Charles de Rougé is the Head of Banking and Settlement at Boku. He has worked over the past 15 years in Asset Management, Private and Corporate Banking, Treasury and Financial Messaging.
Charles is an expert on new payment methods and multiple payments schemes.
The barriers to international transactions are falling – sending and receiving money across borders is more common than ever. Here we uncover the rapidly growing world of cross-border payments, including their share of the market, how they work, and the different types of international transactions that exist out there. We also look at the future of cross-border transactions and the changes coming in the next few years.
How big is the B2C cross-border payments market?
The cross-border payments market reached US$1.6 trillion in 2023, according to a Juniper Research report, and is predicted to reach US$3.4 trillion by 2028.
However, ecommerce brands face a complex cross-border system, with new challenges and trends changing the way they’ve done business before.
How does cross-border payment work?
Most cross-border transactions rely on a correspondent banking network. The normal process is that the payer will request their bank to debit their account and credit the payee- merchant, or individual, for the required amount in the required currency. Currency is exchanged at specific rates with transaction fees applied.
Often the payer will have no control over the foreign exchange (FX) rate, nor over the fee applied to the money transfer.
This legacy process may involve intermediary banks between the payer’s and the payee’s and is historically slow and costly.
Commonly used currencies with high transaction volumes are easier to settle quickly but outside of the main world currencies pairs the process can be difficult. Multiple recent innovations have drastically improved the experience of cross-border payments, but it is still not as simple as it should be.
Types of cross-border payments
Cross-border payments take different forms, and not all of them apply to merchants – some only occur in A2A transactions. The most common types of cross-border payments are:
- Bank transfers
- Debit and credit card payments
- Digital wallet payments
- Direct carrier billing (DCB)
- International ACH
The challenges of cross-border payments
Despite technical innovations, new regulations and market entrants’ new networks, the principal challenges of cross-border payments remain speed, efficiency, and cost.
The control of FX rates in volatile environments is one major risk. There are also regulatory and tax implications that can make it difficult and costly for businesses, small or big, to operate across borders.
To solve those pain points, merchants can use payment service providers (PSP) or payment partner networks. Typically, these partners provide a combination of multiple local payment options, from account-to-account solutions (A2A) to digital wallets, carrier billing or direct specific local schemes (e.g. UPI in India, or Pix in Brazil), and cross-border settlement services with or without FX consolidated. These partners will also provide reporting, reconciliation and transaction services, including, in some cases, handling tax and regulatory requirements. This is the set of products and services that Boku offers.
Current trends and the future of cross-border payments
The Common Global Implementation (CGI) initiative is one of the key changes that will set the future of cross-border payments. It promotes a wider acceptance of the ISO20022 format as the new global standard for payments.
SWIFT GPI (Global Payment Innovation) is another development that brought tracking to cross-border payments made through SWIFT network correspondent banks.
The multiplication of new local payment methods (LPM) has also helped change the landscape for cross-border payments.
The introduction of instant payment schemes, such as FPS (Faster Payment) in the UK and SEPAInst across many European states, combined with the increasing number of digital wallets and PSPs, have led to new alternatives to cross-border payments. For example, the ability to pay in several APAC countries using a single LPM through QR codes and mobile phones is a revolutionary new way to make cross-border payments.
Those new LPMs, combined with instant payment schemes, new formats like ISO20022 and new regulations like Open Banking and the PSD2, create new networks offering new ways to support better, cheaper, quicker cross-border payments.
Boku offers a global network of localised payment solutions, tailored to the needs of global enterprise clients. We select and integrate the most popular payment methods to create localised solutions that are tailored to the requirements of specific merchants and verticals. Boku then manages the complexity and risk associated with cross-border and FX services. Boku’s offer represents a best-in-class approach for global merchants to provide a local offering through a cross-border payment.
Conclusion
Cross-border transactions are only going to continue to grow. Companies are going global and adapting their operations to the local customs as much as possible. A2A, digital wallets, and regional and global legislation all point to continued growth.
To sustain their own growth and gain a competitive advantage, merchants must leverage existing and growing networks that combine multiple local payment methods with cross-border settlement, FX coverage and reporting and reconciliation services — just like Boku.
Contact us now to discover more about Boku’s LPM and cross-border settlement solutions.
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