The global payments landscape is undergoing a transformation, with companies spanning from traditional banks to fintech and crypto firms all aiming to simplify one of the most complex financial processes: moving money across borders.
The push to make cross-border payments easier is not just an industry trend but a necessity, given the fragmented nature of the current systems. From migrant worker remittances to global e-commerce transactions, the diversity of users and the complexity of varying market regulations make cross-border payments a challenge for many.
Richard Mezaros, Vice President of North America for Visa Direct, described two key categories of cross-border payments. One involves individuals transferring money between their accounts or to others, while the other entails businesses sending payments to other companies or distributing funds to employees or customers.
“Each of these segments has unique needs, regulatory landscapes, and expectations that cannot be overlooked,” said Mezaros. This fragmentation is a major contributor to the difficulties and high costs associated with cross-border money transfers.
The Complexity Behind the Costs
A major part of the difficulty lies in the number of intermediaries involved in each transaction. The fewer the counterparties and touchpoints, the lower the friction, cost, and complexity. The most successful companies will be those that can streamline this process.
Visa, with its ability to operate at scale across various market segments, is positioned to reduce these complications. By offering solutions like Visa Direct, which provides a single access point for banks, fintech companies, and businesses, Visa hopes to tackle the inefficiencies that plague the cross-border payment system.
Despite such innovations, there remains significant room for improvement. A Visa survey reveals that fewer than 3% of small businesses are satisfied with their current cross-border payment solutions, underscoring the demand for a simpler, faster, and more reliable system.
In fact, a large percentage of employees and consumers are willing to switch their financial institutions or employers for faster payouts. According to Visa, 63% of employees would consider changing jobs for the promise of instant pay, and 60% of consumers would switch banks for faster transfers.
Tackling Delays and Hidden Costs
The delays in cross-border payments are primarily caused by the multiple players involved in a transaction. Traditional methods like correspondent banking—still widely used for international transfers—are slow and inefficient. Time zone differences, batch processing, and regulatory compliance all add to the complexity.
In addition, cross-border payments often require additional checks and screening to comply with anti-money laundering (AML) regulations. While these are essential to ensure security, they also lead to duplication of efforts, further delaying transactions.
Foreign exchange (FX) transactions add yet another layer of complication. With constantly fluctuating rates and multiple intermediaries involved, many users face hidden fees or unfavorable exchange rates, undermining the transparency of the process. “Fluctuating FX rates mean the sender may not know the rate that will be applied until after the transaction is complete,” said Piers Marais, global head of product for embedded cross-border solutions at Visa. “It’s like making a purchase without knowing the final price.”
The Potential for a $2 Trillion Opportunity
The challenges in cross-border payments present an enormous opportunity for innovation. Visa estimates that digital networks for cross-border payments could unlock $2 trillion in additional transactions, a revenue boon for the industry.
The key to unlocking this potential will be those companies able to bring simplicity to a fragmented process. Through seamless, transparent, and real-time transactions—much like domestic payments—global transactions could become just as straightforward and accessible.
As digital economies continue to evolve, so too does the opportunity to introduce faster, more efficient solutions. Visa Direct’s efforts to partner with companies like Remitly, Revolut, and TabaPay are steps in the right direction. By leveraging technology to enable speed, access, and cost savings, these partnerships are laying the groundwork for a smoother cross-border payments experience.
For anyone in the payments industry, whether a bank, fintech, or a traditional financial institution, understanding and embracing these technological advancements is crucial. Visa Direct’s report on market trends, bottlenecks, and strategies for overcoming fragmentation is an essential resource for anyone looking to innovate and capitalize on this rapidly evolving market.
With technology leading the way, the dream of making cross-border payments as easy as domestic transactions is becoming a more attainable reality.
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