Over the past few decades, the payments landscape has undergone significant transformations, driven by technological advancements and the need for more efficient global trade. What was once primarily a cash-based economy has now evolved into a dynamic and digitised system that empowers consumers and businesses alike. In this “Insider Insights” article, we delve into the evolution of cross-border transactions and explore how businesses can overcome challenges to harness its potential.

From Traditional Banking to Fintech Disruptions

In our interconnected world, cross-border payments are becoming increasingly crucial. Ho Chee Wai, a Lead Consultant on Payments and Fintech at JFourth Solutions with over 15 years’ experience in the fintech and payments industry, shares his extensive insights on the state of digital payments and what the future holds.  

Historically, cross-border payments were confined mainly to traditional banking systems and SWIFT messaging. This process was often slow and expensive, requiring businesses to wait several days for payments to clear, while incurring high fees along the way. As Chee Wai explains, "Gone were the days that you must always go to a bank to arrange for a telegraphic transfer (TT) over SWIFT for cross-border payments."  

The rise of fintechs has significantly disrupted this traditional model, offering businesses faster, more affordable alternatives. Fintech companies have developed their respective payment connections, reducing reliance on banks and SWIFT. This shift not only benefits consumers but also B2B cross-border transactions. Chee Wai notes that fintechs have helped drive down costs, making global trade payments more accessible to businesses of all sizes.

The Rise of Real-Time Payments

Another significant evolution in the payments landscape is the move towards real-time payments. Today’s businesses expect near-instantaneous transactions, a far cry from the traditional delays of one to two days. Chee Wai highlights that in the past, “Individuals or businesses would be happy to receive money within the same day or the next day. Now, the expectation is that they want to receive money almost within an hour, if not instantaneously.”

This demand for speed has spurred the development of Instant Payment Systems (IPS) across multiple countries to facilitate cross-border payments. These systems allow businesses to settle payments almost immediately, reducing the time and costs associated with traditional methods. However, one challenge remains: IPS platforms often come with daily and transactional limits, restricting their use for higher-value transactions.

Seamless Payments Require Global Collaboration

One of the most promising developments in the evolution of cross-border payments is the increasing collaboration between governments. Countries are working together to link their IPS systems, aiming to make international transactions as seamless as domestic ones. For example, Singapore’s PayNow has been linked to Thailand’s PromptPay, enabling real-time, cross-border transactions between the two countries. In Southeast Asia, Project Nexus is going a step further exploring multi-lateral connection of IPS systems across borders with the support of central banks, working towards G20’s goal to reduce the cost of remittance.  

While these initiatives primarily benefit individual consumers today, they hold the potential to revolutionise B2B payments as well. By enabling businesses to tap into lower-cost, real-time payment systems, such collaborations could drastically reduce transaction costs and improve cash flow management for companies engaged in global trade.

Overcoming Challenges: Agility, Compliance, and Partnerships

Despite these advancements, challenges remain. Geopolitical instability and supply chain disruptions can complicate cross-border transactions, necessitating agility and the exploration of multiple payment service providers.  

Regulatory scrutiny can also slow down payments, as compliance with complex requirements remains a significant concern for banks and non-bank providers. Furthermore, the high cost of borrowing impacts liquidity and cash flow management. “As a business, you need to explore different providers,” Chee Wai recommends, to achieve agility and resiliency and minimise disruption to the core business.

To navigate these challenges and stay ahead, businesses should consider diversifying their payment providers to avoid over-reliance on a single source, taking advantage of government-backed initiatives to simplify compliance, and embracing fintech solutions that offer innovative payment capabilities.  

As Chee Wai suggests: “Look beyond the banks. No doubt that the banks are also improving in their transactional banking capabilities, but look beyond to explore the fintechs, and make sure that you have a reliable set of partners, not just one single provider.”

Looking Ahead: A World Without Currency Borders^TM

As payments continue to evolve, the ultimate goal is to create a World without Currency Borders^TM — a reality where cross-border transactions are as seamless as domestic ones. Chee Wai envisions a future where payments are “transparent and a means to an end, not the end itself.” In this future, businesses would leverage artificial intelligence (AI) to optimise payment decisions, such as the use of stablecoins and payouts to corporate e-wallets, ensuring that transactions are efficient, cost-effective, compliant and secure.

The payments landscape is rapidly changing, and businesses must stay ahead by adopting agile, forward-looking strategies. By embracing fintech innovations, collaborating with reliable partners, and keeping an eye on emerging trends like real-time payments, companies can position themselves for success in an increasingly interconnected world.

For the latest insights into the evolving FX and payments landscape, follow M-DAQ Global on LinkedIn. Learn how we help businesses navigate seamless cross-border transactions by visiting our website at www.m-daq.com.