Cross-Border payments are the unseen infrastructure powering global commerce. A multinational corporation settling international invoices, a small business sourcing products overseas, or a family transferring remittances across continents… The global economy has relied on the seamless movement of money across borders for decades. Now, with the total value of cross-border payments estimated to increase from almost $150 trillion in 2017 to over $250 trillion in 2027, it’s clear just how fundamental they are to the future of the global economy.
However, despite their scale and importance, cross-border payments remain plagued by inefficiencies and high costs. High transaction fees, slow settlement times and a persistent lack of transparency have consistently challenged businesses and consumers. The Financial Stability Board, responsible for the G20 Roadmap for Enhancing cross-border payments, has acknowledged that “significant progress will be needed to meet the targets” this year. This statement highlights the reality of the industry as it stands. While the need for better infrastructure is widely recognised, the pace of change is unsteady.
A Landscape of Legacy
For decades, cross-border payments have relied on an established set of mechanisms: banks, credit card networks and money transfer operators. Traditionally, the biggest facilitators of cross-border payments have been the platforms established by major banks and governments like SWIFT, SEPA and CHIPS. These systems have served their purpose but are increasingly ill-suited to the demands of modern commerce. More recently, traditional card networks such as Visa, Mastercard and American Express have expanded their role in this space, capturing an ever-growing share of the cross-border market by offering relatively faster and more integrated solutions than conventional bank transfers.
In recent years, the emergence of new technologies has begun to reshape the landscape, helping to expand the growth of cross-border payments. DLTs, stablecoins and CBDCs offer the promise of faster, more secure, transparent and cost-effective payments compared to traditional methods. While the overall volume of cross-border payments handled on blockchain is still a fraction of the global market, its growth trajectory is significant. BVNK, for example, estimates that stablecoin payments alone could represent a $60 trillion opportunity in the next five years.
The Problems Persist
Still, challenges persist. The cross-border payment model is weighed down by high fees from traditional facilitators often driven by currency conversion charges, intermediary bank costs and compliance related expenses form different regulatory jurisdictions. Often, a single payment is subject to multiple checks and validation, each requiring different sets of data, which not only slows down processing times but also increases operational complexity. FX risks and associated high funding costs further complicate the picture. Banks are often required to pre-fund transactions in destination currencies to enable timely settlement, resulting in high funding costs and the need to hold capital that could be more productively deployed elsewhere.
A lack of transparency further compounds these issues. For many businesses, understanding the total cost of a transaction, and tracking its progress, remains frustratingly difficult. Information about fees, exchange rates and settlement times is often fragmented and inconsistent, further increasing uncertainty and risk.
What’s Changing?
Nevertheless, meaningful change is underway. One area seeing rapid development is FX hedging. Companies are increasingly making use of forward contracts and options to manage currency risk, while fintechs are leveraging smart contracts and decentralised finance platforms to automate FX conversion, improving both cost efficiency and predictability. The introduction of ISO 20022 and the looming November deadline, means that a global standard for financial messaging is inching closer. By standardising electronic data interchange between financial institutions, it promises to reduce friction and facilitate faster, more accurate payments.
Another encouraging development is the expansion of central banks’ instant payment infrastructures. For example, Fed Now in the US, Faster Payments in the UK, and SEPA Instant in the EU operate around the clock, offering real-time, 24/7 settlement. These developments mark a significant departure from traditional systems like standard SEPA which typically settle over two business days and only during working hours. While the cost of using these instant infrastructures is often higher, the benefits in terms of speed, transparency and availability offer a compelling improvement. Their growing presence is helping to set new expectations for what’s possible in domestic and cross-border payments.
With DLTs and stablecoins also gaining traction as credible alternatives to traditional methods, the industry is also moving closer to near instant global settlement and the ability to operate 24/7. A significant improvement over the lengthy settlement times and limited operating hours of legacy systems. Although, mainstream adoption still faces hurdles, with one of the primary challenges being convenience and usability. For many uses, managing digital wallets and understanding decentralised systems remains unintuitive, limiting adoption outside of extremely digital literate circles.
Who’s Leading the Charge?
Importantly, it is no longer just FinTechs and startups leading the charge. Traditional financial institutions are actively investing in digital asset infrastructure. Visa’s tokenised asset platform and the Bank of America’s plans for a proprietary stablecoin are prime examples of how legacy players are adapting. Institutions like these are often helping to define the future of cross-border payments.
The industry stands at a turning point, on the cusp of achieving the required speed, cost, transparency and access for the global economic future. With ongoing technological innovation and evolving regulatory frameworks, the path is becoming clearer. However, the nature of global finance means that no single approach will dominate. Different payment models require different tools, and the most effective solutions will be those tailored to specific needs and truly fit for the modern financial ecosystem.
- Digital Payments