By Elena Malykhina
If current trends continue to shape the evolution of payment services, SMEs will play a bigger role in international trade, wrote McKinsey & Co. and the Society for Worldwide Interbank Financial Telecommunication (SWIFT) in a recent report that explores the future of cross-border payments.2
The report envisions “a world where not only large corporates, but also retailers, SMEs, and individuals use international payments regularly, using a range of solutions and providers through integrated commerce or trade interfaces.”3
Many small retailers rely on e-commerce, but don’t have an established on-the-ground infrastructure to accept local payments. Instead, they turn to internationally accepted payment methods, such as credit cards.4
Fifteen to 20 percent of e-commerce transaction value is already international, and the trend keeps growing across business-to-business (B2B) and consumer-to-business (C2B) channels, the report found. Established companies, such as Amazon, and niche players, such as Etsy, are boosting cross-border commerce and driving C2B, business-to-consumer (B2C), and business-to-small-business payments.5
SME access to affordable international payments is improving, as well, say observers. The SME segment is beginning to benefit from the simplification of cross-border payments and solutions, such as SWIFT’s global payments innovation (GPI), a service that connects hundreds of banks and is used to move approximately $300 billion daily in cross-border payments.6
Banks participating in SWIFT GPI must adhere to multilateral service-level agreements (SLAs). They provide fast, traceable international payments via end-to-end tracking, which is said to reduce the number of interbank investigations. As a result, international payments can be credited to the recipient’s account in less than 30 minutes—sometimes even in seconds.
SWIFT plans to trial a new service called “Link” in 2019.7 This gateway will allow payment capabilities to be embedded directly into e-commerce and trading platforms for faster, more secure payments settlement by GPI banks.
Correspondent banking, traditionally the backbone of cross-border payments, is facing increased competition from non-bank payment providers, such as financial technology (fintech) firms. Innovations in payment technologies, including distributed ledger technology (DLT) and digital currency, are promising improved transaction speeds and lower costs.8
Experts view DLT as a catalyst for driving industry-wide change, especially in B2B cross-border payments.9 Some say DLT can help businesses decrease costs by eliminating the need for correspondent banking, which is currently in decline anyway. According to McKinsey, though, DLT might not provide “international payments infrastructure at scale in the short term.”10
Nevertheless, consumers and businesses will be expecting lower prices with more innovation in international payments, which means prices could fall to marginal cost levels quickly. Banks today make approximately $20 per cross-border transaction, but the dynamics are changing with growing expectations from customers. By 2025, per-transaction fees for cross-border payments will likely be a fraction of what they are now.11
The good news, some say, is that whether it’s a large value transaction or a smaller one, SMEs will not have to settle for only one payment option at a set price.
A single global cross-border payment system is not likely to develop in the near future, although the Single European Payments Area (SEPA) has made progress by standardizing the way cashless payments are handled across Europe, at least in euros.12 In the near-term, SMEs will have a wider choice of payment methods, speeds, and costs, which some say will lead to the desire for a single, integrated international payments experience.
The McKinsey report did identify a future trend whereby payments could be completed through various alternative payments rails—credit cards, PayPal, DLT-based exchange mechanisms—and users could pick and choose from among the solutions. The payments rails would be offered by many different players.13
Finally, the same services that SMEs use today domestically will be of value on an international level. Examples include payments delivery, choice of preferred payments methods, tracking exchange rates, and scheduling payments. These services will become more prevalent in cross-border bill payments and other use cases.14
The cross-border payments landscape is changing in favor of SMEs. Current trends indicate that SME access to more affordable, faster payments options will likely continue to expand and users will shape future services, as standards will no longer be set exclusively by traditional providers.
Elena Malykhina is professional writer who has covered science, technology and business for more than 10 years. Her work has appeared in InformationWeek, Scientific American, Newsday, The Wall Street Journal and Adweek, as well as through the Associated Press.
1. “Small Firms Demand Higher Speed, Lower Costs In Global Payments,” PYMNTS.com; https://www.pymnts.com/news/b2b-payments/2019/cibc-smb-fintech-adoption-global-expansion
2. A Vision for the Future of Cross-Border Payments, McKinsey & Co.; https://www.mckinsey.com/industries/financial-services/our-insights/a-vision-for-the-future-of-cross-border-payments
6. “Cross-border payments reinvented,” SWIFT; https://www.swift.com/news-events/news/cross-border-payments-reinvented
7. “SWIFT to open gpi to e-commerce and DLT platforms,” SWIFT; https://www.swift.com/news-events/press-releases/swift-to-open-gpi-to-e-commerce-and-dlt-platforms
8. “The New Face of Correspondent Banking,” Kaufman Rossin; https://kaufmanrossin.com/news/new-face-correspondent-banking
9. “World Bank Sees DLT Potential for Cross-Border Transactions,” PMYNTS.com; https://www.pymnts.com/news/payment-methods/2019/world-bank-swift-ripple-dlt-cross-border
10. A Vision for the Future of Cross-Border Payments, McKinsey & Co.; https://www.mckinsey.com/industries/financial-services/our-insights/a-vision-for-the-future-of-cross-border-payments
12. “Single euro payments area (SEPA),” European Commission; https://ec.europa.eu/info/business-economy-euro/banking-and-finance/consumer-finance-and-payments/payment-services/single-euro-payments-area-sepa_en
13. A Vision for the Future of Cross-Border Payments, McKinsey & Co.; https://www.mckinsey.com/industries/financial-services/our-insights/a-vision-for-the-future-of-cross-border-payments