Estimated reading time: 5 minutes

Since its inception, globalisation has posed the question of connectivity. And with forces of fragmentation – whether competition, geopolitical, or technological – intensifying today, how can we ensure the global financial ecosystem remains seamlessly interconnected? Interoperability is key to ensuring that the wave of digitisation across the global payments industry achieves scale and remains resilient in the face of challenges. The future of financial services as a whole, and especially trade, payments, and securities, relies on global connectivity – a concept as promising as it is elusive. 

The discussion featured:

• Samarth Bansal, General Manager, Wise Platform
• Camilla Bullock, CEO, Emerging Payments Association Asia
• Johnny Grimes, Head of Product Management, Deutsche Bank
• Rita King, Managing Director and Head of Institutional Trade Sales, Lloyds Bank
• Ajay Rajan, Country Head, Yes Bank Limited
• Bo Zhai, Deputy Head of Global Custody Services, ICBC

Bringing disparate corners together

Global connectivity, at its core, is about linking every corner of the world quickly and efficiently. Cross-border payments have historically involved bureaucracy, fragmented processes, and high costs. This limited access to financial services to only a handful of institutions with the wealth and know-how to navigate the time-consuming process. 

Now, however, digitisation and innovation in the financial sector are revolutionising the field: a trade that took a week or more 30 years ago can be done in a couple of days now, with minimal cost, more transparency, and a single integrated process. 

“Global connectivity means that investors can trade, settle, and hold assets smoothly and safely across markets worldwide,” said Zhai. Done right, global connectivity would change every aspect of trade, from supply chains to trade finance and payments. However, despite its opportunities, barriers to global connectivity have proved challenging so far.

Notes of caution

The principal issues, as with most new technologies, are structural and legislative. Different legal systems have always been one of the main challenges in cross-border trade; now that technology is making digital trade laws necessary, jurisdictions are adapting them at different paces, making discrepancies even more pronounced. Different legal systems and practices mean that even when a law is enacted consistently, it is not adopted in the same way everywhere. For example, the UK’s Electronic Trade Documents Act, which came into force last year, is still not uniformly enforced, creating difficulties for global trade.

The technology side is more promising, with innovation bringing as many improvements as challenges. New technology can widen access to platforms for trade documents that once required specialised software and cut down timelines significantly: for example, the securities settlement cycle has gotten up to 4 days shorter in just a few years. However, many of these services are not integrated with each other and depend on the country of jurisdiction, making implementation fragmented and difficult.

In a broader sense, though, the finance industry has made leaps and bounds in its relationship to technology: “Five years ago, we viewed technology as a disruptor. However, we’ve realised that without solid foundations, it’s difficult to disrupt anything. Key advancements have provided structured data that helps the industry protect participants and innovate more rapidly,” said Grimes. 

The path ahead

As with most emerging technologies, infrastructure is key. India, for example, has focused on building massive digital public infrastructure to encourage universal adoption at an affordable cost. 12 countries have replicated India’s model, and more are set to do so soon; India’s Unified Payments Interface now handles almost half of all global real-time payments, making seamless connectivity a reality. 

Good infrastructure doesn’t only make trade smoother, it makes it safer too – a crucial factor in today’s fraught geopolitical landscape. Technology can help institutions improve their AML and KYC processes to be faster and more accurate and can increase supply chain resilience through data. “From a trade perspective, the data and transparency provided by digital infrastructure will be critical for resilience, particularly in supply chains. Having visibility into where risks lie can help mitigate disruptions and enhance global trade”, said King.

Where infrastructure already exists, firms must work to integrate interoperability in the system to make sure it works globally as well as internally. For example, Wise has recently connected five different clearing schemes to link cross-border remittance flows, using Swift’s standardised messaging formats to move over $150 billion seamlessly. 

In almost every aspect of financial services, there are gains to be made by digitisation. In the trade finance sector, where paper documents are still the norm, an estimated £3.6 billion could be saved if 50% of shipments used electronic bills of lading, up from the 5% that do so now. This would also reduce delays and complexity in trade transactions and increase security, making trade more accessible to everyone. However, scaling these innovations would require standard practices and legislation to be harmonised across countries – a process that takes time and energy.

Data-driven regulatory pushes are helping, and the first few results are starting to show, such as the UK’s Electronic Trade Documents Act. The ICC is working on standardising trade documents, an important step in providing a basic framework for trade transactions across borders. 

Interacting with innovation: digital currencies and AI

The two hot topics in finance this year are, of course, the emergence of digital currencies and artificial intelligence (AI). Digital currencies are especially exciting, as they could be a way of removing one layer of complexity, currency exchange, from cross-border transactions. “Digital currencies will simplify global connectivity, though implementation will take time. CBDCs can cut out intermediaries, reducing friction in cross-border payments and capital markets”, said Rajan. Bringing digital currencies to both the wholesale and retail worlds could be transformative for the world of trade, bringing us closer to global connectivity. 

Similarly, the analytical tools and data provided by AI can be transformative for institutions that want to strengthen their regulatory processes without compromising speed or efficiency. “We’re getting close to 100% real-time cross-border payments. However, regulatory requirements like KYC, AML, and liquidity forecasting are the rate-determining steps. If we can streamline these, we’ll reach full real-time global payments sooner,” said Bansal. AI could be the X-factor for this, as well as for anything from fraud prevention to anti-terrorist financing.

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Global connectivity is just an arm’s reach away, and it is up to the financial services industry to bridge the gap. Legislative and infrastructural hurdles can be overcome, and new technologies like document dematerialisation, digital currencies, and AI all provide exciting opportunities for the world of trade—they are all for institutions to leverage.