Tracking the Future of Cross-Border Payments with AI ML and Blockchain

By Sudipto Ghosh On Feb 19, 2020

The global payments landscape is undergoing a massive reorganization. Industry researchers and analyst groups attribute this seismic change to many factors. Technological advancements and competitive forces have proved to be the biggest transformational forces in the payments industry that have combined together to meet both consumer demands and standard banking regulations.

According to Ernst & Young’s (EY) recent FinTech report, the global real-time payments market is projected to US$ 25.9 billion by 2023. As the focus shifts from traditional banking to digitalized commerce and unmanned experiences, we shall see a growing role in payments for AI ML, Blockchain and Cybersecurity.

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What are Cross-Border Payments?

Any financial transaction that involves individuals, enterprises, banks or payment settlement institutions operating in two or more different countries is called cross border payment. These transactions may occur between neighboring or non-neighboring countries. To complete the cross-border payments, both parties may avail of the automated services provided by a third-party foreign currency exchange platform.

Different economic regions have their own foreign exchange transaction guidelines. For example, cross-border payments in the EU are subject to Regulation (EC) No 924/2009.

Cross-border Payments Category

With the rise of cross-border retail transactions, we are witnessing a very unique development in the global payments market. Today, a consumer in the payments industry could be an individual, an agent, a business unit and a government. Therefore, we shall categorize agents in a modern payments ecosystem through these relationships

Person-to-person (P2P)
Person-to-business (P2B)
Person-to-government (P2G)

The various permutations and combinations between Persons, Business, and Government shall yield these relationships: P2B, P2G, B2B, B2G, B2P, G2G, G2P, and G2B. The payments Service Providers (PSPs) provide the digitalized interface for end-users, enabling customers to interact with back-end providers. In recent years, non-banking online payments service providers and mobile carriers have emerged as the fastest-growing PSPs, interlinking cross-border payments services with the established credit unions.

In this journey from traditional money transfer to automated and secured cross-border payments, we have identified the phenomenal role of data science-backed AI ML and Blockchain.

Let’s track how AI ML and Blockchain capabilities would transform the future of cross-border payments in 2020 and 2-3 years from now.

Banking on Distributed Ledger Database

Today, it’s very safe to say that financial services have become the leaders in blockchain adoption. Bitcoin-based Blockchain software is now acting as an automatic public ledger for transactions, opening up a trail of new avenues for cross-border payments. Popular payment networks such as Visa and MasterCard are equally vocal about pushing the bar for the adoption of distributed ledgers powered by blockchain to replace their traditional networks. Today, both Visa and MasterCard use blockchain-based distributed ledgers in B2B payments and cross-border settlements.

As we head into 2020, blockchain is expected to grow into an Omni-Commerce platform for security and financial tracking systems. In its present form, Blockchain provides an unprecedented level of transparency that helps reduce fraud and errors with an “immutable, security-rich and transparent shared digital ledger.”

Marie Wieck, General Manager, IBM Blockchain, had said –

“There is tremendous opportunity to apply advancements in blockchain technology to transform the insurance industry. By helping solve some of the biggest problems challenging the industry from eliminating silos of information to improving efficiency, blockchain can truly make an enormous impact and even lead to new business models.”

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Non-uniform pricing of goods and services is a common challenge that retail and B2B service providers face while selling overseas. Cross-border payments that provide AI ML-based Dynamic Pricing solutions to users help customers identify the best pricing for optimized sales and profitability.

Open-source FinTech Development

FinTech is enjoying the benefits of the democratization of technology via open-source communities. One of the leading names in open-source FinTech innovation is FINOS. The Fintech Open Source Foundation (FINOS) is accelerating AI ML and related technology innovations through various open-source projects. Some of the notable projects in FinTech-based Cross-border payments are:

OpenFin React Hooks, for Hadouken
Financial Delivery Accelerator, for FDX
Symphony Electron, with Symphony Platform

Leading financial institutions including Citi, Goldman Sachs, Credit Suisse, BNY Mellon, UBS, JP Morgan, Morgan Stanley, and Nomura are collaborating on emerging Cloud and AI ML platforms such as IBM, Red Hat, Symphony, Voice, OpenFin and Refinitiv.

Stellar is another noteworthy blockchain innovator that is working on diverse open source projects for cross-border PSPs.

Financial Inclusion with Mobile Money

Today, we have managed to cross the barriers related to the speed of payment processing, data loss, and identity theft.

AI and Machine Learning are enabling financial institutions to address the processes of universal cross-border payments. Companies like Ripple and KlickEx are helping customers to move money to all corners of the world at an unmatched pace and security. For a large part of the early FinTech era, we witnessed how slow payments processing and loss of data hampered the adoption of technology.

Designed to reduce the settlement time and lower the cost of completing global payments for businesses and consumers, companies like KlickCX partner with IBM blockchain technology to “improve the flow of currency and commerce, and help achieve the goal of extending financial services to one billion people by 2020*.”

The Arrival of Central Bank Digital Currencies (CBDC)

The Federal Reserve, the central bank of the United States, emphasized the role of Big Data and FinTech companies in further disrupting the future of cross-border payments systems. In a blog, a senior Fed Reserve analyst highlighted the current opportunities, threats, and challenges in dealing with unregulated financial platforms. From divulging plans to regulate Bitcoins, Staeblecoins and Facebook-owned Libra cryptocurrency to identifying China’s digital currency move- the Fed Reserve is fully-aware of the “implications for the broader financial system of the issuance of the Central Bank Digital Currencies (CBDCs).”

Real-time Treasury with Open Banking Models

In a recent report, Deutsche Bank stated the role of new technologies such as AI, Machine Learning, and Robotic Process Automation in boosting the adoption of Real-time treasury management for cross-border B2B payments. The open banking and API intersection with Cross-border Payments mechanism would fasten the process of FX management, Compliance and RegTech Management, e-Invoicing management, cash-flow forecasting, and intra-day liquidity analytics.

A trend report on customers’ demands suggests that AI ML’s role is not only restricted to CBPs but also in effectively managing liquidity in real-time. According to Euromoney 2018 Survey – ‘The Impact of real-time and APIs on treasury’, nearly 84% of the respondents acknowledged the value of tech-driven ability to move cash and liquidity in real-time 24/7.

In a hope to empower businesses and citizens with better cross-border payment solutions, technology providers and government bodies have to come together to make FinTech a more trusted and secure ecosystem in 2020. The role of AI ML and ledger is unquestionable when it comes to letting them add the impenetrable layers of security, identity management, and inclusivity to the global FinTech community, especially in the cross-border payments category.