Cross-border payments circa May 2024 have become a highly specialized sector of the payments industry. Look at the activity in this space, even year-to-date, and you’ll see companies like the Solana Foundation advancing real-world assets on cross-border blockchains. You’ll see Swift continuing to accelerate the usage of the ISO 20022 messaging format. And you’ll see companies like Visa, with its B2B Connect product, reducing friction for international business payments.
In some ways, cross-border payments still have a long way to go in terms of speed, efficiency and security. But they’ve also come a long way in a short period of time.
A good deal of that progress has its roots in a collective of payments executives that met as early as 2006 — way before Zoom was even an idea — to create standards and practices for low-value, non-urgent cross-border payments. The workgroup was named the International Payments Framework, which spent nearly four years working on painstaking details regarding standards and practices, including the newly minted ISO 20022 and XML formats. This team learned from the false starts of the past. All ACH is domestic ACH, and with the Single Euro Payments Area (SEPA) landing and the Federal Reserve looking for scalable non-urgent payments capabilities, this was the perfect fertile ground to experiment and innovate with bankers, technology companies (FinTechs today), central bankers, regulators and yes, end-users.
The group was spun out of Nacha in 2010 to form the International Payments Framework Association (IPFA), a company serving international cross-border capabilities. The company was disbanded with a “mission accomplished” in 2023, given advances in technology, APIs, open-banking, and non-bank entrants accelerating innovation, which was what the founders had desired from the start back in 2006.
Before their story becomes the stuff of legend, it’s time to give their work its due respect.
One of the members of “the band” at the beginning was Alan Koenigsberg, currently Visa’s global head of commercial large and middle market segments — treasury, working capital and vertical industry solutions. The group included Nacha CEO/Sponsor Jan Estep and, Jane Hennessy, at that time an executive vice president of payments at Wells Fargo, Koenigsberg during his tenure at J.P. Morgan, and Nacha’s Priscilla Holland.
“It’s the story about how a group of people saw a global problem and figured out how to get it to market at scale,” Koenigsberg told PYMNTS’ Karen Webster recently. People often underestimate the value of standards, rules and operating policies as a catalyst for innovation they mused. But when it comes to networks and companies that touch people’s money, it’s quite a different story.
The elements that “touched people’s money” were the standards and procedures around cross-border payments, which at the time preceded unifying payments organizations like SEPA, which was first formed in 2008 but wasn’t fully implemented until 2016.
According to Koenigsberg, IPF was similar to SEPA in that both initiatives aimed to facilitate international payments based on ISO 20022 standards and involved mostly banks as their main participants. However, IPF went further than SEPA, reaching globally and involving more public entities, banks of various sizes and clearinghouses.
While more standards were needed, there were existing operating policies to contend with, mainly the newly introduced ISO 20022 messaging standard. After rebranding as the International Payments Framework Association in 2010 as basically a startup spun out of Nacha, the group continued to contend with a slow-moving market that was reeling from the financial crisis and other pressing burdens — another hurdle to clear for the team.
Instead, it decided the best approach would be the development of a common standard that would achieve straight-through-processing (STP) for transactions involving members who joined the service. As Koenigsberg tells it, the IPFA needed to build a bridge that allowed existing national standards to communicate with each other rather than replacing them with a new paradigm.
“We started there,” Koenigsberg said. “And I recall a very extensive live-mapping exercise to look at ways that we could go about linking the two together, because those payment flows were significant. It was literally like physical post-it notes paper all over the walls to try to solve this challenge. And what emerged from that ultimately was this bridge that linked the two together that translated one to another. And that bridge remains today in existence.”
The IPFA’s bridge took the form of a non-urgent, lower-value cross-border credit transfer capability that enabled participating institutions to exchange international ACH payments more effectively. The IPFA was responsible for the creation of the Nacha-ISO-XML bridge, which paved the way for many of the innovations that have improved cross-border payments.
As Koenigsberg said: “In a world before cloud computing and APIs, these innovations were significant and broke the dam for many new use-cases for ACH payments internationally.
“It also democratized the way payments are made,” Koenigsberg told Webster. “Because at that time, if you weren’t a bank with a lot of international flows, you’re often outsourcing that to another institution. And that’s fine. But a lot of these banks want to manage their client’s journey and own the end-to-end. The IFPA accomplished that.”
It accomplished more than that. These capabilities significantly advanced the Southern African Development Community (SADC) in implementing real-time cross-border payments via mobile technology. Notably, the Federal Reserve and Equens (now equensWorldline) utilized the IPFA bridge to facilitate transactions between the U.S. ACH network and approximately 30 European countries.
Koenigsberg’s involvement with the IPFA also welcomed a new startup player, Earthport, to the IPFA ranks. They continued to be members and leveraged these standards as they went to market and evolved to become the world’s largest independent ACH network at that time, bringing predictability, transparency, and cost-efficiency to cross-border payments.
Years later, Visa acquired Earthport in 2019 and integrated its capabilities into the Commercial and Money Movement businesses, providing consumer and business solutions and disbursements to accounts, cards, wallets, and physical locations with remittance partners. This strategy embodied the definition of financial inclusion. Koenigsberg said the acquisition was integral to Visa’s international strategy and, has not only incorporated Earthport but also led to Visa’s acquisitions of YellowPepper and Currencycloud, which further expanded its cross-border capabilities.
It has also led to Visa’s focus on working capital capabilities for companies of all sizes. According to Koenigsberg, the foundational work done by the IPFA led to other teams’ ideation and creation of more use cases across payment rails.
In the virtual payments realm, the use of the rail core design enables days payable outstanding extensions (DPO) and days sales outstanding (DSO) enhancements. It also led to embedded finance innovations and the build of Visa B2B Connect to address high-value/high-data payload transactions. This industry first reduces friction and cost and provides a payment delivered in near real-time with no need for intermediaries and costly incremental nostro accounts. Multilateralism is at the heart of the culture, as when a network enables capabilities, all members can take advantage of the benefits.
The IFPA may have disbanded. But its work lives on.
“I don’t think there is a last chapter,” Koenigsberg said when asked how he would write the ending to a hypothetical cross-border modernization playbook. “I think that you have to continue to innovate. The spirit of innovation is so important. Everyone talks about the end of a project like the end of we’re delivering a payment system or real-time payments. Great. So, what are the benefits that come off the back of that? Question it, push and continue to innovate!”
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