October 11, 2022
By Gary Palmer, CEO, Payall
I created Payall to put banks and other financial institutions worldwide safely at the center of cross-border payments and to provide their customers with superior product for their international money transfers. And here’s why.
Up to 5% of global GDP is illegally laundered through banks, enabled by a correspondent banking model that’s fundamentally defective and clearly not fit for purpose. (With global GDP estimated to be $94 trillion in 2021, this means nearly $5 trillion could have been laundered through banks last year.) The current paradigm is based on “trust” and characterized by manual and disjointed processes, opaqueness (meaning critical data isn’t shared across the ecosystem) as well as antiquated currency conversion and payment orchestration—all of which contribute to making the status quo slow, costly and error prone.
Think about it. The nearly $150 trillion cross-border payments market —essential to power global and local economies—is categorized by regulators as “high risk” and, except for the largest banks, financial institutions are forced to “de-risk” by exiting this market. This isn’t the fault of banks—nor their regulators—but the result of a lack of fresh, critical thinking and resources to build proper infrastructure that gives banks safe, modern, efficient and inclusive product.
How is this acceptable in the 21st century?
Number of Correspondent Banks Worldwide: Down 22%
Between 2011 and 2019, the number of active correspondent banks declined by about 22% –creating issues not only for U.S.-based banks wishing to support their customers’ international payments but also for foreign banks that have lost their U.S. correspondent banking relationships, preventing them from servicing their customers’ payments into the U.S. Meanwhile, demand for cross-border payment services continues to surge at about a 5% CAGR —as the needs of businesses and individuals within and outside the U.S. grow to pay vendors, suppliers, contractors, shareholders and service providers worldwide.
The world’s largest banks and specialty fintechs are winning by default as businesses and consumers are forced to find product because their banks were de-risked from offering cross-border payments. Regarding fintechs, these nonbanks are energized by this messy state of affairs, stepping in with capabilities—sometimes marginally regulated—to support cross-border payments, and they’re winning customers from financial institutions forced to exit. It’s a hassle to switch banks and can be uncomfortable—if not scary—to put so much trust (and money) with nonbanks and hope they deliver.
Even putting aside the formidable issue of de-risking, many small and medium-sized banks are blocked from cross-border payment participation because there’s never been specialized software to automate processes as well as to address the complexity and costs of maintaining the necessary compliance protocols and correspondent banking relationships to facilitate international money transfers. These barriers prevent smaller financial institutions from building relationships and revenue streams from businesses and others that need cross-border capabilities.
The Current Paradigm Is Defective: ‘Trust’ Alone Isn’t Enough!
The cross-border payment status quo is unacceptable because it’s failing to prevent massive amounts of money laundering (and other types of fraud), despite staggering investment in anti-money laundering solutions (expected to hit $4.5 billion by 2025 ).
Even after 50 years, clearing banks lack a see-through to vital payer identity details necessary to directly execute Know Your Customer, sanctions screens and other checks on originating banks’ customers. Correspondent banks operate on “trust.” That is, they trust that the foreign bank has effective KYC, anti-money laundering and risk mitigation abilities. But the volume of nefarious payments is proof that trust isn’t working.
Moreover, banks think of Know Your Transaction as an after-the-fact audit or compliance review to look for anomalies to flag suspicious transactions for deeper examination. But after-the-fact KYT is too late to prevent money laundering, terrorist payments and funding of other illegal and horrific acts like human trafficking. What’s necessary is a pre-transaction, dynamic, digital engagement to collect and interrogate data, documents and new artifacts to establish confidence in the legitimacy of the transaction and protect the safety and soundness of the payment system.
Highly specialized, precision, personalized KYC and KYT—along with Know Your Customers’ Customers—tools are essential. Our software and processes are purpose built for these.
The Stakes Are High—and Personal
Accessibility and inclusivity aren’t buzz words at Payall. We believe the protective sanctuary of banks and other regulated financial institutions should deliver product for all parties that need cross-border payments for individual or business purposes—even as globalization adds exponential complexity. The world’s workforce and value generators are increasingly more distributed and diverse. Global marketplaces, like Etsy and Airbnb, empower individual craftspeople to sell their products and property owners to tap an invaluable source of extra money; self-employed professionals offer services through websites like Guru; independent agents and contractors, along with global nomads, from every country engage in business worldwide; and even small businesses buy from other small businesses in countries outside their own.
Limiting cross-border payments or transfers to bank accounts, which is how funds are delivered by banks today, isn’t sufficient to accommodate the diverse lifestyles or social preferences of recipients, nor does it recognize the money management needs of families and businesses. And, it falsely assumes all recipients have access to affordable bank accounts. In many countries, alternative or modern financial products, such as mobile money or digital accounts, are more commonplace than bank accounts, with up to 90% coverage vs. 30% coverage of bank accounts. In others, cash is still king. And even more variations exist as we consider the use of “cards” versus “accounts.”
Making payments safer, faster and less expensive to the ecosystem isn’t enough. They must be inclusive and accessible to recipients, so banks can enable customers to pay anyone—even the unbanked—anywhere.
Compliance officers and regulators are doing their best, but the disconnected manual processes, opaqueness of data and absence of any ability for direct execution of compliance and risk mitigation expose the need for a new system and new approach. This is what Payall has built, the first-ever end-to-end infrastructure for cross-border payments and international money transfers for banks, central banks and other regulated entities.
Payall decisively and uniquely addresses these myriad complex issues. With Payall, any bank, anywhere can safely and efficiently enable its customers to originate these payments as well as support foreign-initiated payments from foreign banks. Now—for the first time ever—those who make and receive payments can continue to do business with their trusted and convenient bank, because that bank, regardless of size or location, can offer modern, safe, efficient and easy-to-use cross-border payment and international money transfer product options.
Payall is the go-to technology and service provider to lead product innovation as well as the safety and soundness of cross-border payments and international money transfers. If you’re a financial institution, customer of a financial institution, central bank or business disappointed by current cross-border offerings, let’s talk. Together, we can improve cross-border payments.
Connect with me here.