Cross-border payments are important for the world’s economy because they help international trade & investment and handle financial transactions with each other. The traditional methods of conducting cross-border payments have been criticized due to their inefficiencies, high costs, and slow processing times. However, there has been a considerable revolution in the cross-border payment sector in recent years. This change is driven by technological advancements, regulatory changes, and the growing need for seamless and affordable solutions.
1. The evolving landscape of cross-border payments
The transfer of money across borders has traditionally been associated with problems such as high fees, slow processing, lack of transparency, and the risk of fraud. These challenges affect businesses involved in global trade and make it difficult for people in developing countries to access financial services. However, governments and regulatory authorities around the world recognize the need for a modernized cross-border payment infrastructure. Initiatives such as the Financial Action Task Force (FATF) guidelines and the European Union Payment Services Directive (PSD2) aim to address these issues and improve security, transparency, and efficiency in international transactions.
For example, the European Union Payment Services Directive (PSD2) sets out rules aimed at improving payment services in the EU and enhancing their competitiveness and security. These initiatives encourage countries and financial institutions to modernize their systems, adopt new technologies such as blockchain, and explore innovations such as central bank digital currencies (CBDCs). The aim is therefore to create a faster, cheaper, and safer cross-border payment infrastructure that benefits both businesses and individuals, especially in developing countries.
According to a new report released by Allied Market Research, the global cross-border payments sector is projected to grow at a CAGR of 7.3% from 2023 to 2032.
2. Growth in e-commerce transactions to boost cross-border payments industry growth
The growth of e-commerce transactions has changed the business environment, particularly cross-border payments. The widespread use of digital technologies and the Internet has given consumers access to online shopping platforms. The availability of smartphones and high-speed Internet makes it possible for users to browse, compare and buy products without geographical constraints. In addition, fintech companies have an important role to play in transforming the cross-border payment industry in e-commerce. They offer innovative solutions, such as instant exchange of currencies, secure payment platforms, and simplified checkout procedures, thus increasing the overall satisfaction of global customers. Therefore, with the increasing number of e-commerce transactions, there is a need for a cross-border payment sector.
3. Recent trends in the transformation of the cross-border payments sector
The cross-border payments industry is experiencing notable transformations due to advancements in technology, changes in regulations, and evolving customer demands. Numerous trends are changing this significant part of the global financial system, impacting how businesses and individuals transfer money across borders. Some of the recent trends that are shaping the cross-border payments sector are as follows:
3.1 Digitalization and advances in financial technology
The development of digital technologies and the rise of fintech companies have transformed cross-border payments. These companies use advanced technologies such as blockchain and artificial intelligence to provide faster, cost-effective and more efficient payment solutions. These developments improve transparency, reduce transaction costs, and provide seamless user experiences, thus presenting a challenge to traditional banking methods.
3.2 Blockchain and cryptocurrencies
Blockchain technology, which forms the basis for digital currencies such as Bitcoin and Ethereum is gaining traction in cross-border payments. By ensuring safe, transparent, and decentralized transactions, blockchain reduces the need for intermediaries and accelerates cross-border payments. Furthermore, cryptocurrencies offer the possibility of faster and cheaper transactions, which is advantageous for global businesses operating in areas where banking systems are less developed.
Yuan Yuming, CEO of Huobi China, highlighted blockchain’s potential in solving global trade challenges during the Global Blockchain Policy Forum. He emphasized its role in reducing information asymmetry, enhancing transparency, and cutting costs.
3.3 Changes in regulations
Governments and regulatory entities are changing the global cross-border payments landscape to improve safety and promote competition. Programs such as the Single Euro Payments Area (SEPA) in Europe and the Faster Payments Service (FPS) in the United Kingdom aim to standardize and accelerate cross-border transactions. Moreover, regulations such as the Revised Payment Services Directive (PSD2) in Europe enforce heightened security protocols and encourage the involvement of third-party providers, raising innovation and competition.
3.4 Real-time payments
The increasing demand for real-time payments is based on the need for instant and continuous transactions. Traditional methods of cross-border payments are often delayed due to batch processing and changes in time zones. With the help of technological advancements and regulatory changes, real-time payment systems enable rapid funds transfers and offer greater flexibility and efficiency to businesses and consumers.
3.5 Improved security measures
Securing cross-border payments has become essential as financial transactions are more digitized. Advanced authentication methods, biometrics, and encryption technologies are used to safeguard sensitive financial information and prevent fraud. In addition, regulatory frameworks are adapting to deal with emerging cyber security issues and to ensure the protection of users in the cross-border payment ecosystem.
3.6 Financial inclusion initiatives
The evolution of cross-border payments is also influenced by efforts to increase financial inclusion globally. The main objective of these initiatives is to provide banking services to people who do not have access to them or have limited access to them and to facilitate cross-border transactions for individuals who have not previously been able to use traditional financial systems. This is achieved through the implementation of advanced technologies.
4 Latest Trends in cross-border payments
4.1 FV Bank Introduces Innovative Cross-Border FX Payments with USDC Integration
Last year, FV Bank, a leading U.S. digital bank, unveiled its cross-border FX payments service for global account holders. With seven currency options and coverage in 150+ countries, it offers competitive rates for seamless international transactions. CEO Miles Paschini highlights efficiency and cost-savings. Notably, clients in the digital asset sector can benefit from direct USDC deposits and swift currency conversions.
4.2 XTransfer and Deutsche Bank have teamed up to provide cross-border payments in Thailand
In February 2024, XTransfer, a Chinese B2B cross-border trade payment platform, and Deutsche Bank, a leading financial service provider, achieved a significant milestone in their partnership in Thailand. According to the NRQC rules of the Bank of Thailand, XTransfer can now receive local payments from Thai purchasers for export companies. With Deutsche Bank’s assistance, Thai Baht payments are converted to Hong Kong dollars and Chinese Renminbi before they are sent to XTransfer’s international accounts, thereby simplifying cross-border transactions.
Deutsche Bank assisted XTransfer in gaining NRQC status and provided benefits such as a higher THB limit and a faster FX settlement time. This collaboration strengthens XTransfer’s ability to support its clients in the Thai market and highlights Deutsche Bank’s commitment to facilitate business in Thailand. It is expected that the partnership will allow more international companies to expand in Thailand.
4.3. YES Bank and LeRemitt to provide seamless cross-border transactions for MSMEs
On February 7, 2024, LeRemitt, a fintech startup, collaborated with Yes Bank to launch a cross-border platform. This platform facilitates international transactions for micro, small and medium-sized enterprises (MSMEs) in major currencies such as the US dollar and the euro.
“We are pleased to announce the launch of our cross-border platform through our collaboration with YES Bank. This partnership demonstrates our commitment to empowering small and medium-sized enterprises (SMEs) by offering a seamless, effective, and affordable international payment solution,” stated Sheetal Jain, LeRemitt’s co-founder and CEO.
In 2022, Jain, Mahesh Kumar Barate, and Hari Ambati established LeRemitt as a platform for cross-border remittance. Its primary role is to assist small and medium-sized enterprises (SMEs) in the transfer and receipt of payments, providing several other services. In addition, LeRemitt aims to expand its range of services to cover different aspects of global trade and strengthen its reputation as a comprehensive provider of solutions for globally active MSMEs.
5. Key development by frontrunners
Some players in the cross-border payments sector are focusing on implementing various strategies including partnerships, new product launches, legal agreements, and joint ventures to reinforce their foothold in the industry.
For example, in September 2023, YES Bank announced the launch of a cross-border payment system. YES Bank and BriskPe teamed up to produce BriskPe A2A, a range of solutions specifically intended for importers and exporters. BriskPe customers can accept payments in more than 180 countries and more than 36 foreign currencies through this platform. According to YES Bank, funds can be transferred and converted into Indian Rupees within one working day and subsequently deposited directly into the bank accounts of recipients in India. This partnership’s main objective is to promote rapid cross-border payments, particularly for micro, small and medium-sized enterprises (SMEs) operating in the manufacturing and service sectors.
On the other hand, Sendwave, Zepz’s remittances company, has introduced a neo-banking solution specifically targeting migrants from the United States. Sendwave Pay, a digital platform for remittance services in East and West Africa, was acquired by Zepz in 2020 along with WorldRemit, a money transfer company.
To sum up, the global cross-border payments sector performs an important role in facilitating international financial transactions. With advancements in technology, this industry is constantly evolving to offer effective, reliable, and affordable methods for transferring money across borders. Moreover, several industry players are actively contributing to the transformation of cross-border payments infrastructure by implementing diverse strategies and providing more comprehensive, secure, and seamless platforms for both businesses and individuals.
Read Also: Nandan Nilekani: CBDC will solve for wholesale cross-border transactions while UPI goes global
