“A Cross-border payment is a payment transfer between the payer and the recipient who are respectively based in two different countries.” These transfers are generally wholesale/retail but also include education, medical treatments, living expenses, and gifts.
According to a study by PRNewswire, the value of global remittance and cross-border payments transactions is predicted to increase from US$ 37.15 trillion in 2020 to US$ 39.9 trillion by 2026.
The cross border payments market has always been fraught with pain points and inefficiencies from both a cost and time perspective, resulting in expensive transaction fees and complicated, lengthy payment processing methods.
In a nutshell, cross-border payments still face a lot of challenges like high costs, lack of transparency, slow transactions, and security concerns.
Every transaction incurs a fee, but cross-border payments frequently incur several. This is because more players are involved in an international transaction than a domestic one, and they all want to be paid for their services. Depending on the geographic region, a single transaction may have to travel to three or four countries. With each region governed by its own laws and restrictions, there is also a myriad of currency conversion fees and regulatory fees. Navigating these different protocols adds up and someone must bear the cost, either the provider or the customer.
Slow transaction speed
As cross-border payments involve multiple entities, each of which must process the payment — these transactions can take several days to complete, leaving the recipient waiting on the payment to go through. This prolonged process is inconvenient at best and unsustainable at worst, especially for small businesses or when transferring large sums of money.
Because of this, many businesses may experience burdens of cash flow, which in turn can be a threat to their survival in the market.
Lack of transparency
In international payments, payer and payee are often unable to track transaction’s status online and a large number of intermediaries makes it even more difficult to contact the right entity in case of the payment’s halt or investigation. This goes hand in hand with a lack of clarity regarding all incurring fees and deductions. It’s safe to say that everyone has at least once experienced how unexpected fees dramatically increase (or decrease) an overseas payment. Such unpredictability doesn’t suit business and directly impacts its profits, forcing companies to seek alternatives to traditional bank transfers.
Security is paramount for all financial transactions, especially when dealing with cross-border payments. When institutions or individuals transfer money between countries, they risk encountering weak security protocols or inferior cyber protections. Businesses want to guarantee the safety of their international transactions, but that guarantee isn’t always possible since they are not solely responsible for the transfer. Should a cross-border transaction be intercepted, the security breach could be especially costly, both in dollars and in customer loyalty.
How fintech can help overcome the challenges in cross-border payments
Costs aside, banks may not always be able to help unless your company has a local bank account in the country you’re trying to collect from. This often requires having a local entity in that market. Additionally, banks may not be able to help your company obtain the supporting documents that are frequently needed, and their relationship managers may not be available to support you and your clients around the clock.
Instead, a payment provider is typically your best option. The fintech industry has always strived to work on advanced payment systems. These technologies can act as a driver for improving speed, security, and transparency in cross-border payments. Payment providers can offer local payment methods and solutions. They are also generally cost-effective and able to use their understanding of countries and local regulatory regimes to navigate in-market rules.
For example, iPeakoin, as a fintech company, focuses on providing user-friendly payment solutions for businesses of all sizes. Supporting over 40+ currencies in more than 180 countries/regions, iPeakoin has built an integrated platform for global businesses.
The journey to seamless cross-border payments will not be easy. There are so many factors and players involved that a transformation will take time, but the good news is that a transformation is very much possible. With the right infrastructure, regulatory landscape, and standards in place, cross-border payments are poised to evolve.
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As a neobank, iPeakoin builds a new generation of banking for all businesses to operate without borders and restrictions. We aim to create social value, serve the public good and drive sustainable growth for our customers.