As the calendar turns, I make it a ritual to reflect on the past year, extracting valuable insights to inform my approach for the new year. Just like individuals usually set resolutions, businesses, especially those operating in the realm of cross-border payments, scrutinise the trends of the previous year and the ones that are expected to further impact the industry in the year ahead.
The globalisation of trade, capital, and migration flows have influenced a notable increase in cross-border payments for the last decades. Global payments are set to reach USD 290 trillion by 2030 from the current USD 190 trillion in 2023. Despite this remarkable expansion, cross-border payments continue to be costly, slow, and face insufficient transparency and accessibility. Corporate fees for international payments average around 1.5%, while remittances can incur fees as high as 6.3%, with the time it takes for these payments to reach their recipients extending to several days. Other challenges in cross-border payments encompass compliance intricacies, varying international regulations, and diverse AML requirements.
In October 2020, G20 Finance Ministers and Central Bank Governors endorsed a Roadmap for Enhancing Cross-Border Payments. The G20-led initiative is supported by the World Bank, the International Monetary Fund (IMF), and about 40 central banks.
G20 nations are collaboratively addressing cross-border payment issues. G20’s efforts (as outlined in the G20 Roadmap for Enhancing Cross-border Payments) aim to achieve goals such as shortening transaction chains, reducing overall costs, and enhancing transparency and speed in payments. The focus of G20 nations' actions includes:
1. Payment systems interoperability and extension: This involves improving payment system interoperability and interlinking, extending the operating hours of Real-Time Gross Settlement (RTGS) systems, and revising payment system access policies.
2. Legal, regulatory, and supervisory frameworks: G20 nations aim to promote an efficient legal, regulatory, and supervisory environment for cross-border payments while ensuring safety, efficiency, and integrity.
3. Data exchange and message standardisation: Efforts are directed towards facilitating cross-border data exchange and increasing the use of standardised message formats for cross-border payments. Enhancing and harmonising the data carried in most cross-border payment messages can support increased straight-through processing, automated reconciliation, and more efficient Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) checks.
A big trend emerging around cross-border payments is real-time payments. In 2023, over 70 countries endorsed real-time payments and according to ACI Worldwide, there were 195 billion transactions in 2022, marking a remarkable 63% year-on-year growth. India (UPI) leads in transaction volume, accounting for 89.5 billion transactions. Other notable initiatives include PIX in Brazil, SCT Inst in the EU, the Fednow in the US, and various real-time payment schemes in China, Thailand, Singapore, and South Korea.
Real-time payments play a rapidly growing role in the payments industry, and by starting to work together, they deliver on the G20 agenda, fostering greater interoperability, common standards and infrastructure across diverse payment systems and networks.
Amidst these advancements, global conflicts emerged, and a notable shift was observed as entities sought to reduce dependency on the dollar and monopolistic payment schemes or structures. With these dynamics in play, we try to anticipate the trajectory of cross-border payments in 2024 by elaborating on four trends to watch.
Faster cross-border payments are important. Waiting for funds translates into less financial control over market volatility (47%) and increased manual processes and reconciliation (40%). For instance, businesses in APAC report it takes between five and ten days to receive or send cross-border payments. Other hurdles in cross-border payments involve navigating complex compliance requirements, diverse international regulations, varied AML (Anti-Money Laundering) demands, and a lack of transparency. Additionally, disparities in data formats and standards further complicate the landscape.
The adoption of the ISO20022 international standard is regarded as a pivotal step in addressing some of these challenges. Also SWIFT is actively addressing these issues; in 2023, they reported that 89% of transactions processed on their network reached recipient banks within an hour. Marianne Demarchi, Chief Executive of Swift in Europe, emphasised the importance of interoperability in SWIFT's efforts to realise the strategy of instant and frictionless payments for everyone. She highlighted its crucial role in aligning with the G20’s objectives for cross-border payments.
In Europe, the ECB and Sveriges Riksbank are actively investigating potential solutions for facilitating cross-currency instant payments involving the euro and the Swedish krona. Furthermore, the EPC’s One-Leg Out Instant Credit Transfer (OCT Inst) scheme, where PSPs in SEPA can process incoming and outgoing international credit transfers through highly automated funds transfer systems available in the Euro Leg and via similar systems in the respective non-Euro Leg countries or jurisdictions, is a positive stride for Europe, foreseeing improved user experiences not only for payers within Europe but globally as well.
In APAC, real-time payments are also growing rapidly. Between 2022 and 2023, central bank governors from Singapore, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam pledged cross-border interoperability for real-time payment systems, fostering regional economic recovery. Moreover, with Singapore’s PayNow system linked to many other RTP systems in APAC via India’s United Payments Interface (UPI), Malaysia’s DuitNow, and Thailand’s PromptPay, we expect to see a huge increase in cross-border commerce in the APAC region fuelled by real-time payments.
In addition to real-time payments, QR code payments have emerged as a significant electronic payment method in Southeast Asia. This has spurred collaborative efforts among countries in the region to facilitate QR code usage for cross-border payments. This initiative lays the groundwork for citizens to engage in cross-border transactions using QR code payments, often with reduced or eliminated fees and more favourable currency conversion rates compared to major credit card companies.
All six major economies of ASEAN have entered into bilateral agreements or memoranda of understanding (MoUs) to establish QR code payment linkages with other ASEAN Member States. Notable examples include Indonesia and Thailand implementing a QR code payment linkage in 2022, while Singapore established links with Thailand in 2021 and initiated a pilot with Indonesia in 2022.
The policies and commitments made by ASEAN member state and regulators serve as a valuable case study for regions aiming to achieve financial integration and cooperation through digital payment initiatives. The global community can draw insights from fostering effective collaboration, ensuring financial services' accessibility for all to promote financial inclusion, and designing scalable and adaptable payment system infrastructure capable of handling increasing transaction volumes and future technological advancements.
The demand for real-time payments is shaping the evolution of cross-border transactions. In 2024, we anticipate a significant push toward faster settlement processes, eliminating the traditional delays associated with cross-border transfers and high costs.
Over the past decade, a new wave of fintech companies has emerged to address the limitations of conventional cross-border payment and settlement systems (e.g. card networks, banking networks). Some are pioneering innovations atop existing payment networks (Rapyd, Thunes, Terrapay, NIUM, etc.), while others are harnessing cutting-edge technologies like blockchain (Ripple, BVNK, Stellar, Circle, etc.) to construct an entirely independent payment infrastructure.
Businesses and people need to move money internationally because they want to do trade cross-borders, travel, remittances or business payouts, or manage corporate treasury flows. Consider a scenario where a customer makes a purchase from an international website. Ideally, the customer prefers to conduct the transaction in their local currency, while the website aims to settle the funds in its own currency.
Similarly, businesses often encounter the need for cross-border payments. This includes making payments to individuals in different countries, like disbursing wages, settling insurance claims, and processing refunds. Also, businesses engage in international transactions with third parties involved in their operations, commonly referred to as invoice payments. These payments encompass various aspects, from commission payouts to sellers on a marketplace to fees for agencies and freelance staff.
By bridging cross-border payments with local wallets and payment methods, payment service providers like Rapyd, Thunes, Terrapay, and NIUM enable seamless transactions for merchants, travellers, and the gig economy that are operating in a global environment. For instance, Rapyd enables businesses to access a variety of payment capabilities, including card acquiring, e-wallets, bank transfers, and cash payments. Using its global payments infrastructure, the fintech allows businesses to tap into new worldwide customer bases and accept payments in their preferred methods and currencies.
As we venture into 2024, these providers hold significant potential to simplify cross-border transactions, fostering enhanced interoperability.
Distributed ledger technology (DLT) like blockchains and digital assets like cryptocurrencies, stablecoins, or tokens are an effective alternative to make cross-border payments faster, safer, and cheaper. Blockchain, by eliminating the need for third parties, enables faster and more secure financial transactions. Integrating blockchain into banks could result in nearly instantaneous processing times for consumer transactions. This is a stark contrast to traditional settlement and clearing processes that can take several days, posing risks and incurring costs for banks. Blockchain's ability to expedite fund exchanges between institutions contributes to increased efficiency and security in the financial services landscape.
Companies such as Ripple or Stellar are using solely distributed ledger technology (DLT) to enable businesses and consumers to conduct global transactions seamlessly. Businesses and banks are using Ripple’s payment network RippleNet, which relies on blockchain to transfer funds instantly. RippleNet also provides its clients with liquidity service with the help of cryptocurrency, XPR, that serves as a link between two currencies.
These companies offer diverse capabilities, from enabling payments and helping with treasury management to facilitating digital asset transactions without disrupting treasury operations or constructing private ledgers for issuing stablecoins and central bank digital currencies (CBDCs).
Others like BVNK and Circle are merging blockchains with traditional payment infrastructure for a faster, safer, and more efficient way to send, spend, and exchange money around the globe. They are part of global settlement networks and thus offer cross-border payments and currency exchange (including fiat to fiat, crypto to fiat, fiat to crypto, and crypto to crypto). For instance, BVNK’s customers can accept cryptocurrency from their customers without having to hold it on their balance sheet and embed cryptocurrency and stablecoin solutions into their products and services without needing to become regulated.
Because cross-border payments play a crucial role for international businesses, 2024 will see a surge in solutions and offers that enable merchants, travellers, and the gig economy to transact seamlessly.
No matter the lingo, digital assets and digital currencies are real and are the future. According to a 2022 BIS survey, 93% of central banks are actively exploring CBDCs, with projects transitioning from experimental phases to pilot trials.
CBDCs can be broadly classified into wholesale CBDCs and retail CBDCs. Wholesale CBDCs are related to wholesale payments that involve high-value transactions. The coordination of national wholesale CBDCs designs could lead to cross-border payments efficiencies by offering a secure settlement, reducing costly and lengthy intermediation chains throughout the payment process, and eliminating operating hour mismatches by being accessible 24/7. From a geopolitical perspective, the development of CBDCs could also help reduce the dependency of some global economies on the dollar. The growing interoperability of national CBDCs is poised to diminish dependence on the USD as an intermediary currency for executing exchanges between different currency pairs.
Retail CBDCs are related to retail payments and encompass low-value transactions conducted between individual users and businesses. According to BIS, retail CBDCs could promote financial inclusion if this goal is included in the design from the get-go. This means promoting innovation in the two-tiered financial system (eg allowing for novel non-bank payment service providers), offering a robust and low-cost public sector technological basis (with novel interfaces and offline payments), facilitating enrolment and education (via simplified due diligence and electronic KYC) and fostering interoperability (both domestically and across borders).
CBDCs can become a game-changer in cross-border payments. These digital versions of fiat currencies offer several advantages, including real-time settlement, lower transaction costs, and improved transparency.
Cross-border transactions are a prime target for cyber-criminal groups due to their inherent opaqueness and lack of standardisation. The absence of a unified regulatory body, coupled with varying regulations and security policies in each country's banking system, creates vulnerabilities that organised criminals exploit. Fraudulent activities, money laundering, terrorist financing, and cybercrime pose significant risks to businesses and financial institutions involved in cross-border payments. Also, differences in policies and regulatory frameworks across jurisdictions can be a challenge for cross-border payments.
There are efforts to explore how regulations can be harmonised; for instance, the BIS Innovation Hub Singapore Centre is exploring the feasibility of encoding jurisdiction-specific policy and regulatory requirements into a common protocol for cross-border use cases via Project Mandala.
Adhering to evolving regulations, especially those related to anti-money laundering (AML) and know your customer (KYC) procedures, will be crucial in 2024. Sparked by geopolitics and the ongoing conflicts across the globe (Russia – Ukraine, possibly China – Taiwan), paying attention to sanctions screening, UBOs, adverse media data, and PEP lists will become the new norm for businesses operating in a global environment.
To help them in this endeavour, compliance departments will focus both on the use of technology (Artificial Intelligence (AI) and Machine Learning (ML)) and human expertise. AI and ML can analyse huge amounts of transactional data in real-time to enhance payment security and compliance.
As businesses expand their global operations, they must stay abreast of the latest regulations and implement robust security measures to protect their customer data/transactions and ensure adherence to regulatory requirements.
As we embark on a new year, the trends shaping cross-border payments reflect a commitment to innovation, security, and regulatory adherence. The convergence of accelerated demand for faster settlements, the rise of technology providers that bridge cross-border payments with local wallets and payment methods, digital currencies (especially CBDCs) exploration, and enhanced security measures signifies a dynamic and forward-looking industry. As 2024 unfolds, the industry will continue to navigate these trends, bringing us closer to a future where cross-border payments are not just transactions but seamless experiences.
This article was originally published in The Paypers' Global Payments and Fintech Trends Report 2024. The report compiles insights and expertise from leaders representing companies across the financial services spectrum and it delves into the latest innovations and trends in payments and fintech across key markets worldwide.
Mirela Ciobanu is Lead Editor at The Paypers, specialising in the Banking and Fintech domain. With a keen eye for industry trends, she is constantly on the lookout for the latest developments in digital assets, regtech, payment innovation, and fraud prevention. Mirela is particularly passionate about crypto, blockchain, DeFi, and fincrime investigations, and is a strong advocate for online data privacy and protection. As a skilled writer, Mirela strives to deliver accurate and informative insights to her readers, always in pursuit of the most compelling version of the truth. Connect with Mirela on LinkedIn or reach out via email at mirelac@thepaypers.com.
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