Local currency payouts versus international correspondent banking payouts

Time is money and moving money takes time. But what if there was a way to send international payments as quickly and easily as a domestic bank transfer?

There’s more than one way to send money internationally. Let’s look at two ways in particular: local currency payouts and international correspondent banking payouts.

Local currency payouts use banking rails in each country, effectively making global payments as quick, simple and cost-effective as local transfers.

International correspondent banking payouts rely on a network of banks in different countries providing services of behalf of others.

How do these two methods stack up against each other?

Coverage

• Local currency payouts: Global reach via a network of local banks and financial institutions in more than 100 countries.
• International correspondent banking payouts: Correspondent banks act as intermediaries or middlemen, offering services on behalf of others.

Alternatives to SWIFT wire transfers for cross-border payouts exist. Some payment service providers have developed their own international pay-in/payout networks. That’s in addition to the technical and regulatory rails behind the scenes to make global payouts happen.

Speed of settlement

• Local currency payouts: Real-time settlement 24x7x365 in countries with instant payments infrastructure. Near-instant settlement elsewhere.
• International correspondent banking payouts: 2-5 days

When consumers and businesses can send e-mails around the world instantly or order a meal or cab to the door in minutes, they just don’t understand why it takes five days to send an international payment. Speed of payment and settlement have become a competitive differentiator to attract customers, win their loyalty and power growth.

Exceptions

• Local currency payouts: Enhanced data validation helps prevent exceptions before they occur.
• International correspondent banking payouts: Returns and rejected payments are commonplace.

Some payment systems are like voicemail, whereas others are like a conversation. Based originally on telex, SWIFT has long been a single message system with no response. This is why payments are often returned or rejected. There’s also a lack of transparency around the routes transfers take and the times to execute.

By contrast, modern real-time payment systems are designed to confirm or reject each transaction individually to both payer and payee. Payments are irrevocable. So, both parties know whether payments have been successful within seconds, which leads to fewer exceptions.

Multi-currency

• Local currency payouts: Payouts without deductions are possible in a wide range of local currencies.
• International correspondent banking payouts: FX can be complex. Transfers may arrive net of fees and charges; these may not be known in advance.

International payouts can cost less than an international wire transfer. That’s what happens when you agree on fees according to transaction volume and value. And the FX margin is pre-agreed and fixed.

The right payment service provider should be able to support scores of local currencies. That’s in addition to making the logistics of multi-currency operations as easy for you as for your customers. For FX payments, they should determine an optimal FX spread to minimize deductions taken by downstream banks in the payment chain.

Reconciliation

• Local currency payouts: Payouts are consolidated into a single statement which, together with a good user interface to view all payments in one place, helps simplify reconciliation.
• International correspondent banking payouts: With so many payment corridors, currency pairings and transfer timeframes, international payouts can quickly become complex and reconciliation even more so.

Almost every business wants to harness operational efficiencies. That’s particularly around repetitive admin tasks such as payment reconciliation, which is not their core business. The right payment service provider should help simplify reconciliation on the back end. That’s usually by consolidating transfers into a single format or statement, plus allowing self-service tracking via an online app or portal.

Speed to market

• Local currency payouts: Rapid deployment possible via a choice of different connection methods.
• International correspondent banking payouts: Integration may be hard without a dedicated in-house IT team.

Payment systems architecture has evolved since the days of mainframes and batch processes. Offering a choice of connection methods – API, SWIFT, file upload or bespoke connectivity – helps decrease operational complexity. A single point of integration can not only reduce costs but also speed-to-market. And a low-to-no code base makes it quick to get started with international payouts, plus cost-effective to maintain over time with no need for a huge, in-house IT team.

User experience

• Local currency payouts: Good, digital-first UX that can be integrated into mobile or online banking.
• International correspondent banking payouts: Work required to fit functionality into modern user flows.

Payment systems born in the digital age lend themselves better to digital-first user experiences, in contrast to the 40-year-old SWIFT system. The right payment service provider will often allow customers to white label their solution. These are built to be integrated into existing UX/UI, and customizable to fit customer needs and branding.

Compliance

• Local currency payouts: Cross-border payouts are processed as if they were local transfers between members of the network.
• International correspondent banking payouts: Banks around the world are actively de-risking correspondent banking relationships, particularly in high-risk jurisdictions.

Correspondent banks have been paring back their cross-border banking relationships for the last decade, the Bank for International Settlements (BIS) found. This may detrimentally impact financial inclusion, raise the cost of cross-border payments or drive them underground.

However, alternative cross-border payout providers have developed their own direct and secure methods of clearing funds across borders. Naturally, these adhere to regulatory standards as well as anti-money laundering and anti-terrorist financing requirements.

Relationships

• Local currency payouts: A single contract to access a global network of local payouts.
• International correspondent banking payouts: Opaque relationships with third and fourth parties and multiple ‘hops’ in a correspondent banking chain.

Consolidating relationships into the right payments partner brings operational efficiencies. There’s no need to negotiate and maintain complex bilateral relationships to secure global coverage. Nor be exposed to the risk appetite and decisioning of third and fourth parties in a correspondent banking chain.

One integration under a single contract gives access to a global banking network. And pre-funding in bulk for transactions initiated helps ensure more right-first-time payments.