Why seamless cross-border payments are transforming transactions

But B2B transactions – especially those that require cross-border flexibility – are complicated by the various international regulations that regulate and secure financial transactions. In an industry that is constantly changing and developing, where speed and agility in transactions are crucial, the challenges are great.

According to a recent study by Rapyd on digital transactions in Europe, the international payment area has a number of new requirements. For example, in Denmark, 71% of respondents reported a recent online purchase using Danish mobile payment apps. Alongside this, only 5% of Germans chose credit cards as their preferred online payment method, while more than two-thirds of Spanish users said they used PayPal for a recent online purchase.

Technology and cross-border innovation in payments

While streamlining this complicated space is no picnic, technology and innovators are working hard to solve the problems. Ben Aier, VP Product, Yapily, points out that there are many dynamic operators in the current marketplace driving disruption. “For me, the most exciting changes happening in this space today are at the intersection of embedded finance and open banking.”

Aier says managing payments when doing business internationally “presents a huge challenge for merchants”. Very often the end customer is charged an international payment fee and receives non-competitive prices when paying an invoice in a currency other than their own. “Additionally, long settlement times leave merchants waiting for their money and the end customer waiting for delivery of goods and services.”

She goes on to say that better understanding and implementation of cross-border payments within open banking and embedded finance leads to streamlined collaboration between finserve providers.

“Open bank payments enable the immediate flow of cash from one bank account to another, bypassing card fees, long settlement times and the risk of card fraud. International open bank payments currently use SWIFT to facilitate cross-border transactions.”

But at the moment this process is expensive and slow, and fintech services for cross-border payments need banks and regulators across Europe to move faster to match the demand for a cheaper international payment option.

How open banking facilitates frictionless cross-border transactions

While these challenges will take time to overcome, combined open banking and embedded funding solutions give payment service providers and merchants access to an entire payment ecosystem through a single connection. Aier says, “Using embedded finance, open banking platforms like Yapily can enable businesses to collect domestic payments, perform low-cost currency exchanges, initiate instant payments and refunds, and streamline reconciliation.”

Greater visibility over payment status, more control over the distribution and flow of funds, and reduced costs in accepting and transferring payments across borders are just some of the benefits, as these “allow businesses to focus more resources on expanding globally at the same time which you save both time and money”.

Why crypto and borderless DeFi transactions are winning

Meanwhile, cryptocurrencies have risen within the cross-border space as payment methods that are not required to meet the strict regulatory requirements of fiat currencies. Crypto transactions conducted on the blockchain currently allow buyers and sellers relative freedom from government interference, as well as privacy.

But many countries still do not allow crypto transactions, thus preventing it from comfortably occupying a mainstream position, and the regulation of DeFi will almost certainly tighten over the coming decade.

Jurijs Borovojs, CTO of Transact365, says the crypto landscape has remained largely unchanged by external events, making it a popular option for cross-border payments. “Crypto’s flexibility means that it is not as strongly affected by country or regional economic landscapes. Although cryptocurrencies can fluctuate in value, they are more robust to external changes.”

He believes that global economic instability has contributed to the popularity of digital currencies in the international payments space because they are easily tradable assets that fly above the regulatory requirements of individual countries.

“While economic problems persist in Europe, merchants operating in and from the fast-growing e-commerce landscape can benefit from using global payment gateways to facilitate the scaling up of their businesses. With an increase in e-commerce merchants enabling alternative financing payments, all- fi sectors get more customers who want to buy online without using assets temporarily stored and secured in regular bank accounts.”

Cross-border payments in China

Each country handles its cross-border transactions differently, and China – the world’s largest supplier of goods and services – has implemented its own regulatory requirements that benefit trade while also taking into account AML and security measures.

David Messenger is CEO of leading China-born fintech LianLian Group. The company’s purpose is to connect merchants globally through two-way channels where companies both inside and outside of China can have a streamlined transaction network.

Messenger tells us: “When you look at fintechs in China, there are really two areas of regulation. One is the People’s Bank of China (PBoC) and the financial regulations; the other is the Cyber ​​​​Administration Authority of China, which is the regulator of data security and privacy. In China, what often happens in new areas is that the regulations are left flexible to allow a market and solutions to develop. Then, once the position is clear, the regulator brings in regulations that are largely in line with the same goals that regulators have around the world.”

The process is, he says, a method that ultimately works best for the business climate and the customer because it closes areas of vulnerability, and makes the environment safer for the business by providing greater stability in the financial system, data security and privacy.

THREE cross-border megatrends in 2023

According to JP Morgan, there will be three megatrends that will disrupt cross-border payments in 2023. To remain competitive, fintechs and banks will need to deliver cost-effective, fast and secure cross-border payment options to merchants and suppliers alike. But to do this, they must contend with:

• #1 New payment methods: These will consist of faster, more streamlined and flexible payments suitable for multiple currencies including crypto. Kiat-Seng Lim, global head of sales for JP Morgan, says: “To remain competitive, companies need to leverage infrastructure that supports instant payments, lower costs and greater transparency to make them proficient in cross-border payments.”
• #2 New technologies: Faster, more innovative technologies and increased use of APIs are transforming the space from a software and hardware perspective. Cross-border payments require greater transparency, efficiency and visibility.
• #3 Greater risk: As the space becomes increasingly digitized, the risk increases in terms of fraud, money laundering and cybercrime. Providers must use the safest means to build trust in the market

Aier concludes: “By 2023, we can expect to see more fintech collaborations and partnerships develop between players delivering these disruptive technologies. In turn, companies will be able to unlock exciting and innovative open banking use cases for their customers, removing even more friction and creating new growth opportunities.”

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