From both a corporate and consumer standpoint, cross-border payments have integrated themselves into our daily life. Today’s companies do business around the world. Manufacturers source parts, materials, and labor abroad as often as they do domestically, and in some cases, large corporations outsource more than half of their business abroad. Global travel, both for business and vacation purposes, is widely available and affordable. And just like consumers, companies can and do jump online and purchase goods and services from vendors around the world.
In most every sense, we live in a world of global commerce. And that, by definition, means billions of dollars in payments flow from one country to another every day. In fact, cross-border transactions are predicted to increase to $240 billion in value by 2024.
While this presents a huge opportunity for providers of payment processing solutions, cross-border payments still aren’t simple. These payments, transferring across borders and requiring currency conversion, are not quick to process, or as transparent as their domestic counterparts. They’re also not nearly as automated as businesses need them to be. So, in an era where technological innovation can disrupt and transform whole industries in a matter of years, why can’t innovators disrupt an industry whose lack of speed, convenience, and reliability prevents businesses from making global commerce as simple as purchasing from a local merchant?
Here are some of the lingering problems with cross-border payments today, and how solution providers can address some of the issues. Plus, read to find out how one nascent technology – blockchain – could disrupt the whole cross-border payments industry.
Lingering Pain Points in Cross-Border Payments
Despite the steady increase of international trade, today’s cross-border payment solutions still have a number of gaps and challenges.
Speed, or the lack thereof. Businesses and consumers alike expect cross-border payments to happen almost as instantaneously as domestic transactions, without errors or delays. After all, most technological aspects of a modern business and lifestyle have evolved for convenience. But cross-border payments aren’t as simple as scheduling an online bill transfer of funds from the payor’s bank account to the payee. Whether it is a wire transfer from a domestic bank to a foreign bank, or whether it goes through some other intermediary payment service, payments make multiple stops for multiple examinations, often by human staff, before moving to the next step. Needless to say, the industry is still trying to deliver on customer expectations of faster payment delivery.
Inaccuracies and manual processes. Wire transfers are not simply just labor intensive, they are prone to error. But when dealing with multiple systems, multiple banking entities, and multiple sets of rules and financial regulations—not to mention the need to fill out PDF or even paper forms—there’s an inevitable amount of manual data entry and re-entry to move the payment from one system to the next. Each one introduces another chance for error.
Lack of transparency in costs, conversion fees, and trackability. Whether it is wire transfers, domestic-to-foreign bank transfers, or another third-party cross-border payment system, there’s a general lack of insight to the cost and status of the transaction. Banking fees on both ends, not knowing exactly which exchange rate the payee will get, and a general lack of granular tracking tools make the payment process feel ill-defined and less than verifiable.
It is Time for Fintech to Disrupt the Cross-Border Payments Industry
Of course, most businesses do not run to a bank or other wire transfer service—or the online equivalent—every time that they need to make a cross-border payment. They use payment processing software, hopefully integrated with their other accounting software, to automate the process. That doesn’t mean that once the payor clicks “send” the rest of the process will be just as automated.
So, how will companies better address the speed, banking fees, and conversion issues associated with cross-border payments?
Despite the divisive buzz that it still generates, one promising technology—blockchain—has the potential to disrupt the payments industry and make cross-border payments nearly as simple as domestic ones.
Blockchain and the Digital Currencies That Will Depend on It.
The application of blockchain to digital currencies is directly applicable to payments, as currency is a vital component of payment processes. Because many emerging digital currencies are “borderless”—unlike national currencies—they are ideal for cross-border payments.
The true disruptors of the payments industry, then, will be those companies who build payment processing solutions that leverage blockchain technology to solve most, if not all, of the above issues with cross-border payments.
- Blockchain’s transaction security eliminates transparency issues, since transfer completion will be easily verifiable—the software need only access the ledger to confirm it.
- Because digital currencies built on the technology do not require traditional banks on either end of the transaction, there’s no need for all those variables to be assessed by each bank and intermediary.
- No banks mean no interim manual steps or data entry to be performed by staff at every stop, meaning the accuracy of the payment transaction is assured.
- And no stops mean no manual steps to slow things down—the parties get the speed of an all-digital transaction.
- Fees can be determined in advance, and because of the speed of the transaction, exchange rates are far more predictable.
Of course, the conversion between digital currencies—including those various countries’ central banks might issue—and traditional local currencies will need to be standardized. But then again, that could be considered outside the actual payment transaction.
But What Can Businesses Start Doing Today?
Blockchain, borderless digital currencies, and national digital currencies are all fine and good, but they have some maturation needed before they are viable options to integrate into enterprise accounting software. Until that time, what can businesses do to start relieving the pain points of cross-border payments?
Businesses should be looking for software and service vendors that build solutions that interoperate with the widest number of back-end clearing and settlement houses, in as many countries as possible. The more interoperability, the less manual interactions—and the faster, more accurate a business’s payment will be completed.
Companies also need to be working with a payment provider that will build the best possible solution for today’s businesses, seek new interface standards to reduce the friction points between payor and payee, and prepare their solution offerings for the emerging technologies and digital currencies of the future.
Onyx Payment Options for Cross-Border Exchange
As a leader in the payments space, Onyx is working to develop innovative new payment methods for businesses that rely on safe, secure and expedient cross-border payments. With the recent launch of Onyx virtual payment options, we’re forging the path to foreign exchange ease for international payments.
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