Driving cross-border payments

Changes are being introduced in the digital landscape to provide better solutions for payments

Globally, the digital payments landscape is undergoing a significant transformation.

GlobalData’s E-Commerce Analytics reveals that the UAE’s e-commerce market is estimated to grow by 16.4 per cent in 2023, to reach AED107.6bn ($29.3bn).

Dynamic business models are evolving and the international remittance payments process is shifting, impacting payment providers and the entities involved in international trade.

Cross-border payments are at the core of global finance and economic activity.

Transactions typically occur between individuals, companies, banks or settlement institutions operating in at least two countries. They include bank transfers, card payments and alternative payment methods such as e-wallets and mobile payments.

Worldwide efforts to improve cross-border strategies are expected to lead to a range of positive outcomes.

“Transparency, traceability and speed are critical to these strategies,” Onur Ozan, managing director and regional head of Mena and Turkiye at payment network Swift, told the Future is Now roundtable, hosted by Mashreq and MEED in Dubai on 1 November.

In short, these efforts aim to make cross-border transactions more streamlined, cost-effective, secure and accessible, benefitting businesses, individuals and the global economy.

Opportunities and initiatives

Consumer behaviour has a profound impact on the cross-border payments market. With faster and cheaper banking solutions to choose from, users are more aware of their choices and avoid paying for costly services.

The evolution of payment systems necessitates cooperation among public and private entities, regulatory bodies, commercial banks and other key market players.

“The industry has done a lot in the past five to six years to ensure success in cross-border payments,” said Ozan.
“But more needs to be done to achieve a frictionless cross-border journey.

“In my opinion, the Group of Twenty (G20) has done just that.”
The G20, a forum for international economic cooperation between countries, has set ambitious targets to improve cross-border payments. Its commitment to transforming payment systems aims to accelerate speed, lower expenses, simplify accessibility and enhance transaction transparency.

Swift, which stands for Society for Worldwide Interbank Financial Telecommunications, processes 90 per cent of its cross-border payments within an hour, placing its transaction speed ahead of the G20’s end-to-end target of 75 per cent by 2027.
Ozan pointed out that adopting ISO 20022, a global standard for financial information, has been instrumental in changing cross-border payment systems.

ISO 20022 provides consistent, rich and structured data that can be used for every kind of financial business transaction.
“The data makes it easier to gather information needed for remittances and other trade finance use cases, while also helping to reduce the probability of false positives,” said Ozan.

In October, the UAE’s Al-Etihad Payments signed an agreement with the National Payments Corporation of India (NPCI) to provide fast and affordable international money transfers.

The agreement involves integrating India’s Unified Payments Interface (UPI) with the UAE’s Instant Payments Platform (IPP) to streamline cross-border transactions between the nations.

“We are connecting UPI with our local IPP platform, Aani, to provide more opportunities for cross-border transactions,” said Jan Pillbauer, CEO of Al-Etihad Payments.

“Like other countries, we will explore more corridors for similar connections, enabling transfers from Aani to UPI.”
Additionally, the efficiency and effectiveness of domestic payments play a significant role in the performance of cross-border payments.
“Domestic payment schemes are [becoming] efficient with the introduction of instant payment schemes operational around the clock,” said Ozan.

“This works in favour of cross-border payments because 65 per cent of these payments are getting into domestic payment systems.”

Overcoming challenges

“Unlike domestic payment systems, cross-border transactions are relatively complex,” said Ozan. “The complexities exist due to differences in jurisdictions, regulations and practices.”

Together, digital currencies and innovative payment networks can substantially reduce costs. However, the challenge lies in ensuring interoperability between diverse payment systems, especially when dealing with different currencies and regulatory frameworks.

Digital platforms and mobile technologies have the potential to bridge this gap and enable underserved communities to participate in the global economy.

E-wallets, for instance, offer a range of services through a single application, enabling peer-to-peer (P2P) transactions and processing of merchant payments and cross-border remittances.

“Instant payment systems have replaced cash and encouraged financial inclusion,” said Victor Penna, executive vice-president and co-head of global transaction banking at Mashreq.

“It started off in the P2P space, before moving to encompass small and medium enterprises and large corporates.
“There are more than 80 instant payment systems around the world that will continue to drive consumer adoption and push real-time commerce,” he added.

Addressing cybersecurity, data privacy and regulatory compliance issues is essential to ensure secure and inclusive cross-border transactions.

“As payments are getting faster, instant payment systems need the integration of financial crime compliance solutions,” said Ozan. “Efforts to introduce these are underway.”

Over the past two years, Swift has introduced specific services enabling financial institutions to perform preliminary processing of payments. Completeness and accuracy can be verified before the payment begins its journey through central APIs (Application Programming Interfaces). This helps reduce the chances of the payment encountering issues or being halted during its transaction process.

Ozan explained that the efficiency of processing times and fluidity of international payments can also be strengthened by opening real-time gross settlement (RTGS) systems across central banks for longer hours.

In the GCC, a similar system is led by the six central banks in Saudi Arabia, the UAE, Bahrain, Kuwait, Oman and Qatar. The system enables efficient delivery of intra-GCC payments in the currencies of the six countries, driving efficiency and reducing costs.

Eventually, tailoring payment solutions to meet consumer expectations is crucial to drive engagement and sales. Developing these solutions and their underlying technologies will simultaneously help ease cross-border e-commerce.

06 May, 2024 | .By MRUDVI BAKSHI