The financial services landscape looks a little different to how it used to. New firms, business models and job titles now exist, evolving as fast as the markets themselves, fuelling innovation and leaving a whole host of new opportunities in their wake.
These changes have affected individual behaviour too. People are no longer limited to living in the country they work in, but instead, can run their own business from anywhere in the world. New ways of working have been driven by advances in technology, changing regulation and accelerated by the pandemic – affecting the global flow of money and the types of financial services people need.
In light of these changes, international consumer and SME payment volumes have skyrocketed, and banks are in a prominent position to capture this growth. It’s a huge opportunity waiting to be had, but what exactly does it look like? And what are the ingredients for success?
Recent research estimates that the combined consumer-to-consumer, consumer-to-business and business-to-consumer cross-border payment segments are worth over USD 4 trillion and are expected to grow by 11% compared to last year. Data from the Swift network echoes this sentiment too, with payments under USD 500 currently growing twice as fast as those worth more.
Today, small businesses can reach more markets from their desks than they can from most airports, and that’s partly thanks to the expansion of marketplaces like Amazon, AliExpress or Etsy. Not all businesses have the means to trade internationally, but marketplaces make it easy to capitalise on consumer demand and enable small businesses to sell their goods or services abroad. Combine that with the fact that marketplaces relieve the administrative burden associated with overseas trade, and making this move becomes a no-brainer for businesses wanting to broaden their horizons.
Maybe you’re a website designer offering your services to companies across different continents, with each paying you in their own local currency. Or a landlord with properties spanning the globe, receiving rent payments from tenants in pounds, yen and euros. Whatever the use case, these new opportunities are driving up payment volumes in this market.
And it’s not just SME behaviour that’s changed, consumers are sending money abroad more often too. Whether it’s migrants sending wages back home to support family or international students funding tuition abroad, cross-border transfers have become a normal part of everyday life for many.
This demand hasn’t gone unnoticed. Over the past 10 years, fintechs have been emerging thick and fast, all looking to capture a piece of this market. They’re backed by serious investment too, with BCG reporting that investors funnelled $11bn into payments-related fintechs in the first half of 2022 alone. And customers have clearly found their offering attractive. Fintech adoption rates have been steadily increasing and recent research found that 75% of surveyed people had used a fintech money transfer or payments service before.
While the fintech offering may look a little different to what banks have traditionally provided, they still use many of the same networks and payments routes to process transfers, including the correspondent banking network. So where do the differences lie? Often, it’s in the experience. Fintechs have simplified the process of sending money abroad, with a minimalist approach to user experience that requires as few steps as possible for customers to make a payment. Payments are competitively priced too, with all fees displayed upfront to give total transparency on the cost of a transfer before it’s sent, avoiding any unexpected surprises when the money arrives. Draw these features together, and you’re left with a pretty convincing payments package.
The reality is that banks already possess a lot of the ingredients needed to succeed in this market, including customer bases that are millions strong and unparalleled reach that facilitates the global movement of value. At its core, this reach is built on strong bilateral relationships that have been in place for years and stand as an indicator of success for banks looking to seize these growing opportunities. And finally, robust compliance and the highest standards for financial crime prevention put customers in the safest place possible, wherever their money is heading.
Banks should play to these strengths, but also continue evolving their offering to add transparency, predictability and an improved user experience into the mix – building stronger relationships with customers that keep them coming back over and over again. Here, a community-driven approach is likely to be the most effective route to success, both for the currencies we know today and a future that could see central bank digital currencies (CBDCs) enter the frame. Together, many banks are already collectively defining the new standard for international consumer and SME payments within an interoperable framework that lowers costs, connects multiple payment methods and channels, and delivers instant and frictionless transactions to end-users.
However banks choose to progress, one thing is clear – doing nothing is not an option. In an ecosystem ripe with opportunity for collaboration, whether between fintechs, banks or other players, banks must go all-in to future proof their business and seize what this booming market has to offer.
Susana is Head of Consumer & SME Payments Strategy at Swift, defining the long term strategy to support the banking community in delivering instant and frictionless payments in this market segment. With 20 years professional experience working for the likes of Santander, Citi, McKinsey and Amazon, her role at Swift is crucial in defining the smooth movement of value around the globe.
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