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How to overcome the challenges of cross-border payments

Cross-border payments face high costs, slow transactions, security and transparency issues. Learn how to overcome the challenges of cross-border payments.

In October 2021, the G20 body requested the Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system, to create and present a roadmap to enhance cross-border payments. The roadmap was prepared in partnership with the Committee on Payments and Market Infrastructure (CPMI) and other standard-setting global bodies of relevance.

Why was this done?

The market for cross-border payments is expanding. International B2B payments will be a huge opportunity in the upcoming years. Fintech will simplify the procedures involved in cross-border payments, which will help numerous markets.

According to a Juniper Research analysis, the value of B2B cross-border payments would rise from $34 trillion in 2021 to more than $42.7 trillion in 2026. eCommerce marketplaces, which are typically cross-border native platforms, were also shown to be a key driver of this precipitous expansion, according to the study.

The 2020 McKinsey Global Payments Report states that global revenue increased by over 5% in 2019, increasing the total for global payments to close to $2 trillion. These $2 trillion are made up of contributions from countless enterprises worldwide. Companies involved in fintech and payments are becoming more and more important.

How to overcome the challenges of cross-border payments STATSource: McKinsey & Company: The 2020 McKinsey Global Payments Report

The B2B cross-border payment sector is currently very fragmented, according to Juniper research. The short routes are already known to be slow, expensive, and difficult to track. Automated workflows, immediate payment rails, and virtual IBANs must all be taken into account to meet the growing need for better payment services. Additionally, acceptance of domestic payment solutions is essential for future growth.

A fundamental step in the G20 Roadmap for Improving Cross-Border Payments is the setting of quantitative global targets directly related to the challenges of cross-border payments. The major concerns here being lack of access around the globe, transparency of the process, slow transactions and higher costs.

Let us examine the challenges faced during cross-border payments in a little more detail.


Major obstacles faced during cross-border payments


Slow processing time:

Traditional bank transfers used for cross-border payments typically take one to five business days to process, which is a fairly long turnaround time in comparison to domestic payments that are processed almost instantly. Once more, this is due to the sheer number of parties engaged in a single transaction. There are many intermediary services involved for every single transaction. The lack of automation and standardisation among multiple banking networks and payment infrastructures is another reason why this process is still sluggish. There is also the issue of multiple countries being involved for a single transfer. For example, an individual or entity trying to transfer money from an East-European country to a South-Asian country might have their money rerouted through Germany or even Russia and then through India before reaching its intended destination country. Hence cross-border payments can take longer than expected because there are many processes to fulfil and multiple transaction facilitators involved.

International transactions are necessary for both businesses and consumers, and there are two options available: new payment service providers that offer an instant, less expensive alternative, or the outdated, expensive, slow bank transfers. While there is no denying that foreign transactions are more complicated, businesses must make every effort to speed up the processing time in order to fulfil client expectations.

International regulations:

By accepting cross-border transactions, your company also becomes subject to following global laws. Nations have their own laws for foreign payments, imports, exports, and the usage of personal data. To make sure that your company and its offerings are in compliance with local laws in any country from where you accept cross-border payments, it is crucial to do your homework.

An expensive business:

The process of getting the payment to the end payee in cross-border payments involves a huge number of intermediaries. The sender, the receiver's payment service provider, the payment infrastructure, and the corresponding banks are often the intermediaries. FX charges and regulatory costs to add on. The fees associated with going through each of these intermediaries make cross-border payments absurdly expensive.

The increase in foreign labour and global firms has resulted in an increase in competition for cross-border payment services. When retail and consumer clients choose a service provider, price will always be a crucial consideration. Customers will without a doubt choose a financial institution that can provide competitive rates.

Risks & security concerns:

In the international financial system, cyberattacks are a constant possibility. Even before the money reaches the recipient country, any of the countries engaged in the transactions could have a weak point that could be exploited to steal it. Different nations may have different and varying security regulations. There is no assurance that the two participating nations will adopt the same security protocols. Therefore, there is a potential threat that the transaction could experience a high-security breach and that the money may never reach the recipient's account if for example the receiving country's bank has laxer security laws in place. Losses may eventually result from this.

Banks, like consumers, naturally want to feel secure knowing their money is secure while transacting internationally. A bank may not be able to recoup stolen cash if a hacker is successful in stealing them from a cross-border payment pipeline. Such losses might be very expensive. Cross-border payment systems regrettably frequently experience serious security lapses, such as the $81 million central bank robbery in Bangladesh in 2016. Every nation has its own laws, therefore whenever money enters a nation with lax security and access controls, the cross-border payment system is susceptible to hacking.

Any company or customer making an international payment should be extremely concerned about cybersecurity. An increasing number will not use payment systems that lack the strongest security safeguards and risk management practices, and are not consistently controlled. For financial institutions, however, this poses an even more serious problem. In situations like the Bangladesh example, reputational harm can be extremely severe. The last thing banks need is to have to pay fines, return lost money, and deal with bad news while attempting to reduce costs and keep clients. Cross-border payment fraud and data theft are real issues in countries where security checks are not up to international standards.

Service fees and taxes:

Different nations will charge different import duties, customs taxes, and VAT or similar rates. Before you make your products available abroad, it is imperative to be aware of these fees and how they may impact both your customers and your business. In order to prevent any unexpected costs, it's critical to be informed of the current rules on these fees, many of which are prone to fluctuate depending on the political and economic environment. All cross-border payments will be subject to some kind of bank or credit card processing fee, regardless of any country-specific charges. Currency conversion is frequently needed for international payments, and it may be necessary to process payments through several intermediate institutions. Both of these processes take time and can raise the cost of processing payments.

Currency exchange rates:

Cross-border payments are frequently made in different currencies, which makes exchange rates a factor. Because currency rates can change daily, it can be difficult to generate cash flow estimates for your company. Additionally, a lot of banks or credit card companies could impose a fee for currency exchanges for international transactions. It can take a lot of time to monitor exchange rate changes, yet doing so could be vital for your company.

Low transparency:

With so many intermediaries involved, cross-border payments can have transparency problems. While transacting with several intermediaries, the SMEs could experience a lack of transparency in terms of the costs, expediency, and arrival of payments.

As a result, it is very difficult to track payments and have a full view of the entire process, and it could come at a price. This could have a significant impact on the company's earnings.

Increasing transparency is of great benefit to all types of organizations. In addition to being able to use this information to better serve customers, they can also use this data to understand and improve errors that affect their profitability. Understanding why certain payments are declined or need to be investigated helps improve operations, save time, and reduce costs and resources.


Fintech can solve these problems in the following ways


Protection from fraud:

Compared to domestic transactions, international transactions are at the highest risk of digital payment fraud and cyber-attacks due to the large number of parties involved. With security standards such as ISO 27001 certifications, complex passwords, two-factor authentication, monitoring, alerts, blocking, strong encryption, infrastructure security, and data encryption, fintech start-ups can and do address security risks and prevent opportunities for fraud.

Quicker setups:

Be it setting up a payment gateway for a bank or creating an international bank account, the process has always taken time. It can be a week, and in some cases 2-3 weeks. For companies and banks with limited resources, this is a long process and becomes unnecessarily complex.

For cross-border payments it is necessary to have a partner bank in both the send and receive countries, also separate bank accounts for each country or currency and then work in silos with limited exchange of information. These constraints act as barriers to business resilience and growth.

However, with advanced Fintech money transfer and remittance applications, the setup process can be expedited with some solutions that can reduce processing times to less than 2 days. Avoid different accounts in different countries or currencies and get a global view of all payments and financial activity.

Lower business costs:

Banks and businesses must strictly control cash flow management and the cost of creating a SaaS and making payments across borders is unbearable. Therefore, banks can choose a cross-border payments partner that is faster, cheaper and interoperable. In the same way, companies want to reduce their reliance on expensive options for these international transactions and choose the best options available in today's market.

FinTech can be a suitable choice as they have started integrating all the necessary functionalities into their online payment solution, be it B2B or B2C. Many fintech companies offer cross-border payments, which makes them even more valuable. This allows SMEs and banks to better manage and reduce costs.

Often times the payer's payment service provider sends out information in a format that the recipient's payment service provider does not understand. This leads to delays that have to be dealt with manually, thus leading to higher costs. ISO 20022 is an international standard for payment messages accredited by about 70 countries that aims to create cross-border messaging standards and improve the efficiency of cross-border payments. Governing bodies and financial regulators must encourage fintech companies to adopt such regulations worldwide.

Faster processing time:

Cross-border payments are known to take between one and five business days to process, which is quite a long time. In between, the process becomes slower. This makes cash management difficult.
But with the advent of fintech and its digital money transfer software, easy-to-use same-day payments are possible. This helps businesses and banks manage cash and store different currencies to make quick payments.

Exchange rate management:

Front-end and back-end providers are configured to accept funds in one currency and pay in another, but this functionality depends on existing agreements. The backend protocol defines how received funds are transferred, how they are held, where the transfer is made (ie by the service provider or through an intermediary) and how risk is managed.

Many cross-border payment platforms display real-time exchange rates, as well as interbank wholesale exchange rates for instant comparison. Real-time trade updates, free SWIFT payments and currency risk management are just some of the other benefits.

Easy-to-use UI:

The cross-border payment process remains complex for businesses and customers. But fintech companies can use their advanced technological approaches to improve existing payment systems.

Through simple API integration, they can create a solution that provides a seamless, easy-to-use experience and tracking capabilities for existing cross-border payment systems. Fintech is winning new consumers by offering interactive experiences. Instead of investing time and resources developing their own front-end solutions, many banks have started to license products from established fintech companies and incorporate them into their offerings.

For example, Axis Bank's RemitMoney gateway for cross-border payments from the US is a white label solution running on the Fable platform.

Improved transparency:

As there are many intermediaries involved in cross-border transactions, information such as payments, terms, fees and payment arrivals are not transparent. Sometimes there can be hidden costs due to a lack of transparency.

Many fintech companies offer pricing and fee transparency. With their international money transfer software, you can also track your payments and history. If SMEs dealing with tourism, imports and exports can set up their international accounts using a multi-currency International Bank Account Number (IBAN) under their company name, they can view market data, statistics and historical records through a single platform.

We refer to this integration of solutions for cross-border payments into one platform as the platform model approach. You can read more about it here on our blog: The Platform Model.



In conclusion, cross-border payments still face challenges such as high costs, lack of transparency, slow transactions and security issues. But fintech companies are making cross-border payment systems simpler, more efficient and more effective through advanced integrated AI solutions, machine learning solutions and user-friendly infrastructure.

If banks and payment service providers involved in international payments embrace technological innovations in the fintech industry, they can help businesses and customers reduce the challenges of cross-border payments. This will help them retain customers and stay in the market in the long run.

Many banks with established customer bases and fintech companies with reconfigurable products and go-to-market are already working together to revolutionize the cross-border payments system. To learn more about the right digital solutions for your business, you can contact one of the experts.






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