Deep Dive: Why Cross-Border Payments Need Transparency Overhaul

Consumers and businesses have grown accustomed to having various speedy services available on demand — they can order food, request car rides or send money all from their smartphones. Corporate leaders want cross-border systems to deliver that same level of responsiveness.

The cross-border payment space is ready — and perhaps overdue — for disruption. Change is being fueled by shifting regulations and emerging digital technologies that enable faster payment capabilities. Although there are more efficient cross-border transactions being enabled, several roadblocks are still in the way, including payment tracking and issues with interoperability between market systems.

Cross-border transactions are expected to rise in the coming years despite this trend, reaching an estimated $280 billion by 2024. This will put increased pressure on banks, financial institutions (FIs) and other financial services players to make international payments move as seamlessly as possible.

The following Deep Dive delves into the frustrations that business executives and corporates encounter with existing cross-border payment processes and the improvements they would like to see implemented.

A More Transparent Process

Recent research found that access to greater visibility is one of the top priorities for firms that regularly make international payments. The study surveyed 300 treasury professionals involved in international business across several industries and found that 64 percent want real-time tracking capabilities. Treasurers find this to be of importance because it can help reduce the rate of reconciliation errors.

Forty-seven percent of respondents said improved visibility into cross-border transactions could help them better understand the costs and deductibles involved in their payments.

Improved transparency could also help treasurers understand issues when things go wrong. Sixty-one percent said the time involved in payments being rejected or requiring subsequent investigations can drain their resources. Greater insights could help determine why payments failed, improve processes going forward, reduce the costs involved and decrease the risk of incurring fees for missed or late payments.

A Globalized Market Needs More Efficient Payments

As the global economy becomes increasingly interconnected, smaller businesses and consumers will need access to systems that enable easy cross-border payments. A separate report found 80 percent of cross-border revenues are based on B2B transactions. This segment is expected to increase as more small and medium-sized businesses (SMBs) participate in the global economy.

The latest data from The World Bank found that remittances to low- and middle-income nations reached a record high last year, with migrants sending $529 billion to their home countries. The World Bank expects that figure to reach $550 billion this year, with global remittances to all markets reaching $689 billion in 2018 — up from $633 billion in 2017.

The need for more interoperable systems will increase as more businesses seek to expand their global footprints and more migrants look abroad for job opportunities. Several global markets are pursuing their own efforts to enable more efficient cross-border payments, including the European Payments Council’s launch of the pan-European Single Euro Payments Area (SEPA) Instant Credit Transfer system in 2017. Indonesia, Malaysia, Singapore, Thailand and Vietnam signed an agreement the same year to use their internal payment systems to establish a real-time cross-border payments network.

Effective cross-border payments need systems that enable them to shift away from legacy infrastructure. New and emerging technologies may also need to be adopted to make these payments more efficient.

The Road To Faster Cross-Border Payments

A common set of protocols will be necessary for funds to move effectively across borders. Interactions between banks, FIs and businesses could become highly fragmented without such standards. Many companies are choosing to implement ISO 20022 as a common messaging standard to achieve greater interoperability between payment systems, with the system seeing more than 80 implementations in over 40 markets.

Some FIs are also turning to blockchain-based solutions to improve transparency and interoperability. This technology can store blocks of information across a network and provides a more decentralized series of controls while also bypassing existing infrastructure and directly connecting banks across borders. Some accounts note that the global blockchain supply chain finance market is on track to reach $34 billion by 2025.

An increasingly global marketplace calls for solutions and systems that can support partners no matter where they are located. Enabling faster and real-time payments for cross-border transactions begins with solutions like these — because all parties want to get paid instantly.