Voice of the Industry

Beyond borders – a deep dive into cross-border payments

Thursday 7 March 2024 07:49 CET | Editor: Raluca Ochiana | Voice of the industry

Diana Lupuleac, Content Editor at The Paypers, shares insights into the history of cross-border payments, how they are made today, and current initiatives aimed to tackle their pain points.


For today’s consumer, a world without the possibility of shopping online and having access to cross-border payments seems unfathomable. Case in point, a recent study by Statista indicates that, by 2027, 25% of the total global retail sales will be made online. Similarly, data from FXC Intelligence shows that, in 2023 alone, the cross-border payments industry had an approximate total market size of USD 190.1 trillion. 

Despite the convenience we enjoy today, it is easy to forget that things didn’t always look the same. In fact, the first ecommerce payment – at the time covered by The New York Times – was made in 1994, when Dan Kohn, a 21-year-old economics graduate, sold a CD to a friend who was more than 480 kilometres away. The transaction was made via Dan’s website, and it involved the use of data encryption software to secure the credit card information.

Cross-border payments are currently on an upward trajectory. By 2027, their value is expected to reach USD 250 trillion, a growth that many attribute to a boost in customer demand, international trade, and globalisation. Given the context, having a closer look at the history of cross-border payments and their impact can prove useful for consumers, merchants, and service providers alike. The following article aims to offer a deep dive into the history of cross-border payments – from their rudimentary origins to their present-day advanced iterations. 

A journey from barter to digital

When compared to ecommerce transactions, cross-border payments have a history that precedes that of modern ecommerce, and that is closely tied to the evolution of money and globalisation. As civilisations developed, the trade of goods across borders grew, and people moved from the barter system to exchanging precious metals and coins when purchasing goods and services in new markets. This led to the emergence of exchanges that required the physical movement of currencies when completing purchases. For a long while, money changers acted as intermediaries, eventually giving way to the use of cheques and – starting from the 19th century and the surging needs brought forward by industrialisation and the invention of the telegraph – to the sending of funds via wire transfers.

After the telegraph was invented, Western Union started offering money transfer services by wiring funds to different locations. Soon after, banks adopted wire transfers, and this is how electronic fund transfers (EFT) came to be.

In 1858, when the first transatlantic cable was installed, a new path of communication opened between Europe and North America. Although the first cable had a very short lifespan of just three weeks, the event established the basis for the use of transatlantic cables – and indirectly shaped the world of finance as we know it. Even today, undersea cables are used to power the internet and the messaging systems that lay at the core of the financial world.

If we take a close look at the history of cross-border payments, previous developments don’t even come close to the speed at which advancements were made over the last five decades. As a result of the latest technological and logistical advancements and the impact of consumer demand, cross-border transactions made a huge leap forward, making it possible for more and more people to have access to them.

One of the breakthroughs came in 1973 with the introduction of SWIFT (the Society for Worldwide Interbank Financial Telecommunication), a financial messaging service developed as a result of a joint effort of 239 banks from 15 countries. The SWIFT messaging services went live in 1977 – and, since then, it has enabled standardised communications between financial institutions making international transactions. While the messaging system does not play an active part in sending money across borders, it is crucial in helping financial institutions transfer funds correctly. 

Apart from SWIFT, some other notable recent developments are the introduction of blockchain and distributed ledger technologies, the emergence of real-time payment systems, the launch of central bank digital currencies (CBDCs), and Open Banking initiatives. Even more so, as a result of the partnerships they constantly forge, fintechs have started to open access to alternative payment solutions. Consequently, regulatory bodies have stepped in and introduced new regulations. 

What are cross-border payments, and how can they be categorised? 

Cross-border payments are financial transactions where the person making the payment and the person or entity receiving it are based in different countries. One important aspect of international transactions is the payment method used. When choosing this, the payer has to consider how fast they need to make the payment, the amount of money they plan to send, and the fees and currencies involved. 

Some common cross-border payment methods used today include card payments, wire transfers, ACH payments, digital currencies, EFTs, and blockchain-based payments, among others, whereas cross-border transactions are usually categorised as wholesale and retail payments. 

Wholesale payments are large-scale transactions made between businesses, governments, banks, and other entities. According to FXC Intelligence, the overall cross-border payments market was worth USD 190.1 trillion in 2023, with USD 146 trillion coming from wholesale cross-border payments alone. Retail transfers are consumer-oriented payments like remittances or payments such as those made for online purchases. 

If we take into account the parties involved in a cross-border payment, we can further distinguish between: 

  • Cross-border business-to-business (B2B) payments – that refer to transactions that pay for goods and services between businesses in different countries. As a new study by Juniper Research shows, these payments are expected to surpass USD 40 trillion by the end of 2024, with the significant rise attributed to the surge in the popularity of ecommerce marketplaces. 

  • Cross-border business-to-consumer (B2C) or consumer-to-business (C2B) payments are, as one would expect, transactions between businesses and consumers in different countries. 

  • Cross-border consumer-to-consumer (C2C) payments are transactions made by individuals who either send money or make payments to other individuals based in other countries. 

How are cross-border payments made today? 

Making a cross-border payment is significantly more complex than making a domestic transfer. This is the case as international payments require complying with multiple country-specific regulations and dealing with the challenges of currency exchanges. 

Despite all these factors, for each cross-border transaction, the institution responsible for making the payment (be it a bank, a payment service provider, etc.) has to follow a set of steps so that they initiate, convert, route, clear, and finally transfer the funds between the payer’s and payee’s accounts. 

Most cross-border payments made today use the SWIFT messaging system, which enables banks to send each other payment details and instructions. Because SWIFT does not actually handle any money, the infrastructure that makes it possible to hold deposits and transfer funds is offered by correspondent banks. These banks are authorised institutions that can provide services on behalf of other banks that do not have a presence in the country where the cross-border payment is made. 

Even though SWIFT is recognised as the main global financing network, it is not the sole option one has. In fact, data from the Bank for International Settlements (BIS) shows a constant decline in correspondent banking networks. Some of the most popular alternatives to SWIFT are blockchains and cryptocurrencies, ACH transfers, or fintech layer services – among others.

Pain points and new developments 

As stated at the beginning of the article, statistics show that the market size of cross-border payments continues to grow. Despite their popularity, international payments come with a series of pain points such as the high fees they imply, the lack of speed and transparency, and the fact that not everyone has access to them. 

To counter this, organisations have started to put forth various initiatives to make cross-border payments easily accessible and efficient. One of the most widely recognised initiatives of this kind is the Roadmap for Enhancing Cross-border Payments – supported by the G20 leaders – which was developed by the Financial Stability Board (FSB) in coordination with the Committee on Payments and Market Infrastructures (CPMI) and other relevant international organisations and standard-setting bodies. The initial roadmap, published in 2020, featured a set of KPI-based targets set to be met by 2027. 

In October 2023, the FSB published a consolidated progress report that outlines the first signs of progress and showcases a series of conclusions based on the monitoring of the initial KPIs. Despite consistent efforts, the latest report talks about disparities between user experience and costs across regions – with lower-income regions being further from meeting the targets related to costs and speed than other regions. 

The report further emphasises the need for both the public and the private sector to make efforts to meet the targets and highlights some priority areas of action. Some of the recommended action points include developing the capabilities of central payment and settlement infrastructures, using common data standards for payment messages, harmonising APIs, and reviewing the legal and regulatory frameworks that govern cross-border payments – among others. 

In a world where cross-border payments are vital not only to our economies but also to our daily lives, it is important to educate ourselves to understand what these transactions are and how they impact us. Similarly, it becomes essential to direct our efforts towards initiatives that stride to democratise access to these transactions for everyone and lower any friction associated with them.

This editorial piece was first published in The Paypers' Cross-Border Payments and Ecommerce Report 2023–2024, which taps into the fast-growing cross-border market and provides a comprehensive overview of trends and developments that are pivotal in this space, being the ultimate source of information for ecommerce businesses interested in expanding globally.

About Diana Lupuleac

Diana is an experienced and dedicated Content Editor at The Paypers. She has an extensive background in content creation and is a graduate of Foreign Languages and Literature studies, currently specialising in payments and ecommerce. She strives to bring forward the latest trends for our readers, while investigating the ever-evolving landscape of cross-border payments, B2C and B2B ecommerce, and emerging technologies across the globe.

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Keywords: cross-border payments, ecommerce, online shopping, shopping, money transfer, blockchain, real-time payments, CBDC, Open Banking, marketplace, B2B payments, B2B2B2C, ACH, SWIFT
Categories: Payments & Commerce
Countries: World
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