COMMENTARY: The Only Sure Thing These Days Is the Need for Improved Cross-Border Payments

There are a lot of conflicting economic forecasts about what lies ahead for the rest of 2024. Of course, it is said that economic forecasting exists only to validate astrology, but two things are certain: increased global trade and shifting populations due to migrations by higher-income-seeking migrant labor. Both of these factors will increase the need for improved cross-border payment systems.

More sophisticated and competitive solutions will help global business activity. And it will improve the lives of the migrating populations as well as the countries they left behind.

According to the International Monetary Fund, the average cost of sending $200 from one country to another is about $12.50, or 6.25%. The G20, a group of 20 of the world’s biggest economies, has set a target of sending $200 at a fee of no more than 3% by 2030. An ambitious goal indeed, as there must be cooperation and coordination on the part of legacy financial institutions, and an agreement on the part of less honest governments to keep their fingers out of the cross-border payment pie.

Approximately 169 million migrant laborers sent an estimated $647 billion home to their (less developed) countries of origin in 2022, a total that surpassed direct foreign investments ni those countries. These hard-working, often stigmatized groups should experience all the benefits that businesses do when it comes to the cost, ease, and security of cross-border payments. The money they send to their families and communities buys food, shelter, education, and health care, improving lives more directly than often whittled-down foreign investments, which have many outstretched hands to fill. These remittances can be considered an engine of development in many of these countries.

There’s a well-known anecdote about the challenge stemming from slow settlement of cross-border payments, where physical goods shipped from Hong Kong to Singapore arrived faster than the actual payment for the goods did. Existing cross-border payment systems are slow, and can erode margins through fees, including high transaction costs from banks and their processors.

Reducing these costs can increase net income, which can be used to reinvest in growth. Better technology can improve visibility, which can save on resource and operational costs, simplify accounting, and save time wasted with tracking and reconciling payments. Simplification and efficiency are always the main deliverables with technology.

Improved cross-border payment systems can lower prices, savings that can be passed onto customers. Businesses can eliminate late payments, pay their suppliers faster, and earn their loyalty. This can help companies gain a competitive edge, something all businesses want.

Doing business better across the globe. Improving the lives of people in developing countries. Satisfying the need for migrant labor. All three goals can be achieved, but require improved cross-border payments.

—Howard Davidson is chief marketing officer at Almond FinTech