Claire Huddleston, Head of Sales at Clear Junction
In 2022, many people and organisations will depend on the ability to process transactions in real-time and securely worldwide. Cross-border payments are significant in their value and volume and are expected to total an astonishing $250 trillion by 2027.
Further, the rise of fintech in recent years has highlighted how the services offered by traditional banks are not necessarily the best fit for businesses – and cross-border payment services have provided a lifeline to many and allowed business owners to seek new opportunities. Essentially, the growth in the international mobility of goods, services, capital and people has increased the economic importance of cross-border payments.
But how have cross-border payments evolved over the years?
Internationally evolution: Open banking and the need for collaboration.
As the world continues to adapt to a new era of post-covid restrictions, remote working and digital homogeny, the need for money to move safely and freely across borders is especially important. Additionally, the payments industry is still growing and becoming more diverse- therefore, there will be an increasing need for partnerships and collaboration to take advantage of the emerging international and borderless opportunities.
One direction we’ll be seeing them in will be in the form of open banking. Traditional firms are beginning to see open banking as something more appealing due to the opportunity for partnerships. The rise of alliances within the finance industry began to take place long before the ongoing pandemic. Currently, over 30 partner banks represent hundreds of fintech relationships and financial services. Firms that adopt open banking early and secure partnerships will see themselves reaping the rewards compared to their competitors.
2022 has been the year that open finance started reshaping financial services and the year that banks savvy up to the opportunities that open finance represents. With regulators in the EU and UK proposing measures to heighten data sharing principles across a broader set of financial products, 2022 has seen many banks experimenting and evolving their business models toward a more open, collaborative platform approach.
The multiple challenges to the finance industry over the last year have highlighted the need for fresh thinking, to face the future with strength and confidence. International payments partnerships can create a significant opportunity for levelling the playing field, streamlining internal processes, adding technological capabilities, and improving the end customer experience.
A gem cannot be polished without friction
The digital transformation of the financial world has accelerated the growth and popularity of cross-border payments, and many would argue that payments are settled almost instantly. But within this real or near real-time environment, friction that can lead to enquiries or investigations still exists, slowing down the payment process.
The source of such friction can vary and includes internal and external factors. For example, each country to which a correspondent bank sends payments can have its own rules, regulations and requirements regarding data. Understanding the different requirements globally requires a high level of expertise.
Problems can also occur when financial players fill fields in with incorrect data or in the wrong format. Because there is no single global regulator overseeing cross-border payments, there are many formats and peculiarities. This fragmentation means cross-border payments are difficult to automate.
In a real-time payment’s world, speed and transparency in cross-border payments and security will be essential. Financial institutions may not yet be able to eliminate all frictions. Still, with the use of standards and technology, they will be able to make friction a minor, not a major, inconvenience while providing fast and safe cross-border payments.
The future of cross-border payments
As we continue to recover from the pandemic, there will be a greater reliance on the innovation of the payments industry to help banks and financial institutions. In the light of these shifting demographics and the ever-increasing demand for instant and borderless payments, key financial players and emerging fintech businesses should see this as the right time to partner. Combining their strengths, both parties will be able to bring solutions to market quicker, through the perfect model, more efficiently than either could have ever achieved alone.