Cross-border payments are growing — and fast. The value of cross-border payments is projected to rise to $250 trillion by 2027, a rise of over $100 trillion in just 10 years. This growth is fuelled by global trends like global e-commerce, International supply chains, cross-border investment flows, or International remittances.

Despite the significance of cross-border payments to propel Global economy, the reality remains that cross-border payments are costlier, slower, and less transparent compared to domestic transactions.

The speed of payments emerges as a particularly crucial concern as it directly affects customer experiences, whether it involves accepting payments directly from consumers or settling with international vendors, merchants, and partners. While cross-border payments can be settled within hours, they can also take several days to complete. To comprehend the underlying reasons, it’s essential to delve into the process behind cross-border payments.

Understanding the mechanics of cross-border payments

To facilitate cross-border payments between different currencies, international banks establish accounts for their foreign counterparts. These accounts enable the foreign counterparts to initiate payments in a foreign currency. During this process, no physical money is transferred. Instead, the accounts are credited in one country and simultaneously debited by an equivalent amount in the other country. Fintech companies and other payment service providers (PSPs) leverage the same infrastructure for conducting cross-border payments.

In situations where banks lack a direct license or branches in a specific territory, they rely on the services of a correspondent bank. The correspondent bank establishes accounts for both the domestic bank and the foreign bank, acting as an intermediary to facilitate the payment and, if necessary, settle in the local chambers and currency.

Variables that influence the effectiveness of cross-border payment processes

Considering these factors, there are four key elements that can impact the speed and efficiency of a payment.

1. First, the number of intermediaries involved in a transaction can increase both the time and cost involved. Currency pairs with lower volume transactions, particularly in emerging markets, often require more correspondent banks in the payment corridor, leading to delays.

2. Second, prolonged processing times can occur between the receipt of a payment by a receiving bank and its appearance in the destination account. These delays are typically caused by varying capital controls and compliance requirements, particularly in low-and lower-middle income countries.

3. A lack of standardisation can create additional friction when the format used by the paying bank differs from that of the receiving bank or corresponding banks along the corridor. Manual reformatting of data is often necessary to align with each bank’s systems.

4. Finally, outdated payment platforms contribute to inefficiency. Much of the existing payments infrastructure was designed during the early days of electronic banking, resulting in slow and inefficient processes. The interaction of multiple legacy systems in cross-border transactions amplifies the challenges. Added to this, the limited operating hours of banks, typically aligned with the local working day, can pose difficulties when accepting payments from different time zones.

PagoNxt, a Santander company, is building a better B2B cross-border infrastructure, leveraging Santander Group network and top-notch banking partners.

Banks and Fintech can now partner with PagoNxt and get access to same-day, cost-efficient, and transparent payments across most relevant corridors (including LatAm geographies!). Our API-first technology, global compliance tools, and solid operations team, together with Santander banking infrastructure, allow us to offer a streamlined and reliable cross-border payment platform.

With PagoNxt, you can make cross-border payments and global operations to gain a competitive edge!

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