Banks have long been the main facilitators of international fund transfers. For decades, their wire transfer systems and correspondent banking relationships were the primary mode of transit for cross-border remittances. However, recent technological advances and regulatory changes have enabled financial challengers to rise through the ranks quickly and become the primary source for consumers to send money abroad promptly. As global remittances are projected to surge to $974 billion in 2022, it is no surprise that more organizations are looking at remittance as a substantial revenue stream.
But why have traditional financial institutions seemingly relinquished leadership within the field, leaving the door open for non-traditional financial intermediaries to meet consumers’ needs? Similarly, will banks risk losing additional revenue opportunities with cross-border payments due to outdated infrastructure?
- The explosive rise in demand for cross-border payments
- The complexity of moving funds across borders
- Solutions that support banks’ expansion into the global payments industry
The rising demand for digital cross-border remittances
The demand for digital cross-border remittances is increasing in tandem with globalism. Migrant workers need to send money back to their home countries to support their families, while businesses are outsourcing and expanding internationally, necessitating the need to pay contractors and supply chain vendors across borders. Additionally, many industries, such as the maritime industry, rely on foreign workers. In the cruise industry, for example, more than 95% of workers reside outside the U.S., requiring cruise lines to pay employees through multiple payment rails.
“As we look at the data, the peer-to-peer payments market makes up 2% of the volume of money moved globally, followed by 5% for consumer-to-business, and 7.9% for business-to-consumer,” Ramakers said. “But the biggest opportunity for cross-border payments sits within the business-to-business market, where checks and wire transfers are still widely used.”
Simultaneously, we’ve hit an inflection point where consumers expect to access services digitally. Banking customers want to conduct transactions within the same mobile apps they receive their paycheck.
“Providing an embedded solution to consumers where they are already conducting their business has intrinsic value,” said Ramakers. “An embedded solution reduces complexity and makes the payment process more seamless by eliminating the need to provide payment details elsewhere. Customers may even be willing to pay extra for a seamless experience.”
Complexity remains around cross-border transactions
Many U.S. consumers who’ve adopted popular apps like Zelle and Venmo may be left wondering why similar solutions don’t exist for cross-border transactions. After all, despite the fact that there are over 4,500 commercial banks in the U.S., the back-end infrastructure supports real-time domestic transfers.
But things get hairy quickly when crossing borders and currencies. A myriad of varying regulatory and compliance requirements from sending and receiving regions contribute to often insurmountable challenges.
“Crossing borders and jurisdictions requires specialized expertise to ensure the secure and efficient movement of funds,” Riley said. According to a report by JP Morgan, the pandemic era saw a 600% increase in cybercrime, making money transfers a genuine risk.
Improve profit margins by implementing an embedded global payments solution
Despite the significant challenges, implementing a cross-border payment solution can yield material dividends. In contrast to commoditized payment transactions, the intentional nature of the average cross-border transaction carries positive price sensitivity. It’s also worth noting that 75% of businesses surveyed in a recent Javelin study were dissatisfied with their current cross-border payment options.
By partnering with an experienced provider, financial institutions can side-step the complexity challenges and get a highly sought after cross-border solution in market quickly.
“Brightwell is unique because we have cross-border payments expertise built into our core. We saw the opportunity to build a platform that allows other organizations to integrate real-time payments with ReadyRemit,” said Ramakers.
ReadyRemit by Brightwell is a comprehensive remittance solution which simplifies implementing and managing a global payments program. Its full-scale, full-service, fully compliant remittance engine enables banks to enter or expand into the global payments industry — without the high costs associated with forming partnerships, building infrastructure, and navigating complex compliance and regulatory requirements.