Global cross-border payments have grown rapidly in recent years and according to the Bank of England, the value of cross-border payments is estimated to increase from almost $150 trillion in 2017 to over $250 trillion by 2027, equating to a rise of over $100 trillion in just 10 years. Asia’s cross-border revenues, in particular, have been a key contributor to the region’s ongoing payments growth, increasing by an average of 6 percent annually from 2011 to 2019, and are predicted to make a steady recovery after the initial Covid-19 decline.
Not only are cross-border payments on the rise as the global economy expands, but so is the speed at which they are traveling – and the benefits to that speed are being noticed. A recent Visa survey found that 59% of respondents expect overall revenues from cross-border payments to increase due to the rise of faster payments.
The challenges of cross-border payments
The US Federal Reserve has also made its views known, “As domestic payment systems continue to experience rapid innovation in speed, security and accessibility, user expectations when sending and receiving money continue to climb. Yet there is one type of payment that has struggled to meet evolving user expectations and continues to be costly and inconvenient: cross-border payments.” Take remittances for example – the average cost of a transfer is 6.3 percent, which means an estimated $45 billion per year is diverted away from the beneficiaries and into intermediaries. Whilst remittance costs vary across Asia, which is the largest remittance-receiving region, all are above the UN’s Sustainable Development Goal of 3 percent. Reducing the cost of remittances and other cross-border payments is, therefore, a key priority in the region – for end customers, banks and governments.
McKinsey & Company’s 2020 Asia Payments Practitioners Survey (APPS) highlighted that over 70 percent of payments experts believe a SEPA-like structure would be beneficial in ASEAN, however, they remain skeptical of the execution. Since these results, the industry has instead seen a series of bilateral agreements across regional domestic payments infrastructures, for example, the MAS-BSP FinTech Cooperation Agreement, the BI-BOT cross-border QR payment linkage, and the PayNow-PromptPay linkage.
Whilst these agreements are extremely beneficial for banks and end customers, there is no established end-to-end international payments system and banks are dependent on correspondent banking relationships. When made through traditional payment processes, receiving banks have limited visibility in to payment status and the amount they’ll actually receive after exchange rates and fees are considered. Add in regulations that can vary by country for anti-money laundering and other controls, and you encounter further delays to an already complex process. These are real issues that continue to plague cross-border payments, even more so as the number of transactions and amount of funds that are sent grows annually.
Businesses have historically turned to their banks for global payment services. But many of the channels used to make international payments still employ legacy processes that can be inherently expensive and cumbersome. For instance, in 2020, $120 billion was spent globally to facilitate cross-border transactions (excluding FX costs), which equates to 1/3 of Singapore’s GDP, and the average time to clear a cross-border transaction was 2-3 days.
It’s no wonder APAC businesses are looking to streamline cross-border payments processes. This makes APAC poised for widespread payments modernisation as businesses demand more transparency, lower fees and better predictability from their banks. And banks will need to deliver if they want to remain competitive.
ISO 20022 deadlines
Then again, they may not have a choice as ISO 20022 deadlines for CBPR+ loom in November 2022 and many market infrastructure deadlines have either passed (PhilPass, CHATS) or are imminent (RITS Nov 2022, BahtNet June 2022 & MEPS+ June 2022) and the pressure to adopt the standardisation increases. Migrating to the new messaging format will help untangle some of the complexities of cross-border payments as it will bring interoperability between different platforms through a standard messaging construct. ISO 20022 provides rich data with each financial transaction. This will increase the visibility into and efficiencies of cross-border payments, but ISO 20022 won’t solve all of the challenges banks face when making international transactions.
That’s why many banks are looking at ISO 20022 as an opportunity to evaluate their end-to-end payment systems, introduce new payment rails, and future-proof these new processes – modernisation en masse.
There are four major steps banks can take in the roadmap to optimising cross-border payments:
- Accelerate the adoption of ISO 20022 – this will provide interoperability between traditional and more modern cross-border payment channels, and also allow for faster transactions
- Use data intelligently – with new messaging comes new payment data and analytics, along with the ability to track transaction status, run sanction checks and reconcile invoices
- Evaluate new payments innovations – APIs, the cloud, faster payments, and new developments in security and fraud prevention platforms
- Embrace collaboration – partnering with fintechs can help banks increase agility and provide access to the latest in payments tech tools
According to HSBC, digital payments in Southeast Asia are expected to triple to USD 1.5 trillion by 2030. This puts further pressure on banks and financial institutions to put modern payment infrastructures in place. As new capabilities emerge for faster payments in APAC and customer expectations keep pace, collaboration between banks and fintechs will be the key to establishing reliable and secure cross-border payments for the region.
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 McKinsey & Company, The Future of Payments in Asia, November 2020
 East & Partners Europe; Visa B2B Connect: Voice of the Customer – Banks Markets Report, June 2019
 World Bank: “Remittance Prices Worldwide Quarterly”, Issue 40, December 2021
 Asian Development Bank: Harnessing Digitization for remittances in Asia and the Pacific, July 2021
 Olivier Wyman & J.P.Morgan, Unlocking $120 billion value in cross-border payments, November 2021
With more than 22 years of experience in the Financial Services sector, and specialising in payments over the last 10 years, Zhenya Winter is currently Head of Financial Messaging Marketing - Global at Bottomline. Key areas of focus within payments include Real-Time domestic & cross-border payments & ISO 20022.