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After Disruption:
How the rise of Fintech has changed the payments landscape

Corinne MacMillan June 4, 2019

The rise of financial technology (or fintech) this decade has disrupted almost every industry in the economy, from banking to transportation to retail, and that’s had profound effects on the payments industry. Fintech firms have accelerated the spread of globalization, making the world smaller and creating new opportunities by connecting businesses and consumers with workers and services across the world. As a result, we have seen an increased need for businesses to make payments to both other businesses and consumers.  These payments occur in a high volume but for a low nominal amount, and often across borders and in a variety of currencies. Traditional payment systems and legacy banking infrastructure have generally been poor at adapting to this new world, because they are either too expensive, too slow, too opaque, or the infrastructure itself is too complicated and expensive to repair to handle the increased volumes.

The payments industry has been challenged to find scalable solutions to these problems.  At the core, the existing players in the industry agree that making payments needs to be faster, more cost effective, and more transparent. This includes leveraging new technologies to communicate and modernizing internal infrastructure. Those of us that saw this shift happening about five years ago began working towards building a modern payments infrastructure that can integrate into the new landscape being created by fintech disruption.

As we look at the needs of fintech disruptors, and ultimately the businesses and the consumers they service, we have focused our attention on three key areas to ensure our technology is on the leading-edge of international payments:

Re-thinking Operational Workflow

Sending payments isn’t as simple as taking money from one account and placing it in another. There are many things to consider, including foreign exchange and credit risk, audit and compliance regulations, and anti-money laundering (AML) rules. This creates additional touch points in our operational systems, and these added layers mean we simply cannot manage the increase in volumes coming from this fintech disruption.  Reengineering the workflows in back office systems was one of the most critical pieces of work to handle this additional volume. But it is not easy; cashflows must travel smartly through each of the necessary departments, while ensuring that rules are in place to drive out only the true problems which require an operator to resolve while allowing the rest of the payments to flow unimpeded. We are at the tail end of our reengineered back-end workflow to make our technology smarter and to ensure that when our partners send payments, the workflow happens efficiently, securely, and thoroughly.

Data Validation

One of the major components of getting operations workflow right is ensuring you’re working with the correct data. With a high volume of payments traveling through the system, it is critical that the data collected is accurate and can be validated programmatically, without disrupting the straight-through process we are looking to achieve.  Sending many small payments to different regions of the world can get complicated – especially if money is being sent to countries with strict regulatory or governmental controls.  Banking partners may require different pieces of information to comply with these controls, in order to credit beneficiaries account. It is critical we provide an understanding to our fintech partners (and ultimately their clients) of what is required, to achieve our own operational straight-through-process and to ensure the payment is credited to the beneficiary by the receiving institution quickly and accurately. This comes with its own set of challenges.  Rules are changing all the time as we enter new corridors or add new banking partners with different requirements.  Though changes to rules can seems like a simple update to table, it is critical to have a strong rollout plan on each change that demonstrates a high degree of communication and allows for testing with partners before making them available in production.

Modernize your Communication

All payments industry players know, our systems have to “talk” in order for payments to reach their destination successfully. Traditional payment rails that have been the industry standard for decades have challenges in this area.  Though we are seeing innovation in areas such as transparency, they are still too expensive for this new model of high-volume, low nominal amount payments.  Modernizing this communication with either direct integration or messages via distributed ledger technology will help to solve speed, cost, and transparency issues for payments. This methodology has proven to be stronger at handling a growing number of payments at a price that makes sense.  Additionally, it will allow for us to provide innovation in the years to come to our fintech partners and clients.

As we look to the future, there are two goals we will continue to work towards: speed of delivery and certainty. Companies want their money to move in as close to real time as possible and they want to feel certain that the correct amount of money will arrive on time in the correct account. As payments technology advances, and with more information to communicate back to our fintech partners and clients, these goals become more achievable.

Our fintech partners are focused on solving their customers’ needs. They don’t want to worry about their payments getting from Point A to Point B. At Cambridge, it’s pretty much all we think about. We’ve spent years reengineering our API and experimenting with new payment rails to solve our partners problems, so they don’t have to.

Corinne MacMillan
SVP, Product Management
Cambridge Global Payments