Modernizing the Cross-Border Payments Experience

The digitization of global commerce has made it easier than ever for people and businesses to connect with those in different geographies. This has created a huge opportunity for many organizations. Doing business in more regions means more prospective customers — which, in turn, means more prospective revenue.

If a company can work out how to capitalize on this larger audience, they stand to benefit from a hugely growing industry; Statista forecasts that cross-border E-commerce will account for 22% of all global E-commerce in 2022, up from 15% in 2016.

However, achieving this does involve some strategic investment. While the revenue of these transactions is significant, international transfers do come with more caveats. Not only must an organization be able to work with multiple currencies simultaneously, but the different payment regulations in each location must also be taken into account with every transaction. Then there is the demand for immediacy; despite the geographical distance, consumers still expect fast service as they do with their local payments.

Learning how to modernize the cross-border payment experience, in both B2C and B2B exchanges, is critical to building a successful strategy. Those winning today, are the companies that have embraced this evolution.

The Evolution of Consumer Cross-Border Payments

In our increasingly globalized world, it is common for consumers to regularly engage with cross-border payments. Following the financial impact of the pandemic, which saw many people lose their source of income or suffer other economic hardships — consumers found themselves channeling even more money through international transactions. As a result, cross-border consumer payments have never been more vital.

A recent Mastercard survey found that a substantial number of consumers are sending more money to their families abroad than they had before the pandemic (52%). This is likely tied to the fact that 75% have not been able to travel as often and process physical cash transfers; as a result of which electronic transfers have had to replace them. Without these in-person options, a majority of respondents (62%) reported that they were more dependent on online cross-border transfers than last year.

This has created a significant opportunity — and challenge — for payments companies. There is a clear demand for these services, but many financial organizations may not have invested in the technical infrastructure needed to support this volume of cross-border activity. Not only must the company have the network capacity to process larger volumes, but it must also have the bandwidth to assess and maintain compliance with multiple regulation protocols. If a company hasn’t made these investments ahead of time, it may find itself failing to provide the end-consumer with the level of service they expect.

The Evolution of B2B Cross-Border Payments

In many places around the world, the pandemic caused governments to institute lockdowns or other limitations on in-person activity. For many businesses, this drastically reduced their foot traffic and, therefore, their customer activity. Other companies were able to receive customers but saw their local consumers choose to reduce spending due to financial hardship. In both these scenarios, international customers have become hugely important in terms of maintaining a regular flow of revenue.

The same Mastercard report found that 74% of small business respondents say that cross-border payments have helped their businesses survive. Not only did these transactions fill in the gap, but many provided an area of growth for merchants; 38% reported being involved in more cross-border payments than 12 months ago. So, it is not surprising that 68% reported that they plan to increase their international business in the next 12 months.

Not only are payment companies’ business customers using global transfers for their sales, but they are also using them increasingly for their own B2B partnerships. The pandemic shut down many parts of the world at different times, encouraging organizations to find international suppliers who were still working while local operations were shut down. To that end, 34% are using more international suppliers than before, and 65% plan to do so, to reduce future risk.

Just as with B2C, B2B payments require maintaining security and regulatory compliance throughout the transaction. They also must be processed quickly and efficiently, regardless of physical distances. With many businesses operating remote workforces, ensuring secure transactions has become a greater challenge that requires the right technical support.

The Future of Cross-Border Payments

The complications of sending money abroad, such as working with multiple currencies and regulations, have created a business opportunity for solutions providers. New technology is being developed that uses artificial intelligence and automation to determine which times are the best to lock in currency exchange rates; when deployed correctly, this could greatly increase margins for businesses.

Other technology solutions for the cross-border payments space include automating: how to choose the right currency for a particular transfer; the calculation of fees and losses incurred with each transaction; and how to navigate around limited banking hours. With these solutions in place, it is possible to free up employees and other resources so that both can be devoted to more challenging and high-level tasks.

The Bottom Line

There is a growing need for improved security measures, especially measures that the parties in multiple geographical regions can trust. This will likely require a broader collaborative effort between the private and public sectors, to ensure that any government regulation is also being suitably addressed within the technology and cybersecurity sectors. Regulatory collaboration would also enable businesses to reduce any redundancies in their protocols; there are likely to be several currently in place, due to the differing pace of regulatory change in different countries.

These challenges are not yet fully solved, but this is an exciting foundation for the future. The combination of clear customer demand and growing technical tools means that the future is very bright for cross-border payments.