Few parts of the financial sector are currently seeing transformation as significant as the B2B cross-border payments landscape. Buoyed by rising expectations both from a customer and policy perspective, as well as an ever-growing total addressable market, B2B payments providers across the industry are looking to up the quality and capabilities of their cross-border services, creating key opportunities for infrastructure providers such as Mastercard.
“Cross-border payment rates are moving up at double-digit rates from a year-over-year perspective, so we think that there’s a great opportunity for Mastercard to be a player in that space,” explains Chad Wallace, Executive Vice President – Global Head of Commercial Solutions, Mastercard.
Through its Mastercard Move offering, Mastercard already provides a variety of cross-border money movement capabilities as a B2B2X provider. This sees it serve banks, payment companies and other fintechs, with recent partner announcements include global bank Citi, consumer money transfers provider Paysend and UAE-based banking-as-a-service provider Nymcard.
However, today it has significantly expanded its focus on the B2B side of the market with the launch of Mastercard Move Commercial Payments. Available 24 hours a day, 365 days a year, this is a near real-time payments solution focused on intra and inter-company treasury flows and other corporate payment types.
As a result, it is largely focused on underpinning the transaction banking services of banks, who as of 2023 accounted for 92% of B2B cross-border payments, according to data from my own company FXC Intelligence.
“This is really the first move into B2B payments,” says Alan Marquard, Executive Vice President, Global Head of Transfer Solutions, Mastercard.
“We’re primarily looking at trade and treasury payments, not wholesale or the smaller B2B FX payments we do in Mastercard Move already. This is really aimed at trade flows, principally in the major currencies in which those happen.”
Augmenting, not redesigning, the global payments system
The announcement of Mastercard Move Commercial Payments comes as the banking world meets at Sibos, the conference of industry standard cross-border payments messaging network Swift, which Mastercard’s solution is built on. This decision, says Marquard, was made because Swift is “what banks are already using” and that “trying to get people to use a new messaging standard when we’re just getting through the 20-year journey of getting people onto ISO 20022” would be challenging.
“It’s also a rich data standard with CBPR+,” he adds, referring to the workgroup to ensure the common rollout and implementation of ISO 20022 by banks. “It can carry legal identity identifiers and unique transaction identifiers. We don’t want to throw that away.”
However, this approach of augmenting the existing payments system also reflects a wider shift in mindset that has followed the Financial Stability Board’s G20 Roadmap for Enhancing Cross-Border Payments. Setting out targets for improvements to transparency, speed, cost and access to cross-border payments by 2027, the Roadmap has been a key focus for the space both at a policy and industry level, with the latest yearly performance update due to be published later today.
This has seen significant collaboration and engagement from industry players, yet the tone of discussion has changed significantly in recent years. When the Roadmap was first being discussed, the focus was on radical overhauls to the world’s payments infrastructure. However, this has shifted to practical, achievable improvements to the current system, which Mastercard is keen to focus on.
“We did not want to be part of the endless story of transforming payments with some new idea written from scratch, taking out correspondent banking for the future,” says Marquard.
“Innovative ideas are fantastic, but you’re talking about well-entrenched global banking players and transaction banks that have a justified reliance on Swift, which has reach and messaging capabilities that no one’s going to throw away to build some new idea that’s supposedly going to supplant trade payments.”
Overcoming transaction banks’ cross-border payments pain points
While it was not looking to reinvent the global payments wheel, the company’s development of Mastercard Move Commercial Payments was designed to enhance the current capabilities of Swift to better solve issues faced by banks and align the experience with that seen in domestic payments.
This has seen it focus on addressing several key pain points commonly experienced by transaction banks and other financial institutions when serving corporate clients, one of which is failed payments. Payments can fail for a variety of reasons, including data, risk and compliance issues, requiring banks to quickly and efficiently respond and incurring operational costs in the process, and can also present customer service issues.
On the accounts receivable side, meanwhile, Wallace also highlights the importance of supporting the working capital needs of clients. He cites the results of a study Mastercard conducted among mid-market companies in the US, who highlighted having certainty around their receivables and the knock-on implications to their cashflow as a leading concern.
Then there is also the issue of settlement, and in particular its impact on liquidity.
“As the correspondent banking network is used, settlement happens across the chain of payments and that essentially traps liquidity that the banks have in these nostro accounts that are sitting across the globe,” explains Wallace, adding that managing trapped liquidity in nostro accounts is a particular focus for transaction banks.
“How they manage that; how they facilitate the funding of those accounts on a regular basis, how they manage to keep the capital, the liquidity that sits in those accounts low overnight so that way they’re not trapped within those resources.”
Relatedly, there is the issue of settlement. While Wallace acknowledges that “not every payment needs to be real-time”, he highlights growing areas where the ability to move funds rapidly is key.
“In some of the emerging use cases we’re seeing, companies need to be able to quickly move funds for things like settlement of an escrow transaction,” he says, adding that in cases the cross-border need may be more real-time than for use cases such as invoices.
“We’re continuously hearing aspects of different use cases that, first of all, need to be real-time and, second of all, need much richer data for them to be able to manage the accounts payable process and the accounts receivable process in a far better manner.”
Developing an orchestration scheme for global payments
In responding to the needs of transaction banks, the company has developed Mastercard Move Commercial Payments to include settlement options to increase the flexibility surrounding liquidity, as well as embedding a multilateral arrangement to reduce counterparty risk and ensure that the outcome of the payment can be ensured prior to its sending.
On a technical level, however, this has seen the company lead with an orchestration-focused solution.
“The one thing that seemed to be missing in the story was some kind of orchestration and clearing function,” explains Marquard. “A system that would be able to line up the expectations of payers, everyone in the correspondent banking chamber, particularly the receiver, to see that what was being sent is what was expected, to see that all the data that is required is transferred intact to everybody in the chain.”
This has seen Mastercard develop a scheme-based orchestration layer, an approach that the company felt “was the right way to go”, in part because of its experience as a card network.
“We’ve got a lot of experience in terms of standardizing the rules of engagement and how a system works from our history in card payments,” he says, adding that multiple other current interoperability projects, including the BIS’ Project Nexus, show that “this idea that you need a set of rules that brings things together is not new”.
The result is a system that is designed to be flexible in terms of the controls that can be put on transactions, enabling rejection rates to be minimized, while also allowing receivers to choose what type of transactions they want to receive. This is also intended to allow better support of banks’ settlement issues, ensuring that liquidity is not trapped in the process. And here, while the company will engage in “light-touch pre-validation”, according to Marquard, that is “not actual clearing”.
“What we will be doing, which goes beyond what has been done to date, is we will actually be engaging with the end customer and making sure that they match the instruction to pay.”
Future proofing for digital currencies and beyond
Crucially, while the solution’s design is initially focused on commonly used fiat currency pairs, it also lays the groundwork for settling in digital currencies, among other future developments, in recognition of the potential evolution of the cross-border payments landscape.
“There’s definitely a clear move that digital currencies are growing, they are going to be a necessary settlement capability of the future, so we wanted to be able to work in both domains,” explains Marquard.
This is achieved through a partnership with digital ledger technology-focused consortium Fnality, who provided the settlement venue for a UK-based pilot of Mastercard Move Commercial Payments with Lloyds Banking Group and UBS.
“For our pilot that we just completed, we chose to do that with Fnality, which is orchestration with settlement in the digital domain, but we’re also looking at settlement in different fiat currencies using the Mastercard settlement network itself,” Marquard says, explaining that this will provide clients with a choice on both how a settlement happens and what the settlement venue is, with choices set to be expanded in the future.
“That choice of venue also gives choice as to whether speed is the priority, or if batched or net settlement is the priority. All that choice we’ll develop over time.”
The potential of digital currencies is significant, particularly given the growing interest in stablecoins within the cross-border payments space, however the extent to which transaction banks are likely to engage with the technology remains to be seen.
“Transaction banks are looking for use cases to be able to deploy these,” explains Wallace, adding that there is also a need for education of corporate treasurers about the potential benefits of digital currencies.
“A lot of the treasurers that we talk to on a day-to-day basis are just scratching the surface on what digital currencies are. So being able to educate them, being able to understand the value, is a body of work that needs to happen across the industry rather quickly.”
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