Cross-border payments are the lifeblood of international business — but for finance teams, they often come with a side of risk and complexity.
As the world shrinks and global markets open up, the hurdles for CFOs and treasurers are growing, with solving for cross-border payments becoming a financial frontier that’s impossible to ignore.
“If you look at the cross-border payment space over the last five years, the payment volumes have grown [tremendously],” Chandana Thanthrige, managing director, head of FIG and transactional FX product APAC, global payments solutions at Bank of America, told PYMNTS.
But with this growth, managing market volatility, regulatory compliance and cross-currency risks remains a challenge.
Thanthrige said the regulatory environment in particular plays a role in shaping cross-border payment strategies, with countries within the Asia-Pacific (APAC) region having currency restrictions, while inbound payment flows are less restricted, in part due to the strength of export markets and eCommerce activities.
He said the key to managing regulatory complexity is understanding the unique workflows of each market and building processes that facilitate compliance without sacrificing efficiency.
As cross-border payments become more complex, companies need solutions that address their specific challenges.
While geopolitical instability and supply chain disruptions have been prevalent, cross-border payments in the eCommerce space and for smaller value transactions have largely remained resilient.
“Yes, there are difficulties, but people still want to grow their businesses,” Thanthrige said, highlighting the necessity of more efficient cross-border payments despite external challenges.
As companies expand their footprints across borders, understanding the nuances of cross-border payments becomes paramount. It’s not just about moving money; it’s about doing so efficiently and compliantly in a world where every transaction could include complex considerations. To succeed, CFOs and treasurers need to adopt payment solutions that can help mitigate risks and enhance efficiency.
Enter: cross-border payment digitization, a reality that the pandemic accelerated, with businesses being forced to adapt to digital-first models.
“Once people move to digital, they don’t move back,” Thanthrige said. He noted that this shift was particularly pronounced in sectors like eCommerce and small to medium-sized businesses (SMBs), where maintaining business continuity required adopting new payment solutions.
Technological advances, like automation, are essential as cross-border payments continue to scale. Automation reduces the cost and time involved in processing large volumes of transactions, making it indispensable.
Beyond automation, artificial intelligence (AI) holds huge potential for the cross-border space.
Thanthrige highlighted two capabilities offered by Bank of America that stand out in cross-border commerce: guaranteed foreign exchange (FX) rates and multicurrency netting.
In a world where cross-border payments are processed 24/7, he said that guaranteed FX rates provide clients with real-time rates, ensuring they can manage foreign exchange exposures without engaging in more complex hedging strategies.
Bank of America offers guaranteed FX for up to 180 days and plans to extend this to 360 days for certain flows, reflecting the growing demand from clients for longer-term rate commitments. This capability allows treasurers to manage their FX exposure with greater certainty, contributing to a more predictable and stable cash flow.
For businesses operating in restricted markets, regulatory requirements often involve providing a set of documents before completing a transaction. To streamline this process, Thanthrige said Bank of America has introduced a digitized paperless FX model in markets where that is allowed. This enables clients to deliver required documents digitally, linking them directly to the transaction for seamless automation. By eliminating the manual submission of paperwork, this enhances efficiency and reduces the burden on clients.
Looking to the future, Thanthrige said that interoperability between payment networks will be a driver of growth in cross-border payments. In the APAC region, real-time interconnectivity between countries is already advanced, allowing funds to be transferred between nations in seconds. As these networks become more interoperable, the ease and speed of cross-border payments will improve further, benefiting businesses of all sizes.
He also highlighted the importance of standardization, particularly the adoption of the ISO 20022 messaging standard. By providing a common language for financial institutions across different countries, ISO 20022 will reduce friction in cross-border payments and improve transparency, accuracy and efficiency. As more institutions adopt this standard, the ability to move money seamlessly across borders will become a reality.
With a focus on automation, client-centric solutions, and regulatory expertise, cross-border payments are evolving rapidly. As Thanthrige said, the key to success lies in using the right technology at the right time, ensuring that solutions meet the diverse needs of businesses in the global economy.
Register now to access all streaming and on-demand videos from the B2B Payments 2024 event series.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More