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Banking on cross-border payments: Q&A with Radha Suvarna, CPO, Payments
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Q1. What is driving growth in cross-border payments?
Cross-border payments are at the heart of the global economy, enabling businesses to serve customers wherever they are based in the world. Such transactions are estimated by the Bank of England to reach a value of over $250trn by 2027. Growth in high volume, low value payments is particularly notable for several reasons.
Firstly, the impact of globalisation and cross-border commerce – driven by advancements in technology and trade policies – is increasing cross-border trading relationships, not only for corporates and the middle market, but also for small businesses. Recognising that cross-border trade is a major driver of economic growth, regions are increasingly focusing on trading relationships to help local businesses expand and economies thrive. With larger numbers of businesses operating across borders, transaction volumes of all sizes are growing.
The way people work has also changed tremendously over the last few years, and we see more and more people opting for flexible, part-time, or gig opportunities. Additionally, since remote working became normalised during the pandemic, digital nomadism is gaining steam around the world. This new way of working means that businesses need to be able to pay their employees in different ways – in varying amounts and in various countries.
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Another driver is remittance flows, which continued to grow in 2023, estimated at $860bn in 2023, and poised for moderate growth in 2024. Although in 2023 the growth hasn’t reached the peak from 2021 and 2022, the sector is holding up well and remains a big driver of rising payment volumes.
Q2. Tell us about the rise of alternative cross-border payment offerings
Customers have increased expectations. They are no longer happy with cross-border payments taking two or three days. They want speed and transparency. These trends are forcing the ecosystem to come up with other alternatives, and the existing platforms to upgrade.
Small businesses wanting to execute low value transactions and consumers wanting to send remittances remain largely underserved by banks. While Swift remains the most prominent go-to cross-border network for high value transactions, customers wanting to make low value payments are increasingly turning to fintechs or alternative payment providers.
Cross-border payments are at the heart of the global economy, enabling businesses to serve customers wherever they are based in the world.
Alternative players, like Visa Direct for example, are simplifying correspondent banking relationships and providing an out-of-the-box solution for low-value payments. In many cases it’s instant, and there is transparency in terms of the amount and the cost. There is also flexibility in terms of what sort of recipient account the money can go into. We are seeing interest in the Visa Direct service from our bank clients as a complement to Swift. It’s important that banks explore alternative services rather than risk losing customer loyalty and retention, missed revenue opportunities, and a lack of inclusivity in payments.
Q3. How can banks respond to the pace of change in cross-border payments?
A big challenge for banks is that connecting to hundreds of payment rails or accessing billions of accounts is a major undertaking if they have not upgraded their payment processing capabilities. A significant number of financial institutions recognise the importance of payment modernisation in terms of cost reduction and profitability and see modernisation efforts as an opportunity to access hard-to-reach markets.
Visa and Finastra came together in building the necessary connectivity and integration between Visa Direct and Payments To Go, our SaaS-based payment hub. Visa Direct has become another payment rail, in addition to Swift, immediate payments and domestic low-value payments that we offer as part of our product. The total cost of ownership is lower, and speed-to-market faster, enabling banks to deliver better value for their customers.
The growth in Banking as a Service (BaaS) solutions makes integration with Visa Direct even simpler. While deploying a custom-built cross-border payment solution can be both expensive and time-consuming, banks can, for example, implement Visa Direct via a BaaS offering to speed up time to market and value.
The ability to offer instant, transparent, and cost-effective cross-border services is not just an expectation but a necessity in today’s fast-paced global economy. As we witness an upsurge in cross-border payments, adopting efficient and user-friendly platforms becomes imperative for banks to increase market share and keep up with customer demands.
Banks that do not expand their offering are ultimately giving their competitors new opportunities and potentially damaging the loyalty of customers that are excluded from these services. By collaborating with fintechs and implementing alternative payment rails via BaaS, they can capture this opportunity at speed and scale. Importantly, banks can build bridges that enhance customer retention and experience, foster financial inclusion, and open up new horizons for cross-border payments.