Cross-Border Payments Innovation: Pipe Dream or Right Around the Corner?

When it comes to cross-border payments, patience is a virtue — but fees are a reality.

That’s because moving money between nations has long been plagued by inefficiencies, high costs and slow transaction times.

These intractable problems have for decades hindered the global economy’s flow of funds and hamstrung the expansion ambitions of all but the largest multinationals.

Historically, firms looking to operate across multiple countries have had to navigate a complex web of local payment infrastructures and regulations.

But as the macro realities for even small Main Street businesses start to become by default global, the incentives for cross-border money movement transformations may just start to become catalysts for change.

Already, money movement innovations are revolutionizing the way money crosses borders and promises to make transactions faster, cheaper and more accessible. 

Thanks to ongoing digital-led transformations, organizations are increasingly moving to a world with massive amounts of data, massive complexity of data, and massive opportunities entrenched within that data — and unlocking this opportunity could help smooth out long-standing cross-border frictions.

And as observers have noted to PYMNTS, digital is frequently a one-way street: once firms start making their way down it, they rarely turn back.

Read also: Three-Day Weekends Are Relaxing — Three-Plus Days for Sending Cross-Border Payments Is Anything But

The Need for a Global Payment Scheme 

While at the top the global economy is hyper-connected, its underlying payments infrastructure is inherently fragmented. Even the world’s largest multinationals are well aware that transacting internationally is inherently complex, no matter the scale they can leverage.

And simplifying cross-border payments won’t be simple by any means.

Businesses operating internationally must manage multiple correspondent bank accounts in various geographies, grapple with different time zones and currency fluctuations, navigate opaque and expensive money transfers, as well as sit tight waiting for unpredictable and often weeks-long reciliations — and that barely scratches the surface.

Dealing with various local regulatory and compliance requirements represent a whole different beast that organizations must manage for, too.

Each country has its own regulatory bodies and licensing requirements for sending, receiving or storing money. Areas like compliance, capital requirements, governance and data storage are all country-specific and require significant local expertise, which has historically represented a major hurdle to expansion for smaller companies.

PYMNTS Intelligence found that more than a quarter of small- to medium-sized businesses (SMBs) see the complexity of cross-border payments as a hindrance to their ability to grow (27%), and just 23% of SMBs found their current cross-border payment solutions to be very or extremely satisfactory.

That leaves three-quarters of respondents noting that the solutions they have in place fall short in terms of what they need to manage their business’ cross-market flows (which would include liquidity).

Last but not least, it is not just the payment rails and regulatory architecture that varies from country to country — end-user behavioral preferences around the payment occasion do as well.

See more: Corporates Chase Payments Ubiquity in Bid for Cross-Border Expansion

Learning From Other Industries

Fortunately, the many historic bottlenecks in sending money across multiple geographies are increasingly being dismantled by an array of future-fit technical innovations.

And the payments sector has another highly regulated global industry to learn from as it moves to unblock bottlenecks: the airline industry.

Similar to how no single payment rail provides 100% global coverage, no airline can possible cover all destinations and international routes. In both industries, the need for interoperability across regions and localities is crucial.

Just as taking a cross-border flight that requires multiple connections and layovers puts undue stress and burden on the traveler, sending money around the world using today’s available money movement pathways is equally cumbersome and time- and-cost-intensive.

As Pranav Sood, EMEA executive general manager at payments firm Airwallex, noted to PYMNTS, even borderless eCommerce merchants end up “losing somewhere between 2% and 4% often per transaction in FX conversion fees” when transacting internationally.

“At the end of the day, so much of this is about capital being locked up in pre-funded accounts; in working capital stuck in multiple countries; in accounts on the other side of a trade in some minimal amount. The ability to move value around quickly — as opposed to locking it all in one place — frees up not just capital, but the energy and opportunity for growth in these businesses,” Brooks Entwistle, senior vice president of global customer success and managing director at enterprise crypto solutions company Ripple, told PYMNTS.

Entwistle’s colleague, Pat Thelen, told PYMNTS in a separate conversation that by applying technology to cross-border processes that are “fraught with manual processes and illiquidity and latency, there are some real opportunities where so much cost can be taken out of the equation… With today’s technology and innovations… hopefully there’s an interoperable world where technology is leveraged to take away a lot of the friction that exists.”