Payments are arguably the face of fintech. When you think about financial technology, it is easy to think about solutions which are making payments faster, easier and more accessible.
Having reflected on what the top priority is for businesses looking to enter the cross-border payments space, we now turn our attention to the future, and how the sector will evolve in 2024.
Practical improvements await
Rachel Levi, global head of innovation engineering, Swift, the cross-border payments provider, notes how the company and ecosystem are working to make practical improvements to international payment speed.
“The G20 roadmap for cross-border payments remains an important touchstone for the industry as it works to make payments cheaper, faster, and more accessible to all. Now in its fourth year, the roadmap is pivoting to practical improvements and the targets are welcome guiding points behind which the industry can focus its efforts.
“Swift’s own strategy for instant and frictionless transactions is closely aligned with the G20 targets, and 89 per cent of transactions on our network now reach the recipient bank within an hour – ahead of the G20’s 2027 goal of settlement within an hour for 75 per cent of international payments.
“Supporting this effort requires rich, structured data that is channelled through a common standard. In an increasingly fragmented world, ISO 20022 empowers businesses to leverage improved datasets to not only improve operational resilience and efficiency, but to enhance their customers’ experience and complement new innovations.
“This year, we expect to see this data used in more innovative ways to produce richer insights: a welcome by-product of businesses using the standard in anticipation of next year’s migration deadline.”
Shaking up the banking model as we know
Previously, banks have only had one payment rail to conduct cross-border payments. However, Arjeh van Oijen, head of product management, Icon Solutions, the banking transformation firm, notes that with the emergence of new cross-border payments facilities, this is going to change the banking system as we know it.
“A growing number of real-time payment schemes and associated payment infrastructures in different parts of the world are extending their scope from domestic credit transfers to one-leg out credit transfers (where the debtor agent or creditor agent can be an institution outside the country / region of the relevant scheme). Most notably, the European Payment Council’s ‘One-Leg Out Instant Credit Transfer (OCT Inst)’ scheme went live in December.
“This creates the opportunity for correspondent banks to route and settle payments via a real-time payment infrastructure rather than the Real Time Gross Settlement rail, the only option previously. The advantage is lower fees and 24×7 availability.
“In parallel, the inter-linking of different market infrastructures is enabling banks to use domestic real-time payment infrastructures for the routing and settlement of cross-border / cross-currency payments. Examples include the IXB initiative between EBA Clearing in Europe and The Clearing House in the USA, as well as the Nexus project from the Bank of International Settlements which has successfully linked Europe, Malaysia and Singapore’s payments systems.
“While these developments will improve the speed and cost of cross-border payments, they also require the adoption of next-generation payment systems that can process payments – irrespective of the type, currency and scheme/infrastructure. With fintechs already well-positioned to adapt and take advantage of the opportunities one-leg out payments present, banks will need to move quickly to implement a comprehensive strategy for adoption.”
Continuous growth
James Cope, head of product management, Crown Agents Bank, FX and cross border payments firm, highlights cross-border e-commerce as a key aspect that will evolve in 2024.
“In 2024, cross-border payments volumes will continue to grow rapidly. B2B and C2C cross-border payment volumes and revenues will continue to grow far in excess of GDP growth as exporters look to access new markets and individuals move abroad for work. The star growth segment will be increased cross-border e-commerce flows, a huge engine of growth, projected to continue growing at 25-30 per cent CAGR through the next decade.”
Faster, cheaper, more transparent cross-border transactions
For Clare Rowley, head of business operations, The Global LEI Foundation, the cross-border identification system, cross-border payments will evolve as more and more markets migrate to ISO 20022.
“As payment market infrastructures across the world migrate to ISO 20022, significant regulatory momentum for the legal entity identifier (LEI) promises to promote faster, cheaper, more transparent cross-border transactions, while ensuring their safety and security.
“Both the Bank for International Settlements’ Committee on Payments and Market Infrastructures’ (CPMI) and the Wolfsberg Group have published reports supporting the inclusion of the LEI within ISO 20022 payment messages. The Swift Payment Market Practice Group (PMPG) also outlined how global adoption of the LEI in ISO 20022 payment messages can support key cross-border use-cases including: sanctions and watch-list screening; KYC and client onboarding; fraud detection and the fight against vendor scams; e-invoice reconciliation; and account-to-account validation.
“And as we look further ahead into 2024, an ongoing review of Financial Action Task Force (FATF) Recommendation 16 presents an unmissable chance to ensure the LEI is included within the information accompanying qualifying wire transfers, further increasing trust and transparency.
“Amid this broad emerging industry consensus, an increasing number of banks, financial institutions, and other organisations are embracing a proactive approach to supporting voluntary customer adoption of the LEI by becoming validation agents in the Global LEI System. As well as easing the process of LEI implementation by making LEI issuance more convenient and accessible for customers, validation agent’s also realise significant operational advantages themselves.”
DeFi cross-border solution
Combining two of the biggest fintech subsectors together, Barry O’Sullivan, head of payments, OpenPayd, the embedded finance platform, notes how decentralised finance can impact cross-border transactions.
“2024 will be the year that decentralised finance (DeFi) solutions arrive in cross-border payments. We’ve seen big movements in the regulatory space, which is making it easier for financial institutions to start experimenting with blockchain-based payments. That will also bring greater focus on how we safeguard the movement of data and money across borders.”
Welcome, intelligent automation
Subscription-based businesses and those expanding to new geographies will be the biggest benefactors of intelligent automation in cross-border payments says Ash Lomberg, global VP strategic growth, Chargebee, the revenue growth management (RGM) platform.
“The cross-border payment space in 2024 will be characterised by intelligent automation, particularly through third-party paytech solutions, simplifying complex tasks associated with localisation.
“This evolution will be particularly beneficial for subscription businesses and those expanding into new geographies, allowing quick adaptation to legal requirements, including dynamic taxation and various data processing and financial laws in overseas markets.
“Modern payment and billing platforms with built-in functionality ensure compliance with regulations like GDPR in the EU, DCIA in Canada, and PDPB in India, but are also capable of adapting to new regulations and responding to evolving standards.
“Increased automation will not only alleviate regulatory burdens, it will also accelerate cross-border expansion for faster and more profitable outcomes. Businesses can scale flexibly, capture revenue immediately, and adjust invoicing and taxation through geolocation alone.
“Subscription-based businesses work using recurring billing, and the last thing anyone wants is a recurring headache from the failure to comply with tax regulations that vary from country to country, or even locality to locality.
“This year, businesses will be taking advantage of out-of-the-box paytech solutions to help them manage these responsibilities, and avoid the compliance pitfalls of cross-border payments.”
Regulatory harmony
Ani Sane, chief business officer, TerraPay, the mobile wallet provider, puts a focus on the regulatory changes that will see the cross-border payments space evolve in the coming year.
“In 2024, we expect enhanced focus on modernising and strengthening regulatory harmony around cross-border payments to promote Real time payments, financial inclusion, reach and lowering the cost of money movement. Globally, countries will prioritise resolving instances of regulatory fragmentation by facilitating dialogue and setting up national bodies to address these issues.
“At TerraPay, we are already supporting this, with 30 licenses and regulatory approvals, we are handling complex regulatory compliance and developing agile routes for our customers.
“Public-private partnerships will also rise among regulators and payment players such as banks and technology providers. These various stakeholders understand that by combining their strengths they can drive innovations in payments and improve the efficiency and security of cross-border transactions.”
Francis Bignell
