Cross-border payments are the lifeblood of the global economy, enabling businesses to serve customers across the world. The global cross-border market size is expected to grow to almost $350 billion within the next ten years, emphasizing the need for readiness. As the landscape continues to evolve, certain trends and challenges have emerged that are shaping this space and helping to inform strategies to embrace this growth.
By incorporating open finance and collaboration, financial institutions in the United States are well positioned to meet the challenge of these developments, delivering cross-border payments solutions that are transparent, efficient, and faster. Here are the top trends in this space that are informing how the financial ecosystem must adapt.
High volume, low-value transactions
The world of cross-border payments is witnessing a major shift, where traditional high-value transactions are now accompanied by a surge in high-volume, low-value use cases. To answer why this happening, it comes down to globalization and trading relationships. Advancements in technology and trade policies have fueled cross-border commerce, and not just with large corporations.
The era of digital transformation has opened up global Trade opportunities for businesses of all sizes, presenting new opportunities to reach customers across borders. This access to more markets gives these businesses a chance to scale their operations and capitalize on economies of scale.
With this growth comes the need for exchanging payments. Small businesses and medium sizes enterprises now engage in international trade, which has contributed to increased transaction volumes with reduced individual payment values.
The gig economy and flexible work patterns
The COVID-19 pandemic paved the way for the rise of flexible work arrangements, part-time jobs, and gig opportunities. While at the time it was unclear if these new opportunities would remain, it has become increasingly clear that they are here to stay, transforming the way people, live work, and earn.
It is expected that more than 20% of Americans will work remotely by 2025. The concept of digital nomadism, accelerated by the increase in these flexible work opportunities, further amplifies cross-border payment needs. Businesses must now adapt to pay employees in varying amounts and across different countries.
However, certain segments such as the gig economy, small businesses, and remittances, remain underserved by traditional banks, representing an opportunity for financial institutions to step in and fill the gap. Many providers often fall short for these use cases. As a result, consumers and businesses are turning to fintechs and alternative payment providers.
Client expectations and transparency
The need for instant gratification is impacting banking, meaning many consumers and business leaders do not know life without technology and expect immediate and efficient digital experiences. Users now simply expect the same experience of day-to-day purchases, and financial institutions have no choice but to meet their customers where they are.
These customers want cross-border payments to be fast, transparent, and efficient, meaning nearly instantaneous without multi-day settlement periods, especially for low-value transactions. From this point of view, transparency is also now expected, with users seeking real-time visibility into their transactions. To address this shift, financial institutions must be able to provide clarity when customers ask questions as simple as where their money is and when it will be available to the recipient.
Embracing open finance and collaboration
Research from Finastra noted that 60% of US financial institutions view open finance as a must have for their organization, emphasizing the appetite to address these trends and challenges through collaboration. Through collaboration, there are several paths to innovation available to enhance cross-border payments capabilities.
For example, the major players in the international payments space complement each other, providing meaningful solutions for business across the globe. While many vendors are most suitable for high-value transactions, Visa Direct uniquely offers speed, transparency, and flexibility for gig economy payments and small businesses. The industry is seeing direct integration of solutions like Visa Direct into payments hubs such as Finastra’s Payments To Go, providing a seamless, open, and efficient way for smaller banks and credit unions to deliver payments services on an international scale.
Offering multiple payment rails make financial institutions stronger and more adaptable to macroeconomic changes. By embracing partners like Visa Direct, new revenue opportunities are unlocked and customer retention improves. Collaboration, no matter the partner, ultimately fosters innovation and inclusivity in cross-border payments.
As cross-border payments evolve, collaboration and adaptability are paramount. The industry must cater to diverse use cases, meet client expectations, and embrace alternative solutions. Finding the right technology partner provides an opportunity to bridge gaps and unlock the next generation of cross-border transactions, helping to ensure that financial institutions whether big or small can keep ahead of customer expectations and needs.