Scaling Cross Border Payments To Meet Demand

December 9, 2020

Digital disruptions in the cross-border payments space were well on their way before the coronavirus pandemic came along. But it would be short-sighted not to see that COVID-19 has shown the need for scaling both cross border payments and accelerating the pace of digital transformation in this space.

The Overview

By 2022, Forrester's Research predicts that cross-border shopping will account for 20% of e-commerce. And sales will reach $ 627 billion.

From Accenture we have a survey that shows that total cross-border payments are going to grow by 5.6% annually. With the C2B segment showing the highest growth rate (about 25% annually). This is due to the high cross-border growth of the industry.

For industry players, this would seem like the best time to invest in infrastructure. And service delivery to meet the surging demand.

No more is this service necessary than during this pandemic where the need to support loved ones abroad is magnified. And cashless transaction recommendations are prevalent.

The biggest challenges to scaling cross border payments 

The rise in demand may be the driving force behind the argument to scale; however, there are challenges that industry players face when undertaking this endeavor.

Total annual cross-border payments are in the trillions of dollars.  According to a US Federal Reserve study, end-users and financial service providers find cross-border payments costly and cumbersome. Similarly, there is no incentive to develop faster, lower-cost systems.

  • Inefficiencies in the supply chain drive costs

The costs of cross-border transactions are related to many factors. Companies often have to pay international expenses and other explicit or hidden expenses like currency conversion, etc.

Besides, various middle-men are in the payment process, primarily through extensive connections. As a result, cross-border payments are much longer than internal payments and have higher variable costs.

  • Domestic infrastructure and capacity is not suitable for cross border payments

Cross-border payment demands have increased in recent decades. However, each country has its own level of infrastructure and capacity to handle the demand. Payment systems are typically homegrown and are based on their own communication and standards.

Due to the almost independent development,  interbank and fintech networks lack standardization and automation.

Similarly, this can negatively impact banks and financial businesses and often leads to manual intervention to collect and repair data.

  • The rise of fintech vs. established banking systems

Large banks, branches, and partner banks with branches in many countries/regions can quickly transfer funds to the target countries/regions through interbank transactions.

Beneficiaries can deposit funds directly into accounts operating abroad or send payments to beneficiary banks through bilateral remittances or domestic clearing and settlement systems.

However,  this method was the most costly and least efficient because it is incompatible with non-standard client interfaces. The relationship between domestic and foreign banks and the degree of automation of the bank's internal system is low.

Similarly, these banks have invested billions into these systems that change from them comes at a snail's pace. The solution is disruption, which is where fintech comes into play.

In Kenya, for example, the M-Pesa payment system, which is run by the telco Safaricom has caused widespread disruption to the traditional banking and transfer model. With this disruption, all you need is a mobile device to transfer funds anywhere in the country and abroad.

This has forced the banking establishment in the country to adapt to survive. They have done this by either partnering with the telco and, in some cases, creating competing fintech services.

  • Domestic Legislation and regulatory requirements

The complex governance structure of these different payment systems (some are public, some are private, and some are industrial groups) will only increase the challenge. Without government orders, it is almost impossible to achieve collaborative change at the industry level.

However, when government orders appear, they tend to focus more on responding (or preventing) crises rather than improving efficiency.  Typically, regulations do not favor financial institutions. Businesses in this arena have to navigate the law and spend millions, if not billions of dollars, but this rarely generates incremental revenue.

An example would be the anti-money laundering acts, which require companies to establish security and identity verifications, which eat into the bottom line. We are by no means advocating for financial crimes. We are just pointing out these regulations that increase scaling costs for the industry players.


For industry players or the newcomers,  scaling cross border payments to meet demand comes with its own unique set of problems. Overcoming these issues that we have talked about above could go a long way into streamlining the processes.

In turn, this would increase profitability for the fintech and build better service delivery for their clients.

Could you imagine being able to send money instantaneously to a family member across the world? This would be the same way money gets deducted instantly from your account when you make a purchase.


Send more than money.