Bank-fintech partnerships can shape the future of cross-border payments

Steve Naudé, Head of Wise Platform


People and businesses are more interconnected than ever. In today’s global economy, international payments have taken on new significance in enabling cross-border travel, trade and investment. Despite this, moving and managing money internationally continues to be expensive and often unpredictable due to the inefficiencies of an opaque and outdated traditional banking system.

As it stands, international payments are neither sustainable nor economical for individual customers or SMBs. High fees and a lack of transparency especially prevents micro, small and medium businesses (SMBs), which already operate on razor thin margins, from tapping into their full growth potential and accessing new markets. A 2021 Wise report found that 56% of SMBs are put off from going international due to the frustrations with existing international banking processes.

It is no wonder that there has been a boom of fintechs and specialised digital providers that offer cheaper and faster payment experiences, and are increasingly becoming the platform of choice.

Yet, banks still capture a lion’s share of cross-border payments. Platform switching can be a chore for many customers, who are familiar with and have deep trust in their bank providers, and often lack resources or knowledge when it comes to trialling new ways of managing money. Despite the plethora of options available to customers today in the form of fintech and specialist providers’ apps, it can be time-consuming and emotionally difficult to redirect money to a new provider.

It’s also not always obvious to customers that they need another provider for international payments, because hidden fees make it difficult to know that you’re getting a bad deal. So, for all of these reasons, the most convenient place for them to manage money internationally is with their existing bank provider.

The industry should be looking not to competition, but to partnerships, to solve the problem of international payments. The benefits of partnerships are compelling. According to Cornerstone Advisors, nine in 10 financial institutions consider fintech partnerships to be important to their business, up from 49% in 2019, and nearly two-thirds of banks and credit unions have entered into at least one fintech partnership over the past three years.

There are significant opportunities to be unlocked from combining the agility and technology of fintechs with the reach and infrastructure of established banks. These partnerships can serve as a catalyst for global growth – with each new integration, more people and businesses get access to faster, better and transparent international payments.

Such integrations are often achieved using cross-border payment APIs (Application Programming Interfaces) which are embedded into a bank’s existing infrastructure. They help businesses, banks, platforms and financial institutions scale their capabilities quicker, streamline their payment processes and ultimately grow revenues  – removing many of the frustrations and costs associated with building out new functionality in-house.

However, as transformative as they are, it’s not always easy for banks to work with API solutions. Historically, banks have been asked to integrate new and advanced technologies into their systems, but are given minimal allowances for what’s different about their core architecture. The reverse should be in fact true; fintechs should focus on offering adaptable solutions that can be layered with the bank’s existing capabilities.

For example, banks rely on compatibility with existing financial architecture, including messaging networks such as Swift. Wise Platform recently unveiled a new Correspondent Services solution that enables banks to route Swift messages directly to Wise. This will enable their customers to benefit from the convenience of Wise and the breadth of Swift without needing to implement any major changes to their systems.

Another key element to the success of bank-fintech partnerships is that both parties have a mutual understanding of goals. Both parties must see eye-to-eye on risk management and commit to a collaborative approach.

With the increasingly fast-paced rate of financial innovation, there has been – rightfully – increased regulatory attention on compliance framework in fintech-banking partnerships, which can make partnerships appear riskier than they are and overshadow benefits. However, this worry can be alleviated if banks choose fintech partners who have demonstrated strong compliance expertise, and have experience managing regulations across different markets.

As the global economy becomes increasingly interconnected, it is clear that fintech companies should no longer be seen as simply disruptors or competitors when it comes to international payments. Rather, they are integral partners who will play a major role in transforming international payments for good. Strategic partnerships between traditional banks and fintech players will redefine cross-border travel, trade, and economy, and provide the foundation upon which people and businesses can take part in a global marketplace.


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