Qinthara Fasya | 26 November 2021

Do cross-border payment providers accelerate change or replace processes that we already know and love?
How can companies leverage on this process
The world of cross-border payments has changed dramatically during the last five years. Emerging alternative solutions and new competitors have challenged the tried-and-true correspondent banking model, upending some of the industry’s foundations. In many situations, however, the form and direction of these alterations is unknown.
Accordingto EY, in 2022, global cross-border payment flows are estimated to total US$156 trillion. A flurry of new competitors is shaking up the trillion-dollar cross-border payments business, promising to alleviate long-standing pain problems. Existing banks and money transfer operators (MTOs) will have to think about how these developments would affect their future strategies. How will this approach impact present banking systems, given the tremendous development of this payment flow, particularly in the last two years?
What are cross-border payments and how do they work?

Currency transfers between persons or firms in other countries are known as cross-border payments. To begin the payment, the money sender will often pick a front-end provider, such as a bank or a money transfer operator (e.g., Western Union, Transferwise). The money is subsequently delivered to the receiver via the media designated by the sender. Traditionally, cross-border payments are settled through the correspondent banking network (CBN), which is used by most front-end providers. However, new back-end networks have emerged in recent years to optimize cross-border payments, facilitate interoperability across payment systems, and give senders with more options for reaching the receiver.
The future of cross-border payments
Research conducted by McKinsey found that margins have traditionally been robust in cross-border; and occasional price pressures have weighed on margins, but not to the extent of requiring radical cost transformation observed in domestic payments. Although estimated revenue per cross-border
transaction remains healthy at more than $20, evidence of changing dynamics and increasing pressure in the most established segments (such as B2B and remittances) is growing and becoming increasingly commonplace across the value chain. With these trends occurring against a background of growing investment needs and compliance challenges, the industry needs to engage in a strategic reflection on a vision for the future of the industry.
Andrea Baronchelli, Co-Founder and CEO of Aspire predicts that the payment industry is developing fast and Fintech players are creating superior cross border payment experiences. Aspire allow its clients to manage their full receivable and payable experience in a single integrated stack and transact in just few clicks with 80+ currencies and monitor the payment status real time, making payment processes simpler for companies. These are just one of the attractive factors of cross-border payment providers such as Aspire.
On the other hand, Ivy Lun, VP & Country Head of Instarem Hong Kong foresees that consumers will increasingly seek cost and time effective options to transfer money to other businesses or loved ones living abroad in 2022 and beyond. “With that, many will turn to cross-border payments companies that offer alternative offerings. With these neo banks entering Asia’s crowded and competitive banking space, payments companies that are focused purely on remittance will need to adapt to integrate a range of solutions,” she added.
Are they a threat to traditional banks?

Ivy notes that cross-border payments companies should not be seen as a threat, but rather an alternative to traditional banks. Their innovation will help motivate traditional banks to offer products that better serve today’s evolved consumer or underserved groups across the region, such as small and medium-sized enterprises (SMEs). “Moreover, while cross-border payments companies continue to drive speed in the financial sector, most of these players still rely on traditional banks and their legacy systems to reach their full potential,” she said. Thus, it is necessary for existing players and new entrants to establish closer collaboration for a financially inclusive way forward.
Anish Jain, Managing Director and CEO of WadzPay believes that the role of banks will continue to be relevant since they will hold the relationship with the customer. With WadzPay harnessing the power of blockchain via API based integrations, Anish anticipates that cross-border payments will become a lot more transparent due to the use of blockchain and the ability to view transaction flows online. “This means the end consumer will be in better control of the transaction, and the fee could be variable based on the type of transaction. It will impact various intermediaries who are currently involved with cross border transactions,” says Anish.
We may soon live in a world where foreign payments are routinely used by not just major corporations, but also merchants, SMEs, and individuals, using a variety of solutions and providers via integrated commerce or trade interfaces. The execution will be flawless, especially for regional companies. Extra services (such as FX quotations or hedging) will produce additional money, supporting lower core service prices. As stated by Ivy from Instarem – both businesses and consumers will progressively choose alternative banks that provide cross-border payments as an offering because they bring additional value that end-consumers prioritise today.
As such, traditional banks should yield the possibility of cross-border payment providers as a replacement or threat to their services, instead find ways to work around it and use it as a model to improve processes for consumers and corporates in the near future.