I had the privilege of participating in a panel called “Can Banks Win in Consumer and Small Business Cross-Border Flows?” during this year’s virtual SIBOS conference. SIBOS is a banking and financial services conference organized by the Society for Worldwide Interbank Financial Telecommunication (SWIFT). It’s attended by thousands of financial services professionals every year. Joining me on the panel were Rebecca Mann, WU’s Global Head of Enterprise Partnerships Commercial Development, Grace Klopcic, a Partner at McKinsey, and Alex Johnson, JP Morgan Chase’s Head of the Foreign Exchange Product Network and Partnerships.
We kicked off our panel with a discussion on innovation in cross-border payments. We’re in the midst of an exciting and fascinating time in payments, with fundamental changes happening to many of the domestic and international settlement and messaging systems that support cross-border flows. Taken on their own, many of these advancements are evolutionary rather than revolutionary: payments are getting faster (even real-time in many cases), and more information is flowing alongside each payment. This evolution creates space for real innovation, and to be effective, innovation should always focus on helping our customers solve problems. For example, the improved speed of cross-border payments processed through Western Union Business Solutions’ network can help businesses better manage their working capital, which is more important than ever during the COVID-19 pandemic.
Customers’ needs are rapidly evolving, and the pandemic has accelerated several trends, including digital transformation. I expect it will also accelerate trade in global services. Services now represents 55% of total cross-border trade – it’s bigger than trade in physical goods – and we predict it will continue to grow through the 2020s [note: link to Go Global report]. The gig economy is certainly part of this increase. Additionally, our growing comfort with virtual working arrangements will help drive this trend: as companies grow more accustomed to working over a video call rather than in-person, it enables them to source expert labor for a given task from anywhere in the world. Improvements in core telecommunications infrastructure like 5G will help people in developing markets compete for these jobs on a more level playing field. This fundamental shift in cross-border trade will likely drive demand for cross-border payments to a different and more diverse set of countries. While there’s some unpredictability and volatility ahead, we can be certain that banks will need strong global coverage across their correspondent networks to meet their business customers’ demand for cross-border payments.
That said, many financial institutions and financial services companies struggle to balance their investments between business-as-usual, keep-the-lights-on activities that are critical for retention of current revenue, and innovative new solutions that could bring new customers into their portfolio. There will be similar trade-off decisions to make related to the capital and effort required to expand correspondent networks. Luckily, both of those problems are easily solved through partnerships.
Fintechs win when they solve a focused customer problem really well. This creates an opportunity for banks: they can evolve into a concierge of the best of the fintech world while still sitting at the center of the customer experience. This could take the form of partnering with someone like Western Union for cross-border payments and remittance, leveraging a technology partner for personal financial management tools, or partnering with Fintechs in focused spaces like trade finance workflows. There’s a universe of options out there, but ultimately I think the challenge and opportunity for banks is to tie together the best in breed across all of these categories to create an awesome user experience that helps their customer get their jobs done.
At Western Union, we’re working hard to make it easy for banks to leverage our global payment network to support their customers’ rapidly evolving needs. I’m confident that we can work together to help our business customers grow, help consumers support their loved ones, and retain and grow our revenue.