Cross-border payments lag domestic ones in terms of cost, speed, access, and transparency. It is typically more difficult to make a payment from one country to another compared to making a similar payment within one country. In some instances, a cross-border payment can take several days and can cost up to 10 times more than a domestic payment.
Enhancing cross-border payments was set as a priority in 2020 by the G20. This work included identifying the challenges associated with cross-border payments that arise from a series of frictions in existing processes and developing a set of building blocks to address them. The key frictions are:
Legacy technology platforms
A significant proportion of the technology supporting cross-border payment systems remains on legacy platforms built when paper-based payment processes were first migrated to electronic systems.
These platforms have fundamental limitations, such as a reliance on batch processing, a lack of real-time monitoring, and low data processing capacity. This creates delays in settlement and trapped liquidity. These limitations affect domestic operations, but become even more of a barrier to achieving cross-border automation of payments when different legacy infrastructures need to interact with each other. The requirement to interface with legacy technology can act as a barrier for emerging business models and technologies to enter the market.
High funding costs
To enable quick settlement, banks are required to provide funding in advance, often across multiple currencies, or to have access to foreign currency markets. This creates risks for the banks that they will need to put aside capital to cover; which means that capital cannot be used to support other activities. The uncertainty about when incoming funds will be received often leads to overfunding of positions, which increases costs.
Long transaction chains
These frictions make it costly for banks to have relationships in every jurisdiction. This is why the correspondent banking model is used but this results in longer transaction chains, which in turn increases cost and delays, creating additional funding needs (including to cover unpredictable fees deducted along the chain), repeated validation checks, and the potential for data to be corrupted through its journey.
There are significant barriers to entry for firms seeking to provide cross-border payment services. It is also difficult for end users sending payments to accurately assess the cost of initiating a payment, which makes it difficult to gauge the value for money on offer by different providers. These barriers can increase prices for end users and firms and dampen investment in modernising cross-border payments processes.
The IBOS Cross-border Banking Alliance
Cross-border financial transactions, where the payer and the recipient are based in different countries, can cover both retail and wholesale payment types, including remittances.
Cross-border payments can be made in many different ways with the most prevalent currently being e-money wallets and mobile payments along with more traditional methods such as Bank transfers and credit card payments.
The world is seeing an increase in the international mobility of goods and services, as well as people. The value of cross-border payments is estimated to increase with projections for 2027 possibly reaching $250 trillion (from $150 trillion in 2017).
Contributing factors to this projected growth include diversification of supply chains, asset management and global investment flows across borders, e-commerce growth, and migrants sending money via international remittances.
IBOS is an international banking alliance that provides connectivity services for key corporates looking to expand beyond their borders. With some of the biggest commercial banks from across the globe as its members, they offer effective and thorough cash management in regions where your local bank does not offer access.
Working with corporate banks across Europe and America, IBOS is open all hours. Whether you’re refocusing on your bank’s core domestic market and looking for a global partner to help with your international business, or you need support providing effective and thorough cash management across multiple regions, becoming an IBOS member benefit both your organization and your corporate clients.
Uniform, high-quality cross-border banking provided by all IBOS members
Unified client onboarding and service processes make partnerships between IBOS banks seamless
Dedicated multi-lingual teams in each bank can provide efficient support and assistance with local issues.
Access to a wide network with clear processes, quality checks, and escalation procedures in place to ensure issues can be resolved quickly and efficiently
Access to an international network of banks and affiliates
Find the best partners internationally from a pool of nominated affiliates that other members work with
IBOS offers banks access to the best service at the best price, anywhere in the world
Greater opportunities for business deals through an expansive network in each country
Save on the costs of international agreements by utilizing the network of local IBOS members.