Unlocking the potential of low-value cross-border payments

Low-value cross-border payments are the lifeblood of the global economy. From international business conducted by SMEs, to overseas purchases from consumers and remittance flows, these transactions have a real and tangible impact on people around the world. Yet, the low-value payments space is often overlooked when considering the broader payments ecosystem. Here, I want to look at why it’s important to be aware of the challenges and opportunities in this area.

The opportunity

Traditionally, low-value cross-border payments have suffered from opaque transaction costs, long waits for payments to complete, and limited traceability. These difficulties have meant that some consumers have been deterred from making international purchases and family members haven’t been able to reliably send money back home. At a macro-level, this has exacerbated global inequality, and raised barriers to the growth of SMEs and international trade. At a more technical level, these issues have made it difficult for banks to identify the source of problems such as fraud, and to resolve delays.

Despite these challenges, the global consumer and SME cross-border payments market is sized at $10.6tn and expected to continue growing.

Payments originated by consumers amounted to $2.1tn in 2020 and are expected to grow at an annual rate of 6% for the upcoming years. A meaningful part of this figure is consumer-to-business flows, mainly related to international purchases. These account for approximately $1.4bn and represent a big pocket of opportunity for a varied type of players. The other part is the global remittances market, which is vital to the development of emerging economies around the world, valued at $701bn in 2020 and projected to reach $1.2tn by 2030. Related to this is the issue of financial inclusion, which remains a key priority for society. A significant percentage of the population in developing nations sits outside of the conventional banking system, despite the advances that have taken place within the industry more broadly.

Next steps

A focus on transparency is critical to paving the way for efficient, reliable and fast low-value payments. In practice, that means pre-agreed transaction costs, communicated to parties at the outset.

While innovation in the space is a welcome step, the place of banks in guaranteeing traceable, secure payments across the world cannot be underestimated. With advances being made in technology, the way that low-value payments are performed is changing and ushering in a new era of more transparent, cost-effective and faster transactions, underwritten by existing infrastructure.

To carry this momentum forward, the global financial community must continue to collaborate to enhance the solutions we already have in place and help develop new offerings designed to unlock the potential of low value cross border payments. Addressing the challenges in executing these payments internationally is a crucial step to establishing a more inclusive global economy.