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Factors that Facilitate and Impede Cross Border Payments Carol Clark Payments in the Americas Federa

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I. Cross border payments marketplace excluding securities transactions ... Supra-Regional. Entity. Institution. B. Sender. Receiver. Institution. Institution. Sender ... – PowerPoint PPT presentation

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Title: Factors that Facilitate and Impede Cross Border Payments Carol Clark Payments in the Americas Federa


1
Factors that Facilitate and Impede Cross Border
PaymentsCarol ClarkPayments in the Americas
Federal Reserve Bank of AtlantaOctober 7, 2004
2
Scope of Study
  • I. Cross border payments marketplace excluding
    securities transactions
  • II. Detailed information on 16 countries that
    have considerable ACH volume
  • III. Policy issues related to international
    payments
  • IV. Future considerations

3
Key Points
  • Projected growth in cross border payments
  • Payment barriers
  • Players in global electronic marketplace
  • Two cross border payment models

4
Key Points
  • Payment networks are two-sided markets
  • Challenges for new payments providers
  • Establishing critical mass
  • Aligning incentives for each of the
  • payment participants

5
Projected Growth in Marketplace
  • U.S. largest sender of remittance payments in
    world
  • Last half of 1990s remittance flows to Latin
    American countries doubled
  • Remittances to Mexico, El Salvador, Guatemala,
    Honduras, Nicaragua will increase from 10.2
    billion in 2000 to 18 billion in 2005 (Pew
    Hispanic Center)

6
Projected Growth in Marketplace
  • Global retail payments projected to grow
  • 10.2 by 2010
  • 7.8 in the Americas (Boston Consulting Group)
  • Cross border payments may double 2003-2005
    (Unisys, Global Concepts, Talson)
  • Media attention on providing inexpensive,
    reliable remittance services

7
Cross Border Payment Barriers
  • Banks and end users view cross border payments as
    costly and cumbersome
  • Incentives to develop faster and lower cost
    systems do not exist
  • Small payment volumes present challenges to
    developing critical mass

8
Global Payments Marketplace
  • Marketplace concentrated among a few players
  • Financial Institutions
  • Non-Bank Providers
  • Central Bank or Privately Owned Payment Systems
  • Infrastructure costs may drive further
    consolidation

9
Two Payment Models
  • Correspondent/Network Relationship Model
  • Tiered Relationship Model

10
Correspondent/Network Model
Bilateral Accounts
Institution A
Institution B
Sender
Receiver
11
Tiered Relationship Model
Supra-Regional Entity
Institution A
Institution B
Sender
Receiver
12
Two Sided Markets


13
Factors that Influence Senders
  • Consumer/Business
  • Cost
  • Proximity
  • FX Conversion

14
Factors that Influence Senders
  • Cost
  • Timing
  • Standards
  • Reliability

15
Factors that Influence Senders
  • Financial Literacy
  • 58 immigrants do not have bank accounts
  • For those with accounts, less than one quarter
    use them to send remittances
  • Documentation concerns

16
Institution Concerns
  • Regulation
  • Payment Revenue

17
Institution Concerns
  • Costs
  • Technology platform
  • IT investment
  • Liquidity

18
Institution Concerns
  • Standards
  • Interfaces
  • Formats
  • New Procedures
  • STP

19
Factors that Influence Receivers
  • Timing
  • Reliability
  • Cost
  • Proximity
  • FX
  • Institution

20
Conclusions
  • Concentrated and two-sided market
  • High unit costs relative to domestic markets
  • Standards vary more than in domestic markets
  • Challenges in developing critical mass and
    aligning incentives

21
Conclusions
  • Regulation may unintentionally and inadvertently
    impact sender
  • Business Case
  • Education

22
Questions?
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