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NACHA Payments 2013 - Complementary Paths to Global ACH


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The financial services industry seeks to provide customers the benefits of lower payment costs offered by Low Value Payments (LVP). When evaluating different products and services, many compare the Federal Reserve’s FedGlobal (TM) service with those offered by third-parties. Global financial institutions can also evaluate the possibility of leveraging their own international presence and capabilities. Speakers discuss the complementary nature of strategies as well as sound business practices and lessons learned from the Fed’s vendor and financial institution-owned infrastructure to achieve global ACH capability.

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NACHA Payments 2013 - Complementary Paths to Global ACH

  1. 1. Complementary Paths to Global ACHNeil BurtonEarthportJorge JimenezFederal Reserve Financial ServicesHoward ShawHSBC
  2. 2. 2DisclaimerThe views presented are those of the individualpresenters and do not reflect the views of the FederalReserve Bank of Atlanta, the Retail Payments Office, theBoard of Governors, HSBC, Earthport, nor any person orentity.The content of this presentation is intended to serve asgeneral information and not as legal counsel or as expertadvice about IT. If the issues in this presentation interestyou, you should consult your own legal counsel and/or ITprofessional.
  3. 3. 3Agenda• Scale of opportunity• Key international ACH service characteristics• Sourcing options
  4. 4. 4Why Global ACH?Regulators areimposingtransparencyIncrease in lowvalue globaltradeCustomersapproached byalternativepayment providersConsumerglobalisationtrendsExistinginternationalpayment processesnot suitable
  5. 5. 5Analysts oftenrefer topayments as acommoditybusiness. Thisisn’t true forcross-borderpayments.Cross-Border Payments Perspectives,Glenbrook Research Brief 2011Domestic InternationalHighvalueLowvalueRTGSCLSThe payments landscapeACHHybrid closed loopmodel ‘Global ACH’Multiple correspondentbanks
  6. 6. 6Sizing the market - consumer2009 US RemittancesOutward Workers’ remittances $37.5BnOutward Compensation of employees $10.8BnSource: World Bank
  7. 7. 7From unbanked to low-value requirementsMigrant worker or new citizen?Dodd Frank 1073 –Requirements• Full fee disclosureat the time oforigination• Guarantee ofamount of finalfunds delivered• Guarantee whenfunds will bereceived• Right to cancel atransaction up to30 minutes aftersubmissionRegulators drivingimproved servicelevels
  8. 8. 80 200 400 600ItalyVenezuelaSaudi ArabiaNetherlandsFranceBrazilUnited…GermanyMexicoCanada2011 US Foreign Trade, BillionsImportsExportscashvolumevalueCorporatecashmanagement ‘E-commerce’creates demandfor openaccountTraditionalstructured productsLow value transactions settled withcash, cheque & e-walletThe traditional trade curve
  9. 9. 9volumevalue78% of Chinese exportsare made by SMEsOpen account tradewill grow by nearlyfactor of 3 by 2020Supply chainsdefragmentingIncreased open account trade
  10. 10. 10WorkersRemittancesP2PInternationalBusinessPaymentsACHInternationalExpanding domestic ACH
  11. 11. 11The need todayDo your customers need to make international payments?“Yes but all they need is international wires”
  12. 12. 12International ACH benefitsNo beneficiary deductionsLower costsTrue innovation in bankingConsistent delivery timesMultiple FX optionsInternational offeringaccessible to allinstitutionsregardless of sizeFI can also handle own exchangeInternationalBusinessPaymentsACHInternationalImproves transparency for customersPayment automation
  13. 13. 13Domestic vs. International ACHIn domestictransactions youcan use USABA# andAccount number,but what aboutinternationaltransactions?
  14. 14. 14InternationalA2A exampleGateway RT andCanada: CPA # and Account numberPanama: RT# and Account numberMexico: ABM# and CLABE (18 digits)Europe: BIC# and IBAN
  15. 15. 15InternationalA2R exampleGateway RT andMexico: 647R (ABM) Password (acc#)Latin America: CO00212336750000023642525565656511 (phone number)
  16. 16. 17ACH FlowExample: Fixed-to-Variable payment to MexicoODFI FedGlobalGateway OperatorRDFIBANXICOGateway OperatorIAT IAT LocalUSD USD MXNFX02:15 a.m. ETDay 0 Day 1(USD to Pesos)
  17. 17. 18Transaction Information18
  18. 18. 19Account number abroadHow does the IAT work?
  19. 19. 20Global payments challenges• Estimates predict there will beclose to 7 billion cross-borderpayment transactions by 2013representing $500 (1)• Cross-border payments remainslow, costly and inefficient• Varying rules and regulationsgoverning cross-borderpayments between originatingand receiving countries• Cross-border often treated asexception items• Companies traditionally maintainmany local currency accounts tofund local paymentsNote: (1) The Boston Consulting Group, “Navigating to Win – GlobalPayments 2006”Cross-border transactions remain slow, costly and inefficientVolume of retail cross-border and cross-currency transactions isgrowing swiftlyPeople livingabroad receivepension or salariesfrom their homecountriesImprovements tofulfilment systems andexponential growth indigital commercedrives volume andfrequencyComplexityRegulationGlobalisationInternationalTradePopulationMobilityCostTransparencyGlobalisation fuels growth ininternational trade and populationmobilityTransactions throughmultiple bank accounts indifferent currencies/countriesLack of transparency oftransactionfees and FXrates appliedCross-bordertransactions aresubjectto multipledomesticregulationsCross-bordertransactionsCross-borderpayments aretreated asexception itemswith high cost ofprocessing
  20. 20. 21Reviewing the business case• Intermediating the bank into new customer relationships– Serving current customers better• Corporates – pensions, expenses, dividends• Retail• Bringing new product to market– Bulk file disbursement• Retaining the bank’s position in the value chain– Own the customer– FX– Float• Addressing regulatory demands– DFS1073– Minimising total cost of ownership across service lifecycle
  21. 21. 22Sourcing options to obtain reliable SLAs• Use the domestic ACH rail and the Federal Reserve as the FGO• Build own infrastructure and network• Source service from another bank• Source service from one or more specialist regulated payments services providersOften a combination of the above options providesbest balance ofcost and capability
  22. 22. 23Bank ACH stakeholders must work together!When thinking of implementing we suggest you include representatives from…Treasury Product Office ComplianceCommunity Development International Desk (ifpresent)Retail Banking ACH Operations
  23. 23. 24Global Bank leveraging Global InfrastructureA few global banks have the global scale to enable clients to no longer require accounts in eachcountry to effect local payroll and vendor payments, with 3rd parties aiding to fill gaps forcountries/regions where the bank doesn’t yet have direct entry to local ACHOptimalAccountStructure&PaymentFlowBank ZAccount BAccount A Account DAccount CBank YBank XToday TomorrowGlobal Bank Serving Multi-National Clients
  24. 24. Questions and DiscussionNeil Burtonneil.burton@earthport.comJorge Jimenezjorge.jimenez@atl.frb.orgHoward
  25. 25. 26Role of the Federal Reserve Bank• The Federal Reserve has a public-interestmotivation in seeking to stimulateimprovements in the efficiency of thepayments system.• FedGlobal allow efficient internationalreach to all USFIs regardless of size• Background on FedGlobal• Created in 1999 – GA 2001• Promote the use of ACH internationally• Eligibility, participate in FedACH as anOriginating Financial Institution (ODFI)• All transactions are settled in FedAccounts• Federal Reserve System is the FGO toreach North and South America as wellas Europe• Federal Reserve is currently evaluatingan further expansion of service• Transaction types supported• Government, consumer and commercialACH payments• Outbound Credits (Canada supportscredits and debits)• Fixed to Fixed US Dollar, Fixed toVariable, and Fixed to Fixed ForeignExchange (F3X)• Global Partnerships• Central bank, Local ACHs, and foreigninstitutions• Individual contracts established for eachpartnership• Negotiate business terms, operationalguidelines, formatting, exceptions,research, and connectivity• Agreed Upon Global SLAs
  26. 26. 27About Earthport• Earthport is a regulated global financial servicesorganisation specialising in cross-border payments.• Established in 1997• FSA regulated• SWIFT member, supervised financial institution• Traded on the London Stock Exchange (AIM: EPO)• Major investors: Henderson, Schroder, Blackrock, Millennium• Global footprint with regional offices in London, New York and Dubai