Why Cross-Border Payments Still Present Challenges

international currencies

According to the latest Smarter Payments Tracker, global payment usage is at an all-time high.

Revenues are forecast to hit $2 trillion by 2020, according to McKinsey. Currently, there are 0.7 international transactions per capita every year, up from 0.5 in 2014.

So, why do cross-border payments present so many challenges?

Despite rapid market growth, international payments have been hampered by country-specific regulations, while transactions being channeled through intermediary banks can take days to complete and often come with fees.

Increasingly, payments providers are stepping in creating solutions that solve speed and security issues for companies while maintaining seamless user experiences.

Knowing country-specific requirements can shorten timelines and ensure smooth transactions, and that’s where third parties come into play.

Visa is one such provider that bridges information coming from the send market into what is required in the receipt market. “For example, if, in a particular market, different transaction limits apply for consumer versus business remittances, or for domestic versus cross-border transactions, we can provide these custom controls. We don’t have a one-size-fits-all approach — instead we build a lot of flexibility into Visa Direct,” said Vikram Modi, vice president and head of Visa Direct Global Platform at Visa.

Blockchain and AI to the Rescue

Recent developments in artificial intelligence (AI) and machine learning (ML) have made more solutions possible without causing slowdowns. Rather than relying on cumbersome human analysis, AI allows firms to process thousands of transactions per day, resulting in faster, stronger networks.

“Again, from [a] historical dataset, payment systems can learn the traffic patterns and provide more computing power during certain periods to handle peak loads — and scale down their infrastructure requirements during other times. This has a direct cost benefit as computing power is used only on the basis of need,” said Nilesh Pathak, chief technical officer at InstaReM.

Some payments providers are also leveraging blockchain and distributed ledger technology (DLT) to meet these needs, expediting the cross-border payment process.

Visa’s approach has been a cross-border payments platform called Visa B2B Connect that processes payments directly with Visa’s partners in a single day rather than routing out of network.

Mastercard has instead purchased cross-border transaction providers to expand its payments networks and offer similar solutions. Canadian payments network Interac is also investing in blockchain and DLT solutions.

While real-time settlement is commonplace in many European Union (EU) countries, an international payment system that functions across all European borders — and beyond — has yet to be realized.

If the EU is to be competitive against more monolithic economies like China and the U.S., payment systems will have to become more international in scope.

Since the start of the year, numerous cross-border payment partnerships have formed. Last month, it was announced that Alipay had partnered with six European digital wallets to allow QR code payments in the countries where the wallets are accepted.

B2B Takes a Cue from Consumers

Remittance and peer-to-peer (P2P) payment technologies have accelerated transaction speeds for consumers tired of waiting days for money to move across borders. Increasingly, the financial services industry is targeting slow speeds in corporates’ cross-border payments, too.

Solution providers like Ripple are introducing new ways to bypass the correspondent banking system entirely through cryptocurrency, while others like the above-mentioned Visa B2B Connect and SWIFT gpi, aim to transform it.

Beatriz Kissler, general manager of CaixaBank-owned GDS Cusa, told PYMNTS in an interview that for the financial institution itself, these new services like SWIFT gpi, which the bank recently joined, support cross-border payment optimization and will accelerate streamlining of cross-border payments.

“Many recent payment developments, such as Real-Time Payments, PSD2, Open Banking, payments based on DLT and, of course, gpi, are dramatically changing the payments ecosystem,” she said. “We are seeing a lot of worldwide initiatives to make the move to real-time or almost real-time payments. Sooner or later, these systems will need to interoperate to better fulfill the needs that our customers will demand from us.”