Three ways digital innovation is transforming the cross-border payments landscape

We get under the skin of the digital transformation of international payments, and what this means for businesses needing to pay in or pay out.

Money is changing. It’s becoming more digital, more mobile and more connected. However, cross-border payments have traditionally struggled to keep pace. They’ve been expensive, slow and opaque. That’s now changing. Digital innovation as a result of technology, need and regulatory focus is bringing new opportunities for businesses.

Customers expect more

We’re increasingly shopping online with sellers from all around the world. So much so e-commerce sales were estimated to be more than $5.7 trillion worldwide in 2022.

Meanwhile mobile adoption is booming. More than 5.4 billion people globally subscribed to a mobile service last year, including 4.4. billion people who also used mobile internet.

We’re more connected than we’ve ever been. Both to our devices and to each other. This has boosted the demand for cross-border payments. For example, 200 million international migrant workers send an estimated $600 billion to their home countries each year.[1]

Add to this, more than 5 million international students paying for tuition and living expenses.[2] Not to mention business travellers, tourists and second homeowners spending or sending funds overseas.

Yet for too long all these groups, plus the banks and financial institutions behind them, have been under-served. That’s especially around the cost, speed and transparency of international payments.

[1] ‘The Pay Off’ by Gottfried Leibbrandt and Natasha de Teran, 2021
[2] ibid

Digital transformation: the perfect storm?

The downsides of international payments have not gone unnoticed by governments and regulators. In 2020, the G20 group of nations made enhancing cross-border payments a priority.

The G20 determined that if cross-border payments were faster, cheaper and more transparent and inclusive, it would have widespread benefits for citizens, businesses and economies worldwide. Specifically, it would support economic growth, international trade, global development and financial inclusion.

The combination of growing digitalization, technology, need and regulatory focus has created almost the perfect storm. This is driving the digital transformation of cross-border payments in three main ways:

1. Competitively priced alternative to correspondent banking

International payments are expensive. Fees are not always consistent or known up-front, which clearly damages the customer proposition.

As an alternative, payment service providers have developed their own international pay-in/pay-out networks to rival SWIFT correspondent banking rails.

They make use of new domestic instant payment systems being launched everywhere. Linking these together allow cross-border payments to be processed and priced as domestic payments, improving the international proposition to everyone.

2. Payments at the speed of life

International payments can be slow. When customers send e-mails around the world instantly. Or order a meal or cab to the door in minutes. Waiting five days for an international payment to arrive seems like something from a bygone era.

Alternative payment networks frequently utilize instant payment rails. So, they can offer real-time settlement 24x7x365 in countries with instant payment infrastructure, and near-instant settlement elsewhere.

Businesses are already using faster transaction and settlement times as a competitive differentiator to attract customers, win their loyalty and power growth.

3. Better visibility for higher success rates

International payments regularly lack transparency. For example, which banks are involved, which systems they use, and whether transfers cross a business day, weekend or time zone.

No wonder daily cut-off times, unexpected delays, nasty fee surprises, failed payments and exception are commonplace.

Modern payment providers can offer greater transparency and traceability around where payments are on their journey to the beneficiary. That’s important if payments get stuck for any number of reasons. A good provider can then diagnose the problem and help move payments on in the right way for higher success rates.

If the provider also controls the payment routing, they can ensure there aren’t unknown FX factors or unexpected intermediary bank fees. That’s transparency of payments in action.