A report by the MENA Fintech Association (MFTA) analyzing the landscape of cross-border payments across the region has found that cost, speed, accessibility and transparency are issues creating friction in payments both between MENA countries (intra-MENA) and between MENA countries and the rest of the world (inter-MENA).
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Drawing on data from the World Bank and the insight of regional and international FinTech experts, the report noted an optimistic, but cautious, view about the future of cross-border payments in the region, home to two of the world’s largest remittance corridors in the United Arab Emirates (UAE) and Kingdom of Saudi Arabia, per McKinsey.
Cost
The cost of cross-border payments has always been a challenge faced by businesses and individuals looking to send money from one country to another.
The report found that although the MENA region has seen the costs associated with both intra-MENA and inter-MENA payments decline, it still has a long way to go to reach the UN sustainable development goal of less than 3% average transaction cost.
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At present, some of the receiving payment corridors have been able to achieve the UN target, but most of the less-developed routes still incur significant costs for anyone sending money into the MENA region.
The report listed sub-Saharan Africa, Southeast Asia and Latin America as regions where sending money to the MENA is particularly expensive, with many payment corridors averaging costs of 5% of the transaction value or higher.
Speed
The challenge of achieving faster, or even instantaneous, cross-border transactions is one that many FinTechs have turned their attention to in recent years.
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For example, in the MENA region, U.K.-based Sokin intends to leverage a new partnership with Mastercard to launch its global currency account app and wallet across 39 new markets.
As the case demonstrates, payment networks have an important role to play in increasing the speed of cross-border payments but it takes innovative solutions from the likes of Sokin to deliver money transfer services on top of payment infrastructures.
Accessibility
Accessibility is highlighted by the MFTA as another pain point when it comes to cross-border payments in the MENA.
The report highlights the need for banks and other financial institutions (FIs) to authenticate and onboard customers as an area in which novel FinTech solutions will increasingly be able to improve access to financial services that require cross-border payments.
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Digital know-your-customer (KYC) tools have yet to be applied by MENA FIs to the same extent as they have elsewhere in the world, presenting an opportunity for FinTechs in the region to disrupt the market.
Transparency
When it comes to cross-border payments, transparency in terms of transaction costs, exchange rates used, and organizations involved leads to more trust between FIs and their customers.
In the MENA region, technologies that facilitate point-to-point connections have reduced the number of steps in the average cross-border transaction in recent years, leading to faster, more transparent payments, but there is still room for improvement.
Further reading: SWIFT Intros Fast Cross-Border Payment Service
The report mentions SWIFT GPI as being particularly instrumental in reducing the number of FIs involved in transactions.
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