Cross-border payments have long been a headache for businesses and consumer. Slow, expensive, and complex, the traditional systems often involve multiple intermediaries, each taking a cut and adding complexity. But fintechs are changing the game, leveraging technology to make international money transfers faster, cheaper, and more transparent.
One of the key ways fintechs are streamlining cross-border payments is by reducing the number of intermediaries involved. Traditionally, a payment might pass through several banks and payment processors before reaching its destination, each adding fees and potential delays. Open banking initiatives are enabling direct peer-to peer transfers and transactions, bypassing these middle platofrms and offering competitive rates.
Fintechs are not working in isolation. After they started this revolution, the rest of the market tried to keep up. Currently, collaborations between financial institutions are accelerating the adoption of new technologies. Mastercard and JPMorgan, for instance, have teamed up to bring cross-border payments onto the blockchain, aiming to provide greater transparency and faster settlement.
AI, blockchain and new technologies
Within this context, AI is playing a crucial role in making cross-border payments more efficient and secure. These tools can analyze payment data to detect fraud, automate compliance checks, and reduce errors, in a more efficient process, once done by humans on the other side of the screen. By automating these processes, transactions are completed faster and with greater accuracy, reducing the time and cost.
Blockchain technology is at the heart of many fintech innovations in cross-border payments. By providing a shared ledger, blockchain allows for real-time settlement of transactions, reducing the time and cost associated with traditional methods. JPMorgan’s Onyx platform, for example, uses blockchain to facilitate instant payments and has been instrumental in enabling 24/7 dollar payments for clients in India.
Central Banks’ role
Central banks are also exploring digital currencies and crypto assets to improve cross-border payments. The European Central Bank (ECB) is developing a digital euro to provide a secure and efficient means of payment. Similarly, the mBridge project, a collaboration between several central banks, is testing the use of central bank digital currencies (CBDCs) for real-time cross-border transactions.
The push for real-time payments is also gaining momentum, in this sense. Started by the Faster Payments (FPS) in the UK, systems to validate instant transactions are spreading around. The TARGET Instant Payment Settlement (TIPS) system in Europe, for instance, already allows for instant settlement of payments in central bank money, reducing the time for cross-border transactions. In Latin America, countries like Brazil (Pix) and Mexico (SPEI) are already working with their own real-time payments too, not to mention the most advanced markets in Asia.
New technologies for cross-border payments will also emerge in so far as Open Banking initiatives gain space around the world. As more countries adopt shared systems, fintechs will be able to move money between accounts in different countries faster and more easily. This could also lower costs and cut out many of the old steps in the process.
