In general, it takes from one to five days for a cross-border money transfer to get to the recipient. With the modern pace of life, this is way too long of a waiting time for both individuals and businesses.
When the consumers are shopping online, they are used to payments that feel instant and don't imply any additional fees, even if the store is located in a different country. However, when it comes to conducting a wire transfer, the contrast is evident.
One of the most famous financial networks used to transfer money internationally these days is SWIFT. It was launched in 1973 and manages to stay among the biggest players in the industry to this day without having introduced a large number of innovations to the way it operates. Even though cross-border transactions with SWIFT are often costly and time-consuming, many institutions and organizations still use it to perform billions of transactions annually.
But why are international money transfers still imperfect? Find the answer below.
Causes of Friction in International Transfers
It might be surprising that while technology improves at such a fast pace, cross-border payments still have a lot of space for improvement. However, there are several reasons for that, namely:
Thus, for decades, banks would charge high transaction fees for international transfers and apply extreme exchange rates while being protected from competition by the difficulty of entering the global financial system, lack of technological means, and complex regulations. Yet, the situation has been experiencing drastic changes over the past years.
The payment industry was rather stagnant when it came to cross-border payments, but things finally seem to be changing.
With the world having entered the Fintech era fairly recently, it became possible for payment companies to build their own networks and receive all the necessary licenses for operation easier than ever.
At the same time, as technology keeps developing, the consumers expect frictionless transactions that don't require any additional time and effort to be performed.
Thus, the goal of many startups and financial institutions is to harness the power provided by modern tech solutions to accommodate the evolving needs of consumers worldwide.
The Pandemic's Influence on International Transactions
COVID-19 played a massive role in the growing importance of digital payments, including cross-border transactions. However, regardless of people sending money to their relatives overseas and making a variety of international online purchases, the volumes of international transfers dropped as a result of the pandemic. This is due to the fact that a large chunk of the market related to the travel industry was facing major restrictions.
In the B2B segment, cross-border payments are predicted to reach $35 trillion in 2022, accounting for a 30% increase from a COVID-related low of $27 trillion in 2020.
At this point, it's obvious that the Fintech companies that will manage to build payment networks that are fast, secure, reliable, and cheap will stay on top of the competition. This is applicable to both existing and emerging companies.
This trend is easy to track even with such an industry giant as SWIFT. In 2017, it launched the initiative called SWIFT gpi, which stands for Global Payments Innovation. It combines the organization's traditional messaging and banking features with a new set of rules, such as:
These rules are meant to set a new standard for speed, pricing, and transparency of cross-border transactions and suit the current consumer demand better than the majority of existing international money transfer methods.
What also contributes to making payments instant on an international level are the efforts countries are introducing on a local scale. This includes such initiatives as Faster Payments in the UK and Instant SEPA in Europe.
Instant cross-border payments are sure to bring numerous benefits to economies around the world. The value of such transactions is estimated to reach a mark of $250 trillion by 2027, making the potential of this sphere of payments undeniable. With additional inclusivity, transparency, and security, these figures are sure to exceed current expectations.