Thursday, 23 May 2024

Partior enters cross-border payments ecosystem as newcomer with big backers

5 min read

By Alex Rad

Cross-border payments are affected by high costs and inefficiencies, and burdened by compliance requirements. Partior presents an alternative infrastructure to tackle these issues.

  • Partior has launched an open industry platform
  • Singapore holds a project portfolio of cross-border payments innovation
  • The viability of Partior hinges on cost reduction, interoperability, and regulatory prospects 

Partior is the joint venture of commercial banks DBS, JP Morgan, and state-backed investment company Temasek. In Latin, Partior means to share or distribute, highlighting the origin of the private-sector initiative sharing the risks.

Partior has launched an open industry platform

The company has launched an open industry collaborative platform for financial institutions and developers. The platform is designed to provide opportunities for co-creation of business application and development of use cases in the cross-border payments space.

Partior’s platform offers an infrastructure for digital clearing and instantaneous settlements based on the blockchain technology.

Tharman Shanmugaratnam, chairman of the Monetary Authority of Singapore (MAS), emphasised, “Partior aims to create a blockchain-based platform that will enable participants worldwide to transact with one another in real time using different currencies”.

Partior intends to feature sought-after solutions such as programmable money transfers for clients and their banks. However, Partior competes with both established and newer business models in the cross-border payments space.

The infrastructure approach of Partior will offer financial institutions in remote locations access to the payment systems of Singapore and an efficient link to a shared payment system, which is also open for non-bank companies such as Temasek. This is a timely move as there are critical trends in the cross-border payments space.

Although its business model is declining in importance, correspondent banking currently channels the majority of cross-border payments. However, a negative trend has hit the number of active correspondent banks. The Bank for International Settlements (BIS) reports that the number of active correspondent banks worldwide fell by 22% between 2011 and 2019. During the same period, both the volume and value of cross-border payments continued to grow.

The vision of frictionless retail payments is also under way. Recently, SWIFT, a major provider in the correspondent banking business, announced its business venture with several major international banks such as Société Générale.

Jean-François Mazure, head of cash clearing and correspondent banking, Société Générale, stated, “As customer expectations for faster payments evolve, the correspondent banking industry requires a solution to more competitively process small and medium-sized enterprises and consumer payments”. In June 2021, SWIFT, processed more than 5.2 million messages through its SWIFTNET services, which is available in more than 200 countries.

In view of newer business models, the rise of closed-loop systems such as Western Union in the US, AliPay and WeChat in China, and M-Pesa in several African countries, and national as well as global peer-to-peer systems such as bitcoin that also uses the blockchain technology, will give Partior a fair amount of competition.

However, none of the above-mentioned business models have reached a final solution with regard to several critical concerns such as anti-money laundering, terrorist financing, security, transparency, traceability, integration, and interoperability. Such shortcomings may diminish with Singapore’s approach towards payments innovation.


Singapore holds a project portfolio of cross-border payments innovation

As cross-border payment is an important channel in the economy of Singapore. MAS has supported and facilitated several cross-border payment related projects, which provided an avenue for succession to Partior and coexist with Partior.

Project Ubin is a private-public collaborative project in Singapore. Since 2016, the project, now in its fifth phase, has experimented with blockchain and distributed ledger technology and launched several payments innovations.

In particular, Project Ubin has included projects in the setting of a domestic payments network and services areas such as cross-border payment versus payment and delivery versus payment. Partior has set its sights on these areas.

While Partior is building on the learnings from Project Ubin, several more Singapore-based initiatives also aim to provide alternative solutions for cross-border payments and coexist with Partior.

In June 2021, MAS also announced Project Dunbar to address the growing interest in central bank digital currency in the context of cross-border payments. This project provides a shared platform for developing an infrastructure for multi-currency wholesale settlements. It typically involves a network of central banks and financial institutions. Motivations for this project relate to security and safety concerns but also transparency and inclusive finance, which is ever more stressed globally. There are indications that Partior may complement Project Dunbar.

As Singapore maintains a project portfolio of innovations in domestic and cross-border payments, it will be vital that the projects support each other.

Partior’s viability hinges on cost reduction, interoperability, and regulatory prospects 

The payments market is undergoing major changes, and both new and incumbent players present new initiatives.

Meanwhile, the viability of each project such as Partior may also hinge on its ability to create an effective ecosystem that gains more understanding of blockchain and can envision additional business opportunities. DBS and JP Morgan have, via previous ventures such as the DBS Digital Exchange (DDEx) and JP Coin by JP Morgan respectively, achieved a good level of maturity with respect to using blockchain technology.

For DBS, investments in blockchain-projects are tied to specific business goals. Partior and DDEx together with several other new business initiatives such as Climate Impact X, Muzinich Fund and EvolutionX are expected to bring in revenues of around $350 million in 2022, highlighted by Piyush Gupta, group chief executive officer of DBS, during to the bank’s latest financial results briefing.

The viability of Partior is also conditioned on initial acceptance. The three parties of the joint venture agreed that the selected format of Partior is expected to ease the process of securing the buy-in from key stakeholders.

The three parties in the Partior joint venture will focus on internal operations first and will not amend the front-end processes of cross-border payments. In the meantime, Partior is awaiting regulatory approvals.

Tharman said, “MAS welcomes fintech innovations that develop the ecosystem in a safe and sustainable manner”. Partior is subject to regulation under the Payment Services Act, which took effect in January 2020.

Being a new player entering the cross-border payments space, Partior presents a different value proposal exploiting the possibilities of blockchain and business network effects.

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