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Cross-Border Payments - Major Challenges & Solutions for Banks

Know the major challenges faced by banks in cross-border payments and solutions to make the process faster, cheaper, and easier while ensuring security.

One of the main problems faced by banks is the slow and expensive manual processes that result in higher costs, increased risk of errors, delays, and low efficiency. Another challenge is the conflicting regulations and standards, which require banks to comply with regulations set by their own countries as well as any other countries or regions where their customers are based, or they operate in. Regulatory barriers and a lack of visibility into payment status are other significant challenges that banks face. To address these issues, banks need to make cross-border payments faster, cheaper, and easier. The blog suggests identifying customers' priorities as the first step in addressing the challenges. The blog also discusses the benefits of real-time payment tracking and suggests that banks need to modernize their legacy infrastructure to provide a seamless cross-border experience for their customers. Below are the main challenges faced during cross-border payments and some tactics to counter these challenges.




Slow and expensive manual processes

Cross-border payments involve moving money from one country to another, often involving different currencies, banking systems, and regulatory requirements. Unlike domestic payments, cross-border payments can be slow, expensive, and complex, largely due to the following factors:

Multiple intermediaries: Cross-border payments usually require multiple intermediaries, such as correspondent banks, clearinghouses, and payment processors. Each intermediary may charge a fee and take a cut of the transaction, adding to the overall cost and time required to process the payment.

Currency conversion: When transferring funds across borders, currencies must be converted. Currency conversion can result in additional fees and is subject to exchange rate fluctuations, which can lead to losses for both the sender and receiver.

Regulatory compliance: Cross-border payments must comply with various regulatory requirements, including anti-money laundering (AML) and know-your-customer (KYC) rules. Compliance can involve extensive documentation, verification, and reporting, which can be time-consuming and costly.

Manual processes: Cross-border payments often involve manual processes, such as filling out forms, obtaining signatures, and sending paperwork via mail or fax. These manual processes are prone to errors, delays, and fraud, further increasing the time and cost of cross-border payments.



Conflicting regulations and standards

Customers conduct business on a global scale and expect to transact just as easily across borders – without spending hours researching the different regulations and standards that come into play. However, cross-border payments often face conflicting regulations and standards between different countries, which can make the process more challenging and complex. Here are some of the obstacles:

AML and KYC regulations: Different countries have different AML and KYC regulations. For example, some countries require more extensive documentation and verification than others, and failure to comply with these regulations can result in penalties and fines. This can make it difficult for financial institutions to ensure compliance across different countries. For example, U.K. customers trading with the European Union (EU) must follow new Know Your Customer (KYC), anti-money laundering (AML) and Countering Financing of Terrorism (CFT) rules for banking post-Brexit, while EU companies doing business in the United Kingdom will have their own set of guidelines to follow.

Payment system regulations: Different countries have different payment system regulations. For example, some countries require specific formats for payment instructions or mandate specific payment channels. These regulations can be difficult to navigate for financial institutions, especially when dealing with multiple countries.

Tax regulations: Different countries have different tax regulations, including withholding taxes and VAT. These regulations can affect the cost and timing of cross-border payments, and failure to comply with tax regulations can result in additional penalties and fines.

Data privacy regulations: Different countries have different data privacy regulations, which can affect how personal and financial information is collected, stored, and shared. This can make it difficult for financial institutions to ensure compliance with data privacy regulations across different countries.



Regulatory barriers

Cross-border payments involve the movement of money from one country to another, and are subject to regulatory oversight by governments and financial institutions. These regulations are designed to prevent money laundering, terrorist financing, and other illegal activities. However, these regulations can also create barriers to cross-border payments, making it more difficult and costly for individuals and businesses to send and receive money across borders.

One of the main regulatory barriers to cross-border payments is compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations. These regulations require financial institutions to verify the identity of their customers and ensure that their transactions are legitimate. However, the compliance process can be time-consuming and expensive, particularly for smaller businesses or individuals who may not have the resources to meet the strict regulatory requirements.

Another regulatory barrier is the lack of standardization in payment systems and regulations across different countries. Each country has its own regulations and payment systems, which can make it difficult for individuals and businesses to navigate the complex cross-border payment landscape. This can result in longer processing times, higher fees, and increased risk of fraud or error.

Additionally, some countries have strict capital controls in place, which restrict the flow of money across borders. These controls may limit the amount of money that can be sent or received, or require special permission or documentation for certain types of transactions. This can make it difficult for businesses to operate internationally and can also limit access to financial services for individuals.



Lack of visibility into payments status


The benefits of real-time payment tracking: Real-time end-to-end track and trace is a holy grail for banks. It would provide superior customer service, mitigate against potential misuses of payment systems, and help detect problems sooner. A global network of banks can deliver real-time tracking and tracing to customers by leveraging Fable’s Growth Suit services. For example, Bank X can provide a number of customers with access to the new global real-time payments system—a real-time gross settlement system that allows banks to directly send funds between themselves in central bank money. At the same time, it can embed its own solutions into this process to ensure that all cross-border payments are tracked in near real-time for both outbound and inbound payments without any need for post-trade reporting or reconciliation. In addition, it can use a third-party application from a technology provider to further enhance the customer experience with proactive monitoring services and alerts when payments reach destinations or trigger preconfigured events like currency conversion or distribution instructions.

Why it is difficult for banks to track payments in real-time: Banks today operate on legacy infrastructure designed decades ago which lacks interoperability and makes tracking data difficult at best. As a result, most banks have outsourced their cross-border payments activities to correspondent banking networks which follow local market practices that differ significantly across countries. These networks also lack standardization which means they cannot be easily interconnected; nor do they provide consistent end-to-end visibility across individual transactions as each bank will use different identifiers throughout the lifecycle of each transaction as it flows through different correspondent banking networks around the world.



Banks need to make cross-border payments faster, cheaper, and easier

A cross-border payments system that is fast, secure, and cost-effective is essential for banks to be successful in today’s digital economy. A recent survey of more than 100 professionals from around the world provides a look at how banks are responding to this challenge.

Fast and Secure Cross Border Payments: Cross-border payments are a key component of financial inclusion – enabling people, businesses, and governments to move money quickly and securely across borders, creating opportunities for everyone on the planet to improve their lives.
According to the Society for Worldwide Interbank Financial Telecommunications (SWIFT) survey, banks expect cross-border business transactions will grow by 6% annually over the next three years. In fact, many listed cross-border payments as one of their top priorities. Banks need to deliver payments faster and cheaper while ensuring they are secure.

The lifeblood of a bank is the movement of money. The ability to quickly and efficiently process payments is paramount for providing an excellent customer experience, especially in an increasingly globalized world. However, in today's banking environment, many financial institutions are struggling to provide a seamless cross-border experience for their customers due to outdated operational systems, slow payment processing, and new personal data privacy regulations. To know more about the problems in banking read Global banking industry challenges and how to overcome them.

Here are some key solutions for cross-border payments:



Identify your customers' priorities

As a Bank, you should know that cross-border payments can be a challenge. You should also know that your customers will have their own priorities when it comes to making payments. So, You need to identify that.

The first step is to talk to your customers. Ask them what their priorities are when it comes to making payments. Do they want the process to be quick and easy? Or do they care more about getting the best exchange rate? Once you know what your customers' priorities are, you can start to tailor your cross-border payments solution to meet their needs.



Introduce them to multiple choices

One of the biggest challenges banks faces when it comes to cross-border payments is that they are often unfamiliar with how payments work in other countries. This can result in poor service, and even, a decline in customer satisfaction.

Too often, banks do not have the local knowledge necessary to provide the kind of service their customers want. This can be frustrating for both the customers and the banks.

It’s important that banks understand that there are differences in how payments are made in different countries. For example, there are differences in the types of cards accepted, or how those cards work. Some countries accept Visa and Mastercard only, while others accept UnionPay or JCB. There may also be differences in how a payment is processed (for example, whether or not it's a PIN-based transaction) or whether there's a requirement for a signature.

Banks need to address these challenges by partnering with local payment service providers who can help them understand what their customers need and expect from their bank’s services around the world and come up with multiple choices for the customers.



Excellent customer service

It's important for customers to feel like they're engaged in a one-on-one conversation with Customer Support. You should strive to engage every customer in one-to-one conversations.

Great product and great support. In the past, that formula was simple: provide the best customer support you could and try to be better than your competitors.

But then the internet came along, and suddenly most of your competitors were a click away.

In one sense, the internet has made customer service harder to master. You can’t just be better than your competition—you need to be consistently better in order to stand out. You need to make your customers feel like they’re getting great service every time they contact you, whether through email, chat, phone, or social media.

In another sense, however, the internet has simplified the challenge of customer service. Because with all of those channels available at their fingertips—and a few taps on Facebook or Twitter—your customers can share their experiences with thousands of people in a matter of seconds. If you do something for a customer that really makes their day extra special, it’s not unusual for them to want to share it with others.




Some of the largest international banks are for a long time, partnering with Fable Fintech, a cross-border payments technology company. For more information on the best cross-border remittance options for your organization, get in touch with a Fable Fintech cross-border payment solutions team now!

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