By Megan Doyle
The growing digital economy has transformed the cross-border payments industry. Organizations are using new technologies to create more efficient and transparent transactions, and real-time payments are becoming a reality.
For example, 11 of the world’s top 100 banks have joined Ripple, a system that uses blockchain technology to process secure cross-border payments in seconds. And as of May 2018, more than 160 banks had signed onto the SWIFT gpi platform, processing over $100 billion in payments daily—many within 30 minutes. Several financial institutions have established hybrid payment environments that use Ripple and SWIFT, as well as additional resources, with the intent of making cross-border payments all the more efficient. This article compares Ripple versus Swift for cross-border payments.
Central banks worldwide are also adopting real-time payment systems. These systems typically allow an individual or a company to irrevocably transfer funds to another’s account and receive confirmation in a matter of seconds—not minutes, hours, or days. Approximately 25 central banks had developed real-time payment systems, including Mexico’s Sistema de Pagos Electrónicos Interbancarios (SPEI) and Europe’s SEPA Instant Credit Transfer (SCT Inst).
Eleven more systems are now under development, including in Canada, Hong Kong, and several in Europe. The U.S. central bank is developing its own instant payments platform with the help of The Clearing House, among other organizations. The U.S. hopes to make real-time payments ubiquitous by 2020. Meanwhile, real-time payment platforms are “on the radar” of the central banks in New Zealand, Saudi Arabia, Vietnam, and several other countries.
Progress is evident on the consumer side of the international payments industry, too. Increasing worldwide financial literacy means more and more people are using payment cards. Worldwide acceptance of conventional physical as well as virtual cards is projected to increase 40 percent by 2022.
State-of-the-art virtual technology is expected to reshape the retail experience, as consumers embrace the convenience of paying with smartphone apps. Near-field communication (NFC) and Bluetooth Low Energy (BLE) are just a couple of the technologies making those efficient transactions possible. The same article explains that as virtual payment systems spread to retail outlets worldwide, they’re forecast to generate more than $78 billion in annual transaction revenue by 2022, up from $9.8 billion in 2017.
Biometric authorization systems such as fingerprint scanning and facial recognition are also making their way into the mobile payments industry, securing and speeding up domestic and cross-border transactions for consumers worldwide.
Cryptocurrencies still show promise for international payments, but hurdles remain. In addition to its recent valuation challenges, Bitcoin, for example, faces scalability challenges. Others in the growing forest of cryptocurrencies, such as Litecoin, Ethereum, and Ripple, may prove more viable.
Central banks eyed cryptocurrencies in 2018, too, as China, Estonia, and other nations explore whether to issue their own sovereign digital currencies. National digital currencies could curtail illegal economic activity and make it easier for central banks to lower interest rates below zero percent, experts say. They could also help developing countries broaden their financial inclusion.
Also in 2018, investment poured into fintechs that use machine learning to automate B2B financial data processing and improve forecasting, as well as those using AI to authenticate vendors and detect fraud in near real time.
Moreover, small and midsize enterprises struggling to manage cash flow while waiting to receive overdue payments may soon find relief thanks to fintech-developed AI-based invoice financing systems. By using AI to analyze data and assess the likelihood a buyer will pay outstanding invoices, lenders can expedite loans to SMEs waiting for overdue payments from highly rated buyers.
However, these advanced fintech systems are still at an early stage and their potential impact remains uncertain.
The global payments industry experienced yet another year of widespread innovation in 2018. Real-time domestic and cross-border payments continued to pick up steam worldwide, while next-generation technologies such as biometric authentication, AI, and blockchain began to make their presence felt.
Megan Doyle is a business technology writer and researcher based in Wantagh, NY, whose work focuses primarily on financial services technology.