Cross-Border Payments: keeping up with changes
September 7, 2022
The cross-border payments infrastructure has been neglected when compared to domestic payments, and as such, is in dire need of modernization.
Identitii’s CEO, John Rayment, talks about the shift to digital, crime and regulations, and how the industry is at the gates of great transformation in an article for The Fintech Times.
Cross-border payments have become an important part of nowadays’ economy. Technology has led to an increase in international trade.
It is estimated by Ernst & Young that the international payments market will reach $155.9 trillion in 2022. This is in contrast to the year 2018, in which the market reached $127.8, showing significant growth.
But even though there is promising growth in the horizon, it isn’t without difficulties. There’s the threat of challenges in terms of ever-changing regulations as well as scaling issues to meet demand.
These issues were discussed in 2020 by the G20 Group of Countries, which has put the task of mapping the road for change to the Financial Stability Board (FSB), which together with the Bank for International Settlement (BIS) are making efforts towards transformation.
The B2B market, usually dominated by SWIFT is seeing more alternatives appear, such as Mastercard’s Cross-Border Services and Visa B2B connect.
SWIFT works best in established payment corridors, but when it comes to others, the transactions usually have a long travel time among a chain of intermediary banks, driving up fees and making the process slow.
This process also takes a long time as each bank has to check on customer data, making it difficult for said customers to know where in the chain their money is and when it will reach its destination.
This correspondent banking decline could be traced back to “large-scale, de-risking” processes done by some larger banks.
There is pressure on financial institutions to up their digital game.
“These specific challenges facing cross-border payments are set against a backdrop of wider industry change. There has been an acceleration in digital adoption within financial services, as individuals become more accustomed to digital products and services.”
But, along with increased digital activity, there is increased cybercrime. The UK National Fraud and Intelligence Bureau revealed the first half of 2021 saw a threefold increase in cybercrime when compared to other years, making financial institutions and banks focus on the fight against cybercriminals.
Regulations and compliance changes are also things to look for, regulations related to Anti-Money Laundering (AML) and counter-terrorism financing continue to come up, such as the 6th Anti-Money Laundering Directive (AMLD) in the EU.
ISO 20022 has marked the beginning of important transformation and modernization in cross-border payments. Without these changes, there is the risk of immense cost and not being able to meet customer demands.
Financial institutions need to adhere to new regulations while managing internal growth projects. As customer demand grows and the world is more connected than ever, strong cross-border payments are more necessary than ever.