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For commercial banks, a nagging issue is how to improve cross border payments. Compared to domestic payments they are more expensive, cumbersome and take longer to carry out. But despite banking technology coming on leaps and bounds, why do they remain such a costly headache?

The root cause is down to the disparities between financial regulation and lack of standards from country to country. With every jurisdiction requiring different processes means that a payment can take twice as long as a domestic one to complete. In addition, with a transaction having to be channelled through a number of institutions results in complications in processing through multiple systems and incurs fees.

Speaking on a panel at SIBOS this year, the CEO of my company Alan Trefler highlighted that difficulties with international payments are exacerbated by the fact that in this digital age, customers’ expectations are growing exponentially.

Solving the issue of silos

However, he argued that the biggest issue for banks in alleviating the problem is the siloed nature in which they are organised: “Banking channels think of themselves as being their own vehicle to talk to clients. Back-office engines such as payments seem to disassociate themselves from the very reason why people are making that transaction – the foreign exchange or trade transaction, for example.”

Until recently, a lot of banks were misjudging the competitive risk of the challengers. But as these new financial companies take the market by storm, commercial banks have woken up to the fact that the pressure to solve these issues has never been greater.

The fundamental issue of poor internal operational structures within banks is leaving them vulnerable to being picked off, silo by silo. For fintechs it’s much easier for them to attack one silo than to attack a relationship. In Alan’s words: “On the wholesale side if the individual parts of the transaction get decomposed into making the payment and banks are competing against organisations that are perfectly happy to lose money in the next 5 years – it could get ugly very fast.”

The solution is easier than you think

The pressing question is, how can banks break down these silos to reduce the chance of fintechs picking off their cross-border payments business? One of the solutions lies in ending an addiction to emails: For the successful elimination of silos, commercial banking organisations need to stop using internal email to handle how work gets done. It’s inefficient and there are more direct ways to manage work.

Additionally, banks need to use technology to bring together disparate areas of their business and unite them for customers. This way they can more easily observe the processes behind international transactions and move from a culture of inquiry to a culture of pre-emptive advice. To reach this goal, banks must grab AI and machine learning (ML) technologies with both hands. Using AI, it is possible to tailor every client’s experience in any channel, across multiple continents and jurisdictions. Improving customer service this way also means fintechs will have a tougher job of luring customers away from legacy banks.

AI and ML also has the ability to process millions of transactions every day, the knock-on impact being much quicker and stronger networks.

But with fintechs such as TransferWise disrupting the cross-border payments space, a dramatic rise in international commerce, and evolving customer requirements, traditional players would be foolish to delay their elimination of operational silos. By utilising technology that is engineered to automate across silos, connecting front-end channels to back-office operations, commercial banking clients will be closer to reducing friction in cross border payments.


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