Cross-border payments explained: growth, challenges, new technologies

Masha Cilliers, senior payments industry expert, elaborates on the opportunities in the cross-border payments sector and shares key considerations for industry players on how to seize them.

Globalisation and the growth of cross-border payments

Globalisation has disrupted some of the legacy distributor trade routes, and many producers, manufacturers, and service providers are utilising the internet and new channels for selling directly into international markets. Thus, international trade has been steadily growing with the additional support of faster shipping methods, online sales, and global communications – but one of the key prerequisites for the trend to continue is the availability of fast, secure, and cost-efficient cross-border payment mechanisms. The cross-border payment market is enormous, the potential is huge, and parts of it remain untapped.

Cross-border market sizing is a difficult task, but here are a couple of high-level numbers that have been recently published: 

• According to the data recently published by FXC Intelligence, the global non-wholesale cross-border payments industry had a total addressable market of USD 40 trillion in 2024 (this included goods and services sold). By contrast, wholesale cross-border payments had a total market size of USD 154.7 trillion in the same year. This means that the combined cross-border payments market was at USD 194.8 trillion in 2024! The research company is also predicting it to grow to over USD 320 trillion by 2032. 
• BCC Research is projecting a CAGR of 5.3% for the forecast period of 2022-2027, with a market size of circa USD 240 trillion in 2027. 
• Getting more specific, according to Oliver Wyman consultancy, corporates alone move USD 23.5 trillion across countries annually at a cost of over USD 120 billion per year. 

So, whichever way we calculate the statistics, it is clear that the opportunities in the cross-border payments sector are significant, and even though the number of solutions is expanding, there is still a lot of room for more innovators and newcomers – as well as for the existing players to launch new solutions.

Challenges

Traditionally, to gain the ability to execute cross-border payments, a business would have to open a correspondent account at a large corporate bank, and this would normally be handled by a treasury team for a large corporate. But for the smaller businesses, which might not have a treasury team or relationship with the correspondent banks, it was difficult to get attention and the services, whilst the speed of the payments would be prohibitively slow and the fees prohibitively high. Banks would dictate the transaction fees and the FX terms – which, often, were not favourable. Over the past few years, this has, increasingly, been addressed by the emergence of fintech intermediaries, but there are still plenty of opportunities to improve and grow. For example, the banks no longer hold a ‘monopoly’ over the FX process, and many businesses choose to work with additional intermediaries to manage their currency flows and exchange. This provides these intermediaries with a direct opportunity to increase the breadth of their services and add cross-border payments to their portfolios, since they already have a ‘foot in the door’. They may be able to do it themselves or via a network of partners.

This rapid rise of payment companies performing cross-border payment transactions in some cases has blurred the lines of regulatory regimes – i.e., which rules apply to which flows and which licences do the companies need to have in place to execute which payments in which countries. The question of ‘to whom are they providing the services, payer or payee?’ often arises, and it has strong regulatory implications. Since regulatory regimes still are (and likely always will be) very regional, the process of cross-border payments needs to be built to accommodate all the different requirements and to appease all the regulators concerned, both for today and for the future. This, again, emphasises the need to have a good network of international partners with local licences on which organisations can rely for these payments to continue to stay on the right side of the regulators and the regulations.

Customer expectations have also evolved in line with the consumers getting used to the fast and frictionless payments in their private lives – and thus expecting a similar experience in their corporate lives. Not surprisingly, B2B payments, which are frequently of higher value that B2C, cannot warrant removal of friction and increase in speed of settlement in cross-border payments without significantly increasing risk, as there are no ‘claw back’/’chargeback’ options available to the payers, unlike in their familiar local markets, which are increasingly more regulated and where remedies are required by such regulations.

Whilst the frequency of cross-border payments increases, the systems and processes allowing for reconciliation and revenue recognition have not kept up the pace. Thus, many businesses need to invest in additional tools to help them reconcile their international payments, apply FX, and match bank accounts. There has been a significant rise in companies providing external reconciliation and financial data management services, and they have enjoyed more uptake the more complicated the payment business becomes.

New technologies

In line with regulators introducing various money licencing options over the past 25 years, many fintechs have obtained E-money, Payment Institution, Money Transmitter, and other relevant licences allowing them to receive, hold, and remit client funds. These organisations have developed robust technologies that allow them to provide a range of payment services, such as acquiring merchant payments, operating electronic money wallets, launching alternative payment methods, issuing payment cards and accounts, as well as money transfers and remittances at lower cost and much more efficiently than banks have been able to.

Many of these companies have now started expanding their operations from local to international, and many have developed not only B2C but also B2B payment capabilities, including cross-border payments. Thus, there is currently a wide set of newly licenced payment companies armed with state-of-the-art technology, extremely focused on customer-centric approaches and hungry for new business. They are bound to explore the cross-border payment opportunities with more fervour than some of the larger and slower-moving banking competitors, which means increased competition and more services for the end clients: companies trying to do international business.

One of the further notable developments helping in cross-border B2B payment facilitation is that of virtual IBANs which enabled payees to have dedicated accounts for each payer, thus helping payees receive and reconcile funds fast, efficiently, and more securely. The abovementioned organisations were quick to realise that and offer these accounts to their clients. Eventually, most of the traditional banks are now also offering virtual IBANs or various ‘mother and sub-accounts’ options to their corporate clients.

B2B platforms

The development of B2B platforms, resembling B2C and P2P marketplaces, has added to the already growing demand for cross-border payment solutions. Over the past decade, many procurement companies, franchises, and reseller/distributors have moved towards a platform set up whereby they connect suppliers and buyers over a platform (not dissimilar to Amazon) and where, importantly, they also help with the facilitation of the payment.

This new service requires careful consideration as it may put such platforms into the realms of regulated/licenced activities, and traditional correspondent banks have been careful in addressing these platforms for that reason.

This new, specialised demand has added fuel to the already innovative arena of cross-border payments, with many fintechs developing dedicated platform solutions – including payins, ledger management, payout, and remittance and reconciliation services.

The above-mentioned virtual IBANs have become a useful tool in building the payment ledgers for these platforms.

Stablecoin as a cross-border payment mechanism

This article would not be complete if it did not cover the emergence of stablecoins, which have enjoyed a lot of publicity recently. Stablecoins are used as an additional rail for sending cross-border payments and act similarly to e-money wallets for B2B purposes: i.e., the payer converts their cash to stablecoins and sends it to the payee, who converts it into their own currencies.

According to Visa research, stablecoins have experienced significant growth in 2024, tripling in transaction volume to USD 8 trillion in adjusted volumes and USD 30 trillion in total. Artemis puts adjusted transaction volume at USD 3 trillion for the last month and the number of transactions at 1.2 billion. Both estimations show significant market presence – not to mention the fact that stablecoins have overtaken Visa and PayPal over a year ago in terms of volumes.

Stablecoins bypass some of the traditional hurdles due to their design. However, some of the issues remain (conversion risk). Currently, risks associated with the SC values are still precluding a large number of businesses, especially large corporates, from their wide-scale use. Going forward, many respected research houses and analysts believe that, at the least, stablecoins are helping to make cross-border payments more competitive and reduce legacy costs – and, at the most, that they are revolutionising the cross-border payments space as we know it.

Time will tell exactly how much of the cross-border payment traffic will move to these new rails, but it would be a wise strategy for organisations in the cross-border payments industry to keep a close eye on these developments. In fact, many banks, payment schemes, and even governments are already launching or planning to launch their own stablecoins – so watch this space!

Key things to focus on for cross-border payment providers

To summarise the above deliberations, here is the list of some of the key considerations for providers addressing the growing sector of cross-border payments:

• Understand the customer (a large corporate will have different requirements from an SME)
• Be clear on the regulatory limitations of your (and your partners’) licensing
• Understand the risks and have clear mitigation strategies
• Leverage technology to build secure interactions between payers and payees
• Deploy good quality KYB/KYC/AML tools and partners
• Build best practices to ensure compliance and manage risk
• Use partners to increase network coverage
• Promote fair pricing to ensure both the profitability of the business and a competitive offering to the customer 
• Keep an eye on competition, including stablecoins.

Conclusion

Globalisation and the evolution of distribution models have fuelled the emergence of a vast mass market demand for cross-border payment solutions. Existing legacy payment solutions are no longer enough in terms of volume, cost, and flexibility, so a new industry of fintechs, money transmitters, and facilitators has emerged to bridge the gap. There are more ways to execute cross-border payments than ever before, and the solutions are still evolving. However, the risks with operating across regulatory borders still need to be fully understood, as well as the utilisation of emerging technologies such as stablecoins. Going forward, innovation, collaboration, and modular design will help businesses in the cross-border sector stay ahead of competition from the existing and newcoming players.

 

About the author

Consultant, Board Advisor, NED, and Payment Industry Expert with over 30 years of experience in the payments industry, Masha Cilliers has been advising merchants and payment companies on ‘all things payments’ for many years. Masha previously held senior positions at Visa, Microsoft, Mastercard, CyberSource, and Worldline, and then became a consultant with Payment Options, as well as a Specialist Partner at Be Shaping the Future Consulting and Board Advisor to Limonetik (later Thunes). Currently, she acts as an Independent Executive Expert and holds positions of Non-Executive Director at Trust Payments and Board Advisor at XanderPay. Masha is a well-regarded and recognised speaker and writer on payments, the shared economy, platform payment orchestration, subscription management, fraud management, and identity verification.