This is, first, thanks to the self-service forex capability most banks now have on their transactional banking platforms and apps. Previously, for example, an exporter receiving funds would have waited for their bank to verify the payment and to phone to negotiate an exchange rate before the transaction could be processed and the cash eventually transferred. This took multiple calls and much paperwork.
Now, by contrast, these clients are notified immediately by text or online message. They can log on to online banking platforms, which enable them to check the funds are there, get quoted on an exchange rate or use an existing deal without the need for a forex dealer, do the conversion and provide the bank with the required balance of payments documents, and get the funds credited to their rand accounts immediately. The same would go for an importer making payments. As long as markets are open — which is 24 hours, five and a half days a week in SA — payments can be made.
The second factor that’s recently made cross-border payments more efficient is a big enhancement to the Swift global interbank messaging platform, through which client instructions and the resultant flow of funds is processed across the world’s borders and between its banks. An important reason cross-border payments used to be more onerous than domestic ones was that they typically took a while to clear through a network of correspondent banks, regulatory processes and time zones to ensure the currency reached its intended beneficiaries.
However, in early 2017 Swift launched the new global payments initiative, on which more than 830 banks are now live, with member banks including all the leading banks in developed economies as well as in SA. The Swift-GPI platform allows payments via banks to be completed, transparently, in minutes or seconds rather than days, with 40% of payments made within five minutes, and 96% within 24 hours. Numbers vary according to jurisdictions and may be slightly delayed for country-specific regulatory requirements, such as balance of payments reporting in SA.
The enhanced functionality introduced with GPI gives banks and their clients a much better ability to track and trace cross-border payments and gives clients confirmation of credit on the other side. It has significantly reduced the number of client queries. We’ve had clients hear back within half an hour that payments have been received by foreign counterparties.
The third factor that has hugely enhanced the speed and efficiency of cross-border payments is banks’ growing use of robotics and automation. Travel is one example, where we have used robotics to automate the entire process for clients of buying foreign currency. Outward payments are another. These involve extensive credit checking and validation of regulatory processes, all of which is now being done by robotics. Our bank has received SA Reserve Bank approval and implemented optical character recognition. This enables documentation for certain transactions to be transferred to electronic formats, which can be checked using robotics tools that initiate the credit and regulatory checks that are required.
Increasingly, then, banks are using technology to automate repetitive background tasks. This shortens the time taken to make and receive cross-border payments considerably, and these can take place outside working hours and over weekends.
Clients now have the power to do their own forex transactions, at a time of their choosing. Single dealer platforms also allow orders to be placed and managed by the client, typically in the corporate and commercial segments. They are also able to hedge their foreign currency exposures to an extent and with a flexibility that was not previously possible, thanks to regulatory changes allowing for active currency management by importers, exporters and others with cross-border commitments. And not only can clients process foreign currency payments electronically through their transactional banking platforms, they can also hedge their exposures electronically, and if necessary, adjust them.
Technology has made it possible, easy and efficient to do forex payments and forex dealing electronically, and the Covid-19 crisis has accelerated the shift from manual to electronic. But for many clients, the decisions and risk assessments required in dealing and transacting in foreign exchange are complex and stressful. The role of their bankers and dealers as trusted partners and advisers has become more important, not less.
There is still no substitute for picking up the phone to talk to one’s banker or dealer, and many clients don’t want to undertake complex forex transactions without seeking advice and expertise. Fortunately, the technology that makes life easier for clients also makes it easier for their bankers to focus on serving them.
Grant is CEO of RMB’s foreign exchange product house.
