Over the last few years, rapid digital payment adoption and technology development have played an essential role in making international money transfers cheaper, faster, and easier than they were decades ago. The volume of cross-border transactions is now expected to grow to $39.9 trillion by 2026, as these payments are essential in the interconnected economy.
While there is no universal system for payment transactions, there are new banking solutions and fintech companies who are on a mission to improve the way we send and receive payments internationally. But as cross-border payments are complex, financial service providers and fintechs encounter several challenges in this area.
Facing increased pressure from customers, payment providers have to balance clients’ demands and expectations with the need for security and regulatory compliance. In this blog post, we look at the changing shape of cross-border payments in terms of the main challenges, some existing solutions, and emerging innovations in this rapidly growing area.
Main Challenges of Cross-Border Payments
Low Transaction Speed
Recent research shows that over 83% of operational leaders, directors, and payment professionals expect their companies to increase services in new geographic locations in 2022. As businesses expand internationally, they need to process payouts and disbursements across borders. The same research shows that contractors and vendors usually expect immediate payment for the services they render to these organizations. Meanwhile, it can take 2-5 days to process a cross-border payment via a traditional bank money transfer.
Trying to solve the international payments problem, many businesses turn to IT providers to build custom payment platforms. This requires significant resources and is time-consuming for the business’ IT teams whose priorities are to stay on top of compliance and maintenance updates.
There are a few fintech companies that address the speed problem. Among them, Wise, formerly known as TransferWise, allows clients to make cross-border transfers in 1-2 days while offering lower transfer fees. Blockchain-based payment provider Ripple delivers real-time global payments by using its own digital currency (token) for faster payment settlement. Among their clients are Western Union, Bank of America, and Santander bank.
Collaboration between traditional payment providers and fintechs also helps solve the low speed issue. For example, Mastercard partnered with Paysend to send funds directly to eligible Mastercard cards internationally. With this program, a family member or a friend in, for example, Guatemala can access the funds almost immediately after the sender in the USA hits send.
High Transfer Cost
Cross-border payments come with a high price tag as there are many intermediaries involved in the money transfer. Depending on the country where the transfer goes, currency exchange fees can also add to the cost.
Payment Fraud and Cybersecurity Threats
As reported in the 2021 issue of Global B2B Payments Playbook, 60% of US and UK businesses face cross-border payment fraud. Lack of coordination between international financial institutions, sharing data with 3rd party vendors, and increased digitization of services have created new opportunities for bad actors to commit financial crimes.
Given the lack of universal adoption of global rules for cybersecurity, once a payment moves to a country with weak access policies or cybersecurity regulations, it becomes more vulnerable to cyber attacks.
With the COVID-19 pandemic and recent geo-political events, we’ve we seen a rise in the volume and complexity of cyber threats. More and more often there is a convergence of financial crimes, where an incident starts with a cyber attack in order to cover a serious fraudulent activity, such as money laundering.
To mitigate cross-border payment challenges and risks across different vectors, financial institutions and fintechs require real-time payments analytics combined with strong fraud prevention and cybersecurity protection. As it can be difficult or impossible to recover funds lost to fraud originating in other countries, it is essential to detect potential fraud and stop the automatic payment before funds are irretrievably lost.
INETCO BullzAI provides financial institutions, payment processors and merchants with an essential layer of defence against the risks associated with cross-border payments. INETCO BullzAI is designed specifically to detect payment fraud in real-time and block it before funds change hands. This applies not only to card-not-present (CNP) cross-border payments, but also to rewards cards, eTransfers, wire transfers and instant payment transactions.
INETCO BullzAI detects payment fraud faster and more accurately than general-purpose financial fraud systems. BullzAI achieves this by providing its User and Entity Behavioral Analysis (UEBA) engine with a richer set of payment data than other systems have available. It maintains a unique behavioral profile of every cardholder, card, device, and entity involved in each payment. All payments are analyzed in milliseconds and without adding any network latency. When fraud is detected INETCO BullzAI can instruct authorization systems to decline the transaction or block the transaction itself, independent of existing authorization systems. This protects payment systems from fraudsters who use malware that bypasses authorization hosts.
Compliance
In coming years we will see more cross-border payments happening in real-time and near real-time. Compliance teams will play a key role in facilitating relationships and partnerships across the globe for managing risks and securing the payment ecosystem. They will increasingly need to rely upon the quality and availability of the payment data they can access. With international payments, banks and payment providers also have to monitor regulations in the destination country to which they send money. Boosting data quality will help ensure effective sanctions screening, KYC, and transaction monitoring.
The cross-border payments industry still has many challenges to solve before achieving faster, cheaper, and more secure international transactions. Collaboration with fintech, technology vendors, and international cybersecurity organizations can significantly speed up the resolution of the current issues as well as the safe adoption of cross-border payments.
Looking for ways to boost your payment transaction monitoring while ensuring cybersecurity and payment fraud protection? Get in touch with one of our experts now.