By Vitaliy Shtyrkin
Cross-border payments are experiencing unprecedented growth. Their current volumes of over $200 trillion are expected to increase by 5% a year until 2027. Meanwhile, the role of digital payments in international transactions is also growing, with 62% of banks actively seeking partnerships with fintechs to modernize their cross-border operations.
It’s becoming clear that digital innovation shapes the future of cross-border payments, with technologies like blockchain, digital assets, and real-time transactions already transforming global money transfers.
In this context, the questions arise: Are banks and fintechs prepared for the next era of borderless payments? Could digital wallets become a panacea? Let’s delve into this.
Strategic Partnerships for Driving Innovation?
Banks and fintech vigorously explore ways to strengthen their partnerships, particularly to enhance cross-border solutions. Thus, it’s important to see how these collaborations can impact international transactions.
As a widely known fact, banks have been historically lagging behind fintechs in embracing technological advancement. Factors like heavy regulations, high-cost operations, and conservative nature play a significant role in the work of contemporary banks. Therefore, they need to adopt more agile and innovative approaches to develop faster, align with clients’ evolving demands, and keep up with technological changes.
Here, it comes to fintechs that have a deep-rooted network of payment channels, which let customers of these companies use convenient, cheap and fast options, such as peer-to-peer payments (P2P) and digital wallets. In this regard, collaboration with fintechs could allow banks to use cutting-edge technologies, streamline operations, and offer more cost-effective and rapid cross-border solutions.
Apart from being conservative and lagging behind technological advancement, banks also operate in a highly stringent and restrictive regulatory landscape. They are subject to compliance rules such as anti-money laundering (AML), counter-terrorism financing (CTF), know your customer (KYC), and others. As cross-border payments imply operation in multiple jurisdictions, navigating these complex regulations can be time-consuming and costly. In response to this complexity, fintechs have gained a notable advantage.
In March 2024, as an amendment to the Single Euro Payments Area (SEPA), the European Parliament adopted the Instant Payments Regulation (IPR) that allowed fintechs to acquire direct access to payment systems across the EU. This means that they can avoid banking intermediaries and facilitate payments, including cross-border transactions. As a result, by partnering with fintechs, banks can gain more flexibility and freedom in executing transnational transactions without compromising on regulatory compliance.
The collaboration between banks and fintechs combines the strength of banks’ established infrastructure with innovation, agility and convenience brought by fintech firms. Eventually, cross-border transactions could become easier and more affordable. Even so, there are other challenges to the development of cross-border payments, and the adoption of digital wallets could become one of the ways to surmount them.
Digital Wallets as a Means to Tackle Challenges
Partnerships between banks and fintech may optimize regulatory compliance, transaction speed, and costs. Still, some other challenges hinder cross-border payments’ comprehensive development — they include geopolitical tensions, limited access to banking systems in developing countries, and lack of transparency.
Digital wallets, in turn, could become a means to overcome these challenges. Since they are based on decentralized technologies, they bypass traditional banking systems, making them available even during serious geopolitical tensions, when the flow of cross-border payments is slowed down or even stopped.
The same is true for developing countries such as those in Africa and the Middle East. Recent research showed that these areas are expected to get through significant growth in digital wallet adoption, where the number of users is projected to jump from 605 million in 2024 to over 950 million by 2029. Therefore, such a trend in digital wallet adoption may indicate that cross-border transactions will become more accessible and streamlined in these regions.
Other than that, digital wallets are more transparent and user-friendly compared to traditional systems. For instance, according to a recent report, 42% of consumers across the U.K., the U.S., Saudi Arabia, and Singapore choose digital wallets over conventional methods because transaction records can be accessed inside the mobile app in real-time within a few taps, which contributes to both transparency and the ease of use.
What Is Next for Cross-Border Payments?
Unarguably, it may take years to achieve complete digitization of payments, because even the most recent survey shows that over half of participants still use traditional payment methods. But, the most important is that the trend is definitely moving in this direction.
We can expect that the landscape for fully digital payments could be formed within the next 5 years, and there are several factors behind this. Firstly, it’s important to mention the ISO 20022, which is a constantly evolving international standard for exchanging information between financial institutions. It helps to adopt innovations such as CBDCs and real-time analytics networks, contains more detailed information in payment messages and allows all participants, like banks and fintech firms, to work under one “umbrella.”
Also, the growing adoption of digital wallets helps to overcome challenges and make cross-border transactions simpler and more transparent. Ultimately, traditional payments are gradually taking a back seat and could eventually be replaced because instantaneous, more secure and accessible digital payments get broader implementation.
About the Author
Vitaliy Shtyrkin, CPO at all-in-one crypto ecosystem for business B2BINPAY. He is a Chief Product Officer with 15 years of experience in the financial market, particularly within the fintech sector. Now, as a CPO at B2BINPAY, an all-in-one crypto ecosystem for business, Vitaliy plays a vital role in shaping product strategy and guiding the development process to ensure its alignment with organizational goals.
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