Impact Of The Pandemic On Cross-border Payments

Fatihah Ramzi, DigitalCFO Asia | 17 August 2022

Ho Chee Wai, Head of Neo Financial Services, Instarem

The previous two years have been disastrous for the world’s economy and health in equal measure. Small enterprises have been particularly heavily damaged. Nevertheless, despite the crisis, there have been some bright spots, one of which has been the continued operation of the global payments system. During the COVID-19 outbreak, cross-border payments gave struggling companies a lifeline and helped to alleviate the pandemic’s financial impact on business owners around the globe. The expansion dreams of small business owners must be completely realized, but these payment systems still need to be made faster, less expensive, and more secure.

The pandemic’s unparalleled disruption has reconfigured the world economy, and many small enterprises are now eagerly pursuing fresh cross-border opportunities. IThe cross-border payments network, which serves as the vital plumbing for international trade, must function even better than it does now if this optimistic sentiment and its expanding ecosystem are to continue to thrive.

To find out more about how the pandemic has affected cross-border payments, DigitalCFO Asia spoke with Ho Chee Wai, Head of Neo Financial Services, Instarem to gain further insights on the topic.

Change Of Cross-Border Payment Over The Years, Especially During Pandemic

With many firms embracing cross-border payments and feeling secure in online solutions, citing security, timeliness, and receipt verification as significant benefits, websites and applications are now far more popular than in-person transfer methods.

“During the pandemic, the way people did business, the way they spent, changed. Everything needed to be done digitally. There was no other option. Sending and spending money became mobile, contactless and digital,” says Ho Chee Wai, Head of Neo Financial Services, Instarem.

The pace at which this shifted has been greater than any time before. Instarem saw a 35% increase in global transfers between 2019 and 2020. This has sustained into 2022. Additionally, the Covid-19 pandemic has only increased the pressure to improve the cross-border payment ecosystem. 

Although there are still challenges to be overcome, the efficient operation of cross-border payments will play a crucial role in stimulating economic growth after the Covid-19 pandemic. Currently, sending money abroad might be a laborious process. Setting up the ability to reach overseas end destinations is difficult, and actually processing the payments can be time-consuming and expensive. For people and companies of all sizes, this is causing a lot of friction.

Currently, it is essential that the low value cross border system is streamlined to safeguard and support individuals, small enterprises, and the financial ecosystem that supports them. This is because cross-border payments for remittances and e-commerce are increasing.

Expectations Of Cross-border Payments In The Post-pandemic World

The post-pandemic world has accelerated digital payments, but it has also seen a global supply chain disruption. 

“More and more businesses are looking to international sources to help solve supply chain issues,” says Ho Chee Wai, Head of Neo Financial Services, Instarem.

Following the pandemic, cross-border payments have increased, with corporations using them far more frequently than people. However, this has also raised expectations that cross-border payments will deliver dependable, predictable, secure, and rapid transactions. The difficulties brought on by high liquidity costs, compliance risk, and a lack of standardization, however, can stifle it. For this reason, it is necessary for businesses and banks to overcome these obstacles in order to guarantee a high level of successful cross-border payments.

More and more people are turning to technology to solve these problems. With the aid of advanced digital infrastructures there are systems known as “rails” which enable payments from a company’s or person’s account to another account. For financial institutions, the multi-rail approach provides direct connections, lowers friction, and improves efficiencies—efficiencies that may be passed straight on to customers and businesses.

Mitigating Challenges Of Cross-border Payments [High Costs, Low Speed, Limited Access, And Insufficient Transparency]

Customers have traditionally been charged with ridiculous high fees when making international payments. This was Instarem founder, Prajit Nanu’s main reason for creating Instarem. He believed in simplifying cross-border payments so that customers can expect to make transfers in real-time, and are able to do this anywhere, anytime and get great rates while they are at it. The benefits of real-time payment infrastructure and interoperability have allowed for cost-effective and fast transfers that were traditionally impossible. 

That said, there are elements of cross-border services that need refining. Concerns remain about fraud, with small businesses being worried about becoming a victim. Some highlighted poor foreign exchange rates and high transfer fees as another cause for concern, with calls for more transparency. Others also said a top concern was around the lack of transparency on how much a cross-border money transfer will cost, being unsure how much money will actually arrive with the recipient.

Last year, the G20 made enhancing cross-border payments a priority, targeting four key challenge areas – transparency, cost, speed and access. On transparency, payment service providers will be targeted to provide a minimum level of information to payers and payees (by 2027), including the transaction amount and time to deliver the funds.

There’s also still a lack of universal connectivity and the ability to send funds instantly across borders, though this is beginning to change through technology such as Mastercard Cross-Border Services, which allows businesses and individuals to send and receive money securely and with the certainty they crave from a single, secure point of access.