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Cross Border Payments and the Global Economy: What’s Next for International Commerce

Updated: Jan 18

What are Cross Border Payments?

Cross-border payments are international payments that are sent between two countries. There are multiple reasons why someone might send cross border payments. People who have migrated to another country might send payments to family or friends in their home country for financial support or they might send payments to companies to pay bills at home. Businesses need to send cross-border payments to international suppliers, pay international employees, or pay disbursements to customers who reside in another country. According to Cecilia Tamez, Chief Strategy Officer for Dandelion, “Legacy cross-border payments are slow, clunky, and lack transparency and inclusion. The fundamental problem with legacy cross-border payments is that banks use intermediary banks to fill the gaps where they lack direct connections.” This is most prevalent when sending to emerging markets. The result is that a payment can touch as many as five different financial institutions and take days before it arrives at the intended destination, reducing transparency and predictability for time and cost. Lastly, legacy banking rails lack diversity in their payout channels; they can send to another bank account, but if a user wants to send money for cash pick-up or a mobile wallet, recipients have to utilize third party services. The best way to overcome these hurdles is for banks and other financial institutions to integrate with real-time cross-border payment rails like the Dandelion network or a fintech like Paysend.

Key Players in CBP

In the peer to peer (P2P) space, Dandelion (part of Euronet) is one of the largest, real-time cross-border payments networks in the world offering payments across 190 countries to bank accounts, mobile wallets, and over 500K cash payout locations around the world. The reason 90% of Dandelion’s payments are delivered in real-time is because of their direct connections, reducing the friction of legacy payment methods. The best part is that banks can integrate with Dandelion with one contract and one API integration, instantly giving them access to the full global network. This is especially meaningful for emerging markets leading many banks and financial institutions to explore partnerships with fintechs like Dandelion to close the gap quickly.

Another key player in the P2P space, Paysend, also provides cross border payments for business to business (B2B) clients. Paysend Business offers an ecosystem of payment solutions that empower small and medium sized enterprises (SMEs) to manage their money movement quickly and easily without hassle. According to Jairo Riveros,

Managing Director for The Americas and Global Head of Strategy at Paysend, “Our company is committed to solving the problem that people sending remittances abroad face with other vendors available: affordability, speed and security.” The main benefits of these payment solutions are translated into:

A. Reduced costs as our users can enjoy lower exchange rates and transaction fees, saving their business time and money

B. Increased efficiency by completing cross-border transfers, businesses can improve the efficiency of their operations with a faster and more secure process when managing payments across borders and in different currencies, improving cash flow and authorizing smooth transactions

C. Greater liquidity as businesses can access more markets and move money in different countries, strengthening financial and business operations and

D. Improved cash flow as companies can move money instantly, which can help them to pay provider bills and other expenses and ensure regular income.

A lot of banks and fintechs are realizing that there is a growing demand for sending payments to emerging markets whether they are P2P or B2B. Over the last ten years, emerging markets have contributed to two thirds of the world’s global GDP growth. This demand is not just being driven by traditional remittance customers who make up the majority of consumer cross-border payments. As supply chains diversity and business becomes increasingly borderless, businesses have an increasing need to diversify their payment destinations and practices.

Best Practices for CBP Adopters

Today’s technology enables organizations to leverage APIs to create seamless integrations between legacy and modern systems, resulting in incremental innovation in their organization. Gone are the days of having to rip and replace systems. This has created a new era of co-opetition between banks and fintechs. Whether it’s P2P or B2B payments, the problems that cross-border payments solve are endless. Overall, the key problems CBP solves revolve around time and cost.

  • Time: When using traditional international wire transfers, recipients may wait anywhere from days to weeks to receive their funds. This can be a huge challenge for P2P transfers because oftentimes, the recipient will need the transfer asap, to cover housing expenses, food, school fees, medicine and more. From a B2B perspective, payment timelines will have a direct impact on procurement processes. Procurement partners will not release goods to the acquiring organization until payment is received, which can delay production time, distribution, cash flow, etc.

  • Cost: International wire transfers are costly. Not only is there a cost to send a fund, but there are also fees associated with every step of the cross-border payment’s journey from point A to point B, which can quickly add up.

While some corporate banks may have been slow to embrace the internet age and the new wave of digital technology, third-party solutions have evolved and radically transformed the payments industry for good by enabling near real-time cross border payments. In order to evaluate the efficacy of a cross border payment solution, ask the following questions:

  1. How affordable is the service?

  2. How quickly is money transferred?

  3. Are you and/or the end user able to view upfront exchange rates when moving money internationally?

  4. What is the user experience?

  5. How many sending and receiving countries are there?

CBP Trends and Looking Ahead

Customers are accustomed to shopping and interacting with businesses and people in a borderless way. The technology exists to make real-time cross-border payments as easy as sending a text message – seamless and instant. They also expect that payments will be interoperable across bank accounts, mobile wallets, or cash. According to Cecilia Tamez, “In the next 2-5 years, expect to see that most banks and financial institutions will have caught up to the demand and will be able to deliver on real-time, interoperable, cross-border payments that deliver a seamless customer experience.” Every country is eager to deliver domestic real-time payments (RTP), but few countries can influence RTP across borders. Customers expect their payments to be delivered in an instant – no matter the destination. Jairo Riveros agrees, “Another key opportunity for cross border payments will be within the medium sized companies who acquire products from overseas and sell these products.” Because digital wallets and neo-banks do not communicate and operate in isolation, users currently have limited options when it comes to transferring funds between the two. With digital wallets, funds may be accepted within a new bank solution, but may not work across traditional banking systems or in different countries. Interoperability is the name of the game, making card-to-card, account-to-account, and card/account-to-cash transactions available across the world.

Contributed by Photon Commerce

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