Cross-border payments help drive today’s globalized economy, letting businesses and consumers worldwide access a diverse range of goods and services. But this system is largely outdated and in need of a major overhaul—especially since cross-border payments aren’t going away anytime soon.
According to Juniper Research, cross-border B2B payments are expected to top $40T by next year, $3T more than the benchmark set in 2022. What’s more, 73% of US-based companies make regular cross-border payments; they often encounter inefficient and labor-intensive processes, however, that can dissuade more regular use of cross-border mechanisms and impede cash flows.
Public and private actors are designing more modern cross-border payments solutions, keeping the following variables in mind:
Current cross-border payments solutions are often sluggish and laborious to maintain. On average, Global ACH payments take between two and five days to reconcile.
In part, these systems are slower than many domestic payments solutions (depending on the country) because of compliance concerns. More than 26,000 rules apply to international payments, which makes the process highly specialized and high-stakes. What’s more, transactions through payments platforms that are connected to only one bank are more likely to be flagged than those that use multiple banks.
More modern solutions are looking to make these cross-border payments instantaneous while still maintaining—if not improving—strict compliance standards. This may require injecting AI-powered solutions into payments processes and encouraging more jurisdictions to build out their own domestic instant-payments rails.
Processing upwards of $40T annually requires ultra-reliable infrastructure. Especially given their scale, disruptions to these systems can create major economic disruptions. As a result, building cross-border payments solutions require built-in redundancies as well as stringent cybersecurity protocols.
Blockchain advocates see decentralized technologies as one solution to these challenges. Immutable ledgers and distributed processing help mitigate targeted attacks against weak vectors within these frameworks. But blockchain-based solutions have weaknesses of their own, including inefficiency, relative lack of control, and slow processing speeds.
Supporters of blockchain solutions also see ledgers as a way to make cross-border payments uniquely transparent. Even if major actors won’t move ahead with the blockchain as its core infrastructure, the need for transparency remains, especially for compliance-related purposes.
Building out these product features will arguably require more diplomatic legwork than other priorities, as these concerns touch upon questions of privacy, sovereignty, and jurisdiction. Multinational entities such as the Committee on Payments and Market Infrastructures (CPMI) and Financial Stability Board (FSB) will no doubt play a role in determining the transparency-related contours of next-gen payments solutions.