Cross-Border Payments
Globalization is driving corporations to transact more frequently across borders. Consumers are also transacting more on a global basis—buying from foreign eCommerce sites; traveling, living, and working abroad. For the payments industry, the result is higher volumes of payments—in terms of both currency value and number of transactions. Interestingly, this is also leading to a consequent shift downwards in the average value of these payments.
The ways these payments are made can be cumbersome, error prone, and expensive. Growth, after all, is often messy. Payments systems set up decades ago continue to be used sometimes retrofitted, sometimes force-fitted—to meet the needs of modern corporations. And, not infrequently, the systems creak and groan as they bear the strain.
For users of these systems, on both the paying and receiving sides, it can be difficult and time consuming to learn how to use cross-border
payments tools, and how to set up processes to make optimal use of them. Solution providers (both banks and non-banks) also face
challenges, struggling to cobble together old systems to meet new demands. But for these providers, cross-border payments are both
lucrative (especially given foreign exchange conversion revenue) and rewarding, in terms of the overall financial relationship created with the end customer.
The challenges for global payments are not simply those resulting from volume increases. A number of economic, political, and technical forces are changing the types of cross-border transactions conducted. Consider these factors:
- Corporations are making more cross-border purchases of services (as opposed to goods), as well as more purchases of complex fabricated parts rather than simple raw materials.
- Enterprises are purchasing from more countries, in more regions.
- Increased outsourcing is leading to new in-country and new cross-border intracompany transactions.
- More enterprises are participating in complex, automated supply chains, which in some cases drive automatic ordering and fulfillment. Online purchasing continues to grow, both by large enterprises as part of an automated procurement systems and by smaller enterprises purchasing directly.
- There is continued growth in the use of cross-border labor.
- Individuals are increasingly taking their investments abroad.