Why Cross-Border Payments is the New Fintech Frontier
By James Gable, Business Development Manager, Freemarket.
It’s no secret that Fintech has been one of the core components of the Venture Capital (VC) universe in recent years, and often leads the way when it comes to digital disruption.
Despite economic headwinds, and a dip in VC funding from the highs of 2021, Fintechs on the whole have proven resilient by securing $92 billion in funding over the last 12 months.
In the UK, the most prevalent Fintech hub outside of the US, they captured a healthy $12.5 billion in backing in 2022; with VC's eager to capitalise on the nation’s most innovative players, and add fuel to an industry that boasts a global CAGR of 20.5%.
From the explosion of digitally-driven Neobanks, PSPs, MSBs and EMIs, through to Blockchain innovators, InsurTechs, and WealthTechs. It’s clear to see that innovation is everywhere; and it’s not slowing down anytime soon.
Yet, with so many new entrants launching to market, all vying for a share of wallet, saturation is becoming a real threat.
Which begs the question; how can Fintechs out-innovate, out-compete, and out-pace their rivals?
The Rise of Cross-Border Payments
One of the primary battlegrounds for Fintechs is underpinned by cross-border payments.
And it’s clear to see why.
The Bank of England forecasts that by 2027 global cross-border payment volumes will hit $250 trillion per annum. Having been increasing by an average of $10 trillion YoY from 2017.
Traditionally, this market has been dominated by the typical correspondent banks.
However, with an increasing number of SMBs placing their day-to-day spend with digitally-driven Fintechs, the monopoly these banks have enjoyed for so long - particularly in the retail space - is being pulled into view.
In fact, some go as far to argue that traditional banks stand to lose 89% of their SMB business to Fintech challengers.
Historically, SMBs have been underserved by the incumbent providers. Suffering from clunky KYC onboarding processes, through to expensive and slow cross-border transactions that lack local rails and are often prone to delays.
A shift towards a digital payment provider would allow SMBs to reflect the trend that is already underway in consumer markets. For example, [Capgemini Research Institute’s World Payments Report 2022] found that worldwide B2B non-cash transactions are expected to increase at a CAGR of ~10% during 2021-2026. - Finextra
More than ever, businesses are placing a greater emphasis on digital payments. Driving a search for partners that are more engaged & consultative, and can deliver a digital-first, automated and client-friendly payment experience.
Forcing banks to go back to the drawing board, and either explore ways they can out-innovate to offer faster, cheaper, and more efficient cross-border payment services. Or, to re-align their M&A strategies and sharpen their pencils.
Build Systems for Scale
With a clear vote of confidence from SMBs, competition in B2B Digital Payments is ripe. With NeoBanks, MSBs, PSPs, and other FIs keen to capitalise, and bring to market cutting-edge FX payment products.
The core principles behind this innovation is critical to their success. With a number of areas highlighted where Fintechs are pooling resource and looking to move the needle.
- Providing clients with a single integrated experience: Irrespective of how many correspondent banks or partners play a role across the value chain, the Fintechs that can provide their clients with a single unified payments experience, will stay a step ahead.
- Simple, seamless and secure KYB onboarding & transaction monitoring: Leveraging advancements in AI and ML will be another frontier for Fintechs who are looking to minimise friction at every touch point. Those that can get to the bottom of their client’s transaction data faster, and are quicker in their decision making, will be more successful in easing the compliance burden. Making it simpler to capture market-share, and for their clients to scale cross-border volumes.
- Real-time FX rates, straight-through processing, and smart-routing: Providing transparent live rates will further develop Fintech’s in gaining the trust of their clients, as well as a larger share of their wallet. It will also ensure they can establish themselves as cost-competitive, through leveraging the best rate available from their FX partners, with minimal touchpoints throughout the payment journey.
- Executing locally, and leveraging stable-coins for real-time-payments: Minimising the cost and time taken to transfer funds via SWIFT is becoming more of a priority. With businesses looking to reduce scheme fees where they can, Fintechs are looking to partners that can provide a robust local pay-out network - and offer stable coins for real-time settlements.
What should digital payment providers do?
Being laser-focussed on the principles behind their cross-border payment products will dictate and steer everything else.
Beyond efforts around developing a seamless front-end experience for their clients, an equal focus should be honed-in on finding partners that align with their strategic objectives. Ones that can expedite the end-to-end payments process and provide a greater depth of service than what Fintechs have typically enjoyed through traditional banking partners.
Those looking to dive into cross-border payments should also consider that success in the sector is ultimately determined by the depth and capabilities of the wider ecosystem they’re able to tap into.
As it’s this ecosystem that will enable them to provide a seamless & transparent payment process, fuel their underlying client’s ability to scale, and fundamentally win them a greater share of the wallet.
There’s no silver bullet. However, maintaining a focus on these guiding principles, along with identifying the right partner and a solution that enables you to fuel this growth, will be crucial.
At Freemarket we recognise the challenges many Fintechs face in building a reliable, secure, and robust payments engine. Which is why we’ve developed an ecosystem that brings together a global network of correspondent banking partners and Non-FI solutions within a single API and Platform.
Helping you minimise your time to market and access a global banking network within a fast, secure, and reliable integration.
To learn more about Freemarket's unique formula and how we can work together, contact us today.
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