regional initiatives, global efforts are also underway to standardise and connect financial infrastructures, with standards like ISO 20022 and SWIFT global payments innovation (gpi) playing a pivotal role. ISO 20022 is an international standard for electronic data interchange between financial institutions, designed to streamline payment processing and improve data quality. SWIFT gpi, on the other hand, is a set of rules and standards for cross-border payments that aim to increase speed, transparency, and tracking capabilities. These standards are crucial for ensuring interoperability between different payment systems, which is becoming increasingly important, as the digitalisation of financial services accelerates across Asia.

Driving innovation with smarter payments and real-time treasury

The demand for 24/7 payments is one of the most significant trends shaping the industry today. Whether driven by fintech competition or consumer expectations, the need for continuous payment processing is paramount. However, as Barker noted, "Clients want to process 24/7 without necessarily overhauling their entire technology infrastructure, which can be capital intensive."

To address this, BNY has developed various solutions that cater to the diverse needs of its clients. For instance, the bank’s smart routing tools help clients determine the most efficient and cost-effective payment rails, whether for high-value or low-value transactions. Payment rails refer to the network through which payments are processed, such as the automated clearing house (ACH) for low-value transactions or wire transfer systems for high-value payments. Barker explained that financial institutions are increasingly less concerned about which rail their payments go through; what matters most to them is that their payments are processed cost-effectively and accurately. BNY's smart routing technology automates this decision-making process, allowing clients to focus on their core operations.

Another critical innovation is BNY's real-time treasury capabilities, which enable 24/7 USD clearing. In supporting real-time treasury, a bank’s ability to support 24/7 USD clearing is particularly valuable for global companies that operate across multiple time zones. Barker provided an example: "A company might have several hours during the day when their dollars are 'trapped' in the system and cannot be cleared. Our real-time treasury solutions help them release that liquidity, allowing them to optimise their cash flow and respond more effectively to emergency situations."

BNY has also invested in developing virtual account solutions, which provide clients with crucial straight-through processing and cleaner reconciliation, helping them to segregate cash and transactions across multiple business units or entities.

Virtual accounts allow clients to manage and reconcile their transactions more efficiently, reducing the administrative burden on their treasury teams. Barker cited a banking client that processes a large volume of letters of credit as an example of how virtual accounts can be used to streamline operations. Letters of credit are a financial instrument used in international trade to ensure that payment will be made to the seller provided that certain delivery conditions are met. "These virtual accounts help our clients separate and reconcile transactions more efficiently, enabling them to manage their operations more effectively," she explained.

In addition to these innovations, BNY has focused on enhancing security through advanced fraud detection systems. Barker emphasised that "with faster payments comes a different type of fraud risk, and striking a balance between enabling faster payments and ensuring security is crucial." BNY’s fraud detection tools use artificial intelligence (AI) and machine learning to score transactions based on client behaviour patterns, identifying potential risks before payments are processed. This multi-layered approach to fraud prevention is essential for maintaining the integrity of real-time payment systems.

Blockchain-enabled FX payments and the promise of interoperability

One interesting development in cross-border payments is BNY’s proof-of-concept (PoC) with OCBC (Oversea-Chinese Banking Corporation) to develop a blockchain-enabled cross-border foreign exchange (FX) payment solution. This PoC aimed to test the interoperability of two separate, bank-operated blockchains, with the goal of increasing settlement speed, reducing costs, and enhancing competitiveness for bank clients.

Barker explained that the PoC used hashed time-lock contracts to facilitate the exchange of foreign currencies between the two blockchain networks. Hashed time-lock contracts are a type of smart contract used in blockchain technology that ensures the transaction is only completed if certain conditions are met within a specified time frame. "The goal was to increase settlement speed and reduce the costs associated with FX transactions, making the process more competitive for our bank clients," she said. The successful demonstration of this PoC has significant implications for the financial services industry, as it shows that blockchain can be used to improve the efficiency and security of cross-border payments.

The success of this PoC has led BNY to participate in Project Guardian, an initiative led by the Monetary Authority of Singapore (MAS), to explore real-world use cases for blockchain in financial services. Project Guardian is a collaborative initiative between MAS and the financial industry aimed at developing and testing the application of distributed ledger technology (DLT) in financial markets. Barker emphasised that one of the key outcomes of the PoC with OCBC was to demonstrate the potential for interoperability between different blockchain networks. "True interoperability is crucial for reducing the technical and financial barriers associated with cross-border payments. It’s an exciting advancement, especially from a fraud reduction perspective, as blockchain networks operate under strict, pre-programmed conditions that significantly reduce the risk of fraud," she noted.

Addressing payment security in a real-time world

As the financial industry shifts towards real-time payments, the challenges of ensuring payment security have become more complex. Barker highlighted the "cost of fraud in 2027 is predicted to be about $40 billion, making fraud prevention a critical focus for the industry."

BNY has fraud prevention tools, including AI and machine learning algorithms that score transactions based on client behaviour patterns. These tools are designed to identify anomalies in transaction data, flagging potential risks before they can cause significant damage. Barker described the process as "a multi-step fraud control mechanism," where the first step involves validating the account information before a payment is even processed. This pre-validation step is crucial in real-time payment systems, where the finality of payments occurs almost instantly, leaving little room for error.

Additionally, BNY collaborates with industry bodies like SWIFT to develop shared models and insights that enhance fraud prevention across the sector. SWIFT is a global provider of secure financial messaging services, used by thousands of banks worldwide to transmit information about financial transactions. Barker emphasised that "no single bank has enough market share to see across the entire industry, which is why collaboration is so important." Through partnerships with SWIFT and other financial institutions, BNY is helping to develop industry-wide solutions that can better protect the global financial system from fraud.

Looking ahead, Barker identified two key areas of innovation that will shape the future of cross-border payments: smart routing and interoperability. Smart routing technologies will relieve clients of the burden of determining the best payment rails, while interoperability efforts aim to integrate disparate payment systems in a cost-effective and secure manner.

BNY is also supporting the adoption of digital assets, to enable our clients globally, including across Asia.  Central bank digital currencies (CBDCs) are digital versions of a country’s official currency, issued and regulated by the central bank. Barker noted that BNY is "in the preparation business," focusing on building the technology needed to support interoperability of payment capabilities as they are adopted by its clients. The bank is developing solutions that will allow it to interoperate with various payment initiatives globally, including CBDCs, ensuring that it remains at the forefront of emerging trends.

Barker also highlighted the importance of continuing to enhance BNY’s real-time treasury capabilities. "24/7 dollar clearing is a critical capability for our clients in Asia, and we’re committed to further building out this service," she said. This focus on continuous improvement and innovation is central to BNY’s strategy for staying ahead of industry trends and meeting the evolving needs of its clients.

BNY’s strategic role in Asia Pacific

With over a century of history in Asia Pacific, BNY has cemented its position as a leading provider of financial services in the region. The bank clears approximately $3 trillion in payments daily and settles transactions in over 100 currencies, supporting financial institutions across Asia in optimising their cash flow, trade finance, and fraud management.

Barker explained that BNY’s approach to innovation is driven by its clients' needs. "Our job is to help our clients grow and support them in their strategy to offer market leading payment, liquidity and trade solutions," she said. The bank’s recent partnership with the Commonwealth Bank of Australia (CBA) to clear payments through Australia’s real-time payment system is just one example of how BNY is evolving to meet its clients' demands. By enabling clients to clear payments in real-time through local clearing systems, BNY is helping them achieve greater efficiency and control over their financial operations.

Furthermore, BNY’s focus on data and analytics provides its clients with valuable insights into their transaction flows, helping them make more informed decisions about how to manage their cash flow and optimise their operations. Barker noted that BNY’s advanced data analytics are particularly beneficial for its bank clients to help these institutions minimise risk, streamline payments and optimise liquidity.

BNY’s continued innovation in cross-border payments and its strategic focus on Asia Pacific underscores the bank’s commitment to leading the financial services industry into the future. Barker asserted that BNY is not only addressing the current challenges in payment security and fraud prevention but is also laying the groundwork for the next wave of advancements in digital payments and blockchain technology. As Asia Pacific continues to lead in digital adoption, BNY aims to remain a crucial partner for financial institutions seeking to navigate this rapidly changing landscape.