The cross-border payments sector is undergoing a dynamic shift, driven by specialist players, alternative networks, and technological innovations, while providers are gaining market share by offering a faster and cost-effective process. International card networks are entering the space, and new regional payment hubs/networks are emerging across the globe, challenging large global banks’ domination of the industry.
Banks have long dominated cross-border payments for business (XBB – also known as international business-to-business payments), and in many markets, they also hold significant market shares of cross-border consumer payments (XBC – these include remittances or payments for international digital commerce). This article will focus on XBB payments.
A majority of XBB payments by value are made over the ‘correspondent banking system’ that has roots in the old days of paper cheques and telegraphic instructions. A payment moves from a sender’s bank account through a chain of banking intermediaries until it reaches the receiver’s bank account. Global banks present in both the sending and receiving countries can manage both ends and facilitate payments for their correspondent banks.
However, large banks are more interested in serving large clients, and they pay less attention to small and medium-sized enterprises (SMEs). SMEs need more attention because they do not always have the skills or resources that large companies have to manage key tasks, such as preparing accurate payment instructions, being compliant with international requirements, and carrying out payment reconciliations. Specialist providers offer all these together with highly responsive client service. Some of them focus on specific industry verticals – especially those considered by banks to be risky, such as internet gaming and gambling. Compared to banks, these providers have a deeper understanding of customer needs within specific sectors.
The correspondent banking system has worked remarkably well, yet some payments can still take a long time to complete. In such an interlinked system, every intermediary takes a cut in the process, thereby increasing the cost of the transaction for the customer. There is no central entity, a sort of United Nations of Payments, capable of processing cross-border payments on a global basis.
In many parts of the world, however, we are seeing the emergence of regional initiatives such as the Pan-African Payment Settlement System (PAPSS), an initiative by central banks in Africa to enable cross-border payments across the continent, or project Nexus in Southeast Asia by the Bank of International Settlements (BIS), aiming to link central banks in the region. Similar networks such as BUNA, a cross-border and multi-currency payment system founded by the Arab Monetary Fund, or the pan-European TIPS (TARGET Instant Payment Settlement System) that offers SEPA (Single Euro Payments Area) Instant Credit Transfers across most of Europe have been in operation since 2018. In the future, such networks – connected to each other and to domestic instant payment networks, such as Faster Payments in the UK or Pix in Brazil – will be able to process global payments of any value in real or near-real time.
International card networks are also vying for the market. They already carry most of the payment traffic for XBC payments – such as those for digital commerce. They also enable XBB payments through corporate procurement products like procurement or purchasing cards. But a vast majority of their payments traffic today consists of consumer payments. These card networks, that are now investing resources to grow their XBB transaction volumes, have a global reach and can process payments without the need for intermediaries. The standardisation of payment messaging formats is also making it easier for bank payments and card payments to become interchangeable.
In the longer term, new technologies using crypto tokens have the power to make all other processes redundant though that is highly unlikely today. Currently, such tokens have low liquidity and are unsuitable for international trade payments. However, some corridors or some transaction types may migrate to such models earlier than others. Crypto or other digital currencies do not require clearing and settlement, which are archaic processes for completing payments, still in use today. For crypto-based value transfers, the value would be transferred immediately upon receipt, making the process as easy as sending and receiving email.
While the networks and technologies discussed above have the potential to redraw the competitive boundaries of the future XBB landscape, a new business model or technology will not succeed simply because it is better than the one that is widely used today. Like in every contest, the challenger must clearly prove that it offers a simpler and cheaper way to do business, which could be implemented easily and without causing business disruption.
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.
Samee has advised some of the largest financial services organisations globally on competitive strategy, operations, and technology. He is an advisor on M&A/IPO transactions and leads the firm’s Fintech & Advanced Payments Advisory Practice – covering digital financial services, banking and payments, digital commerce, and new technologies including blockchain-based systems and cryptocurrencies.
Edgar, Dunn & Company (EDC) is an independent global payments consultancy. The company is widely regarded as a trusted adviser, providing a full range of strategy consulting services, expertise, and market insights. EDC expertise includes M&A due diligence, legal and regulatory support across the payment ecosystem, fintech, mobile payments, digitalisation of retail and corporate payments, and financial services.
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