Cross-border payment rails shift focus from SWIFT chains to local clearing

Cross-border payment rails are changing how businesses send funds to overseas suppliers, according to Bakhtiyor Aliev, co-founder and chief commercial officer at Moneff. In a Finextra expert opinion, Aliev said companies that import goods, run international e-commerce operations or pay foreign vendors still face uncertainty over timing, deductions and exchange-rate costs when they rely on traditional bank transfers.

Aliev framed the issue around correspondent banking, the long-standing system used when two banks do not have a direct relationship. A UK business paying a supplier in Vietnam, for example, may see its payment routed through intermediary institutions before it reaches the recipient's bank.

He said SWIFT, formally the Society for Worldwide Interbank Financial Telecommunication, is central to many of these transactions, but it does not itself move money. It operates as a secure messaging network through which banks send instructions to transfer funds between accounts.

How do cross-border payment rails work?

Traditional cross-border payments often use correspondent banks to pass instructions and funds across jurisdictions when the sending and receiving banks lack a direct link. Each intermediary may apply compliance checks, operate in a different time zone and deduct a fee before the payment reaches the beneficiary.

Localized payment rails use domestic or regional clearing systems instead. In Aliev's example, a UK-based e-commerce company sourcing goods from a German manufacturer could hold euro balances in a multi-currency fintech account and pay the supplier through SEPA, the Single Euro Payments Area, rather than initiating a cross-border SWIFT transfer from London.

To the European banking system, Aliev wrote, that type of payment behaves like a local transfer. He said this can reduce settlement time from several days to hours or, in some cases, seconds, depending on the rail used.

Why banks' old model can cost time and money

Aliev identified three recurring problems for businesses using correspondent banking. First, payments can be slowed by intermediary cut-off times, weekends and compliance reviews. He gave the example of a payment reaching an intermediary bank late on a Friday in New York, which may leave funds idle until the following business day.

Second, intermediary banks may deduct what he described as lifting fees from the payment amount. That can leave the recipient with less than the sender expected, creating short-payment disputes between buyers and suppliers.

Third, Aliev said traditional banks may apply foreign-exchange markups that are not transparent to the business making the payment. For companies receiving revenue in one currency and paying suppliers in another, repeated conversions can add further cost.

What changes for importers and e-commerce firms?

Aliev argued that multi-currency accounts and local disbursement can give businesses more control over funds collected and paid across markets. A company can hold balances in currencies such as dollars, euros or pounds, then pay vendors from the relevant balance rather than converting funds back into its home currency and out again.

He said the same approach extends beyond SEPA to Nordic clearing systems and domestic real-time payment networks in Asia and the Americas. His argument is that international businesses can improve supplier payment timing, reduce intermediary deductions and limit unnecessary foreign-exchange conversions by using local rails where available.

Finextra described the piece as external content supplied by the author without editing, reflecting the author's own views.

This story draws on original reporting from Finextra Research.