Advice
We live in a global economy where the ability to make international transactions is essential to businesses and consumers alike, as well as the banks and other financial institutions that serve them. Yet, when cross-border payment systems are so important for financial inclusion and growth, why are there still so many challenges to their efficiency?
Table of contentsJump to a section | ||
|---|---|---|
| 1 | What are the main challenges of cross-border payments? | ↓ |
| 2 | High costs | ↓ |
| 3 | Slow transactions | ↓ |
| 4 | Security issues | ↓ |
| 5 | A lack of transparency | ↓ |
In 2018, the Committee on Payments and Market Infrastructures (CPMI) reported that there was certainly ‘room to improve’ the infrastructure of cross-border payment systems. ‘Cross-border payments do involve more risks, complexities and rules than domestic payments,’ the organization noted, ‘but the difference can often feel disproportionate.’
Many banks and other financial institutions have taken steps to close the gap since then, but lots of cross-border payment systems still suffer from the same problems:
1. High costs
2. Slow transactions
3. Security issues
4. A lack of transparency
Cross-border payments are notoriously expensive due to the number of intermediaries involved in transferring money from one country to another, all of which charge fees for their services. Regulatory costs add up too, while FX fees will also be charged to convert one currency into another.
The cross-border payment space has become increasingly crowded thanks to the rise in overseas workers and international businesses. Price will always be a key factor when retail and consumer customers choose a service provider. Customers will go elsewhere if the financial institutions they use cannot offer a competitive rate.
Cross-border payments via a traditional bank transfer normally take between two and five days to process — a very slow turnaround time compared to virtually instant domestic payments. Again, this is because so many entities are involved in a single transaction. For example, if someone from Ukraine wanted to transfer money to Sri Lanka, it may have to go through intermediaries in Russia or Germany, and then India first. With a lengthy series of steps to complete, cross-border payments are often delayed as a result.
In a world where everyone is looking for the fastest, most convenient services, they won’t be satisfied with a cross-border payment system that is slow and subject to delays. Businesses and consumers have to make international transactions, and the choice is between old, slow, expensive bank transfers, or new payment service providers that offer an instant, cheaper alternative. While international transactions are undeniably more complex, it’s imperative that organizations look to reduce the processing time in order to meet their customers’ expectations.
Consumers want to be confident that their money is safe when making international transactions, and of course so do banks. If a hacker is able to steal money from a cross-border payment pathway, there is no guarantee that a bank will be able to recover the stolen funds. Such losses can be extremely costly. Unfortunately, cross-border payment systems frequently suffer from high-level security breaches, like the $81 million heist on Bangladesh’s central bank in 2016. Every country abides by its own regulations, so the cross-border payment system is at risk of being hacked whenever money enters a country with soft security and access policies.
Cybersecurity is a huge concern for any business or consumers making international payments. They’ll be far less likely to do so using systems that aren’t reliably regulated and don’t have the best security measures and risk management procedures in place. However, this is also a major issue for financial institutions. The reputational damage can be enormous after incidents like the Bangladesh example. For banks trying to cut costs and hold onto their customers, the last thing they need is to refund lost money, pay fines and receive negative press.
A common complaint both businesses and consumers have about cross-border payment systems is the lack of transparency. In fact, a 2017 SWIFT and EuroFinance survey found that 64% of corporations want real-time payment tracking capabilities, while 47% wanted better visibility regarding the costs and deductions involved. This transparency is very important for businesses and customers who want to ensure they aren’t incurring hidden costs.
Greater transparency is a huge benefit to all kinds of organizations. As well as being able to provide better services to their customers with these insights, they can also use the data to understand and improve errors impacting their profitability. For example, learning why certain payments are rejected or require investigation will allow them to improve their processes, save time, and reduce costs and resources.
Inpay offers a cross-border payment solution that is cheaper, faster and more secure than traditional bank transfers.
An average cross-border payment takes just 30 minutes with Inpay, and costs businesses, banks and other financial institutions up to 80% less than traditional SWIFT wire transfers. We’re regulated by the Danish FSA, passported across Europe and in other jurisdictions.
With Inpay’s cutting-edge technology and vast network covering 100+ countries, you and your customers can enjoy international payments as simple as domestic bank transfers.
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Advice
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