Simplifying cross-border payments: Centralised platform for efficient transactions

In the aftermath of the COVID-19 pandemic, global industries realised that digitalisation was the need of the hour. Digitalisation in the banking sector has enabled banks to provide a seamless and personalised experience for their customers. One of the major advantages of digitalization in the banking sector is increased efficiency, which is one reason cross-border payments is a growing trend among multinational businesses.

Payment across national boundaries was previously a tedious process owing to complex criteria and protocols for the transfer of funds from one local bank to another. With the advent of innovation in the digital space, open banking became a reality for tradesmen. Cross-border payments are also seeing growth since consumers are not satisfied with their home markets and the need for foreign goods is increasing internationally. This opens channels for global merchants to establish trade with their targeted audience across borders.

What are cross-border payments?

Cross-border payments refer to financial transactions that involve the transfer of funds between individuals, businesses, or financial institutions located in different countries. These payments are necessary for various purposes, such as international trade, remittances, and foreign investments.

Four diverse ways that digital innovation is changing cross-border payments:

Digital aid in the process of cross-border payments is noteworthy progress as it helps streamline operations and reduce costs associated with trade and conducting business across borders. Let us look at four ways that digital innovation is changing the landscape of cross-border payments.

API aided exchange rates:  API aided exchange rates mean that application-based programming is used to gather data in real time about exchange rates. This will help immensely during cross-country payments. To put it simply, APIs are software intermediaries that enable different systems or applications to communicate with each other or exchange information.

Transparent payment through technology: Advances in technology have allowed businesses to use a wider range of payment solutions without dealing with complex protocols. For instance, providers and banks can collaborate to use local clearing rails instead of wire payments to provide seamless experiences to the beneficiary and the payer. There are new applications being adopted for the same by the industry, such as SWIFT GPi. API connectivity can help senders and beneficiaries understand exchange rates in real time, increasing transparency before approving payments.

Virtual account management: Virtual accounts help providers manage their currency flow easily and at their convenience. Having a centralised account for all your business needs, including paying your beneficiaries, provides ease of access. Industries around the world are now accelerating their processes through the use of digital tools. Cross-border payments aided by digital tools similarly prove to be a great benefit for businesses.

Blockchain payments: Blockchain technology has revolutionised cross-border payment processes, and it is possible due to greater efficiency, security, and transparency. With blockchain technology, smart contracts can be implemented in this process, which can automate the payments and reduce manual intervention.

Solutions to improve the current cross-border payment infrastructure

There is an urgent need for a centralised and multicurrency exchange platform that has been vocalised by global merchants. Further, the International Monetary Fund has also recognised this deficiency in the system. With the establishment of a centralised payment platform, several issues will be mitigated, such as:

1. Payments and transactions on a centralised cross-border platform will reduce the cost of foreign exchange rates and the financial risks associated with cross-border payments.

2. A universal platform for these payments will streamline operations, and the adoption of digital technology will better organise payments and market segments, mitigating the underlying issues associated with cross-border payments.

The IMF (International Monetary Fund) states that currently, for cross-border payments, the entire responsibility lies with multiple intermediaries and brokers. At the international level, the lack of centralisation makes cross-border payments difficult due to associated risks, inflated costs, amongst others.

To infer, the current system of cross-border payments needs a serious upgrade and collaborative efforts from all parties involved. Implementing innovative digital infrastructure for cross-border payments will create a flawless experience for conducting multinational trades.