How do cross border payments work? A guide for Lebanese businesses

As a country that relies largely on imports, ($19.7 bln imports vs $3.76 bln exports) the ability to pay suppliers abroad is key to the success of Lebanese businesses. Typically this process has been long and opaque as money travels through the correspondent banking system, with neither party knowing where the payment is or what fees will be applied. Many corporate treasurers are spending far too long communicating with their banks to find out where their payments are.

How exactly does money move around the world though?

The SWIFT system is a messaging system that allows financial institutions to “securely send and receive information on financial transactions in a standardized way”.  SWIFT doesn’t actually send money, it only sends messages between banks. This means more has to happen behind the scenes to actually transfer the money. This transfer incurs a fee. Depending on the complexity and the relationship between banks, these fees can add up.

If your bank and your suppliers bank have a direct relationship with each other, the process is relatively straightforward, but if the banks do not have a relationship the banks have to transact through an intermediary bank, and / or correspondent banks where they both have accounts. This is what usually causes the “3 – 5 business days” of waiting. In some cases this can reach up to two weeks or even more if the banks internal operations are slow (taking into account liquidity management, compliance etc).

In Europe, the Single European Payments Area (SEPA) simplifies cross border payments in Euros (the only currency SEPA supports). Whether the banks have a direct relationship with each other or they have to go through an intermediary, SEPA payments are usually cleared in 1 day and incur little to no fees for sender and receiver if utilizing the ISO 20022 or MX messages.  

PAYMENT ROUTING INTELLIGENCE

Reducing the time for funds to clear has obvious advantages, but what’s more important is understanding and being able to forecast the potential fees that are being applied through the correspondent banking chain. Most of the time businesses will send a payment but without any clear idea on how much would eventually be received by the supplier as charges are deducted for processing at each stage, and fluctuations in the foreign exchange rate.

SWIFT gpi is the latest enhancement by SWIFT in financial messaging. It allows cross border payments in multiple currencies, and offers Same Day Settlements. In addition, it allows for rich data to be passed along with the message and by using the gpi Observer – businesses get an end to end view of the status of their payments

In essence, SWIFT gpi helps corporates to improve supplier relations whilst achieving greater treasury efficiencies by enhancing the payments service.

HOW CAN YOUR BUSINESS GET STARTED WITH FASTER PAYMENTS IN LEBANON?

In Lebanon, only Blom Bank has gone live with SWIFT gpi (15th October 2018), and about 20% of local banks have expressed their commitment to the service. In order for local businesses to benefit from faster payments, we recommend they keep up the pressure on their banks to adapt sooner rather than later.  The case for faster payments is clear, especially for firms that experience a high volume of trade over the upcoming holiday period. Same day settlements and the ability to track payments from originator to beneficiary means less time spent trying to reconcile and more time selling.

In November 2018, SWIFT will mandate that every bank has to be able to receive SWIFT gpi messages and be able to forward those messages to the next bank. Even if the bank isn’t fully gpi compliant, it can still record and relay the right information so it can be tracked by others. This way, the chain remains unbroken.

At FinConnect, we’re making it easier and quicker for banks to upgrade to SWIFT gpi.  We can enable gpi readiness for banks within 25 days including automatic access to the gpi Observer dashboard giving a complete end to end view of transactions for both banks and corporates.

FinConnect is flexible enough to work with any size bank, even those which don’t have large in house IT teams, so no matter who you bank with, you can take advantage of faster payments.

WHAT IS SWIFT gpi?

SWIFT gpi is the best way to manage cross border payments for financial institutions and businesses all over the world.

SPEEDRemove featured image

Same Day Settlements. View incoming payments before a credit is posted to a client’s account.

TRANSPARENCY

End to End visibility through the chain, with insight into charges and FX rates

PREDICTABILITY

Payment Tracking and instant access to payment status including rejects and returns.

How does FinConnect work with Banks?:

We nurture banks from initial subscription to SWIFT gpi, through compliance testing and launching of the solution. FinConnect also trains bank staff on gpi business rules and how to maximize gpi usage for better cash management.

No need to allocate IT resources for gpi development or integration, we do all the heavy lifting for you!

FinConnect gpi Features:

• Adaptation of gpi rules for your business requirements
• Seamless integration with Core Banking systems and the SWIFT network
• Immediate full automation of payments (Outgoing / Incoming)
• Execution of all SWIFT mandated testing scenarios for compliance
• Access to gpi Observer: view gpi compliance of banks around the world.

Want to learn more?

Book a free demo today and learn how Fast Payments leads to even Faster Business.