Bank-FinTech Collaboration is key for instant, futuristic cross-border payments. Know what to expect from the cross-border payments industry in 2021 and beyond.
In the wake of globalization and a highly connected online world, buying and selling have become borderless, no longer defined by geography!
National economies are being knit into a single world economy.
Customers? Well, with an uptick of new customer touchpoints, customer expectations have been skyrocketing!
With all this in the backdrop, moving money across the border surprisingly remains inherently complex.
Globally, the cross-border segment is expected to touch $156 trillion by 2022 – and yet, the lack of transparency, hidden costs, inconsistency in delivery, and insufficient data continues to plague the cross-border payments ecosystem.
Interoperability, the biggest hurdle in cross-border payments?
Now before I tackle the problem, let me put this out there – though the traditional correspondent banking approach had its challenges, today, alternative solutions introduced by new entrants are redefining cross-border settlements.
Having said that – disparate payment technologies, not to mention the numerous intermediaries that come into the picture for a single cross-border transaction, bring with it substantial friction.
Adding to that, executing payments via monolithic legacy systems has only made these cross-border transactions, a lot more frustrating.
To maintain the growth trajectory in the payments space and enable interoperability across settlement networks, there is a dire need for payment format standardization.
For all of us in the industry, the much-anticipated rollout and adoption of ISO 20022 in the payments domain, comes as a huge relief!
Looking ahead: What does the future of cross-border payments look like?
Things have started looking up for international payments with SWIFT’s recent announcement to launch GPI instant connection. SWIFT’s move is widely welcomed as it promises to transform the payments infrastructure with instant and frictionless transactions across the globe.
Coming to banks, they should look at adopting cryptocurrency and blockchain-based solutions in the cross-border payments space. This will be a step in the right direction, considering how tokenization has been redefining the future of payments.
Blockchain not only eliminates the need for multiple intermediaries but with the transaction data safely stored in the network, overseas transfers become a lot more secure and reliable with blockchain technology.
Speaking of cryptocurrencies, Stablecoins have been generating quite the buzz lately!
This type of cryptocurrency, unlike its highly volatile counterpart Bitcoin, pegs its value to an external reference such as hard currency or commodity. These new advancements are catching on quickly – South Korea has already made the switch from cards to stablecoins.
The Paypers’ Senior Editor, Mirela Ciobanu also points out ‘that an interoperable CBDC could play a role in improving cross-border payments.’ With China gearing up to launch a Central Bank Digital Currencies (CBDC) system ahead of the Winter Olympics in Beijing, I’m sure there is a lot to watch out for in this space.
Collaboration is key for instant, futuristic cross-border payments
With businesses going global, the need for instant, hassle-free international payments are mounting exponentially!
FinTechs and neobanks have made quite an impressive entry into this space with innovative solutions to make cross-border payments on the go.
Banks and FinTechs should join forces to combat the inefficiencies in the current system. The synergy of banks and FinTechs is definitely a win-win model, taking into account the unique strengths that both parties bring to the table. Banks, though weighed down by legacy infrastructure, are backed by reputation, large-scale operation capabilities, and a loyal customer base. FinTechs on the other hand are not bogged down by legacy technology and traditional practices – they bring nimbleness and employ a brass tacks approach that enables them to roll out solutions a lot quicker.
Banks should start looking at capitalizing on FinTech partnerships, only then will instant, transparent, and convenient cross-border payments become a reality!
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