Whether it’s a British teenager buying cosmetics via Instagram from a store based in South Korea, or a fabrics supplier in India selling to an Italian designer, our small purchases have a large impact.
This historically underserved market is gaining more attention, and financial institutions are increasingly recognising the crucial role they play.
Many are taking steps to improve their services dedicated to low-value payments and, in parallel, there has been a rise in new market entrants, with fintechs offering services that rival those provided by banks.
With consumers and small and medium-sized enterprises (SMEs) having more choice than ever before for sending payments around the world, trust and security remain the top reasons in deciding which payment provider to use.
For many, banks have the scale, reach and trust to be truly effective at a global level, offering the necessary relationships, compliance and transparency needed.
The size of the opportunity
The importance of low-value payments should not be underplayed. They have strong potential for improving financial inclusion by benefitting groups such as developing nations that may depend on remittance flows.
This space is growing, and fast. The global consumer and SME cross-border payments market is sized at $10.6tn and is gathering momentum. The G20 has also signalled the importance of this work by establishing targets for enhancing cross-border payments, including cutting the average cost for end-users, increasing transaction speeds, and providing multiple options to improve accessibility.
The roadmap to reach these goals highlights the importance of collaboration and cooperation throughout the industry. Swift has been working across our wide-reaching community towards these targets for a world where payments are seamless.
Incorporating existing infrastructure alongside promising new technology is critical – and banks will have an invaluable role to play in low-value cross-border payments.
Offering unmatched trust and security
Although payments are becoming simpler and more accessible in increasingly digitised environments, it is still critical that we know where our money is going. And while new entrants offer exciting possibilities for transferring money and improving efficiency, many are still building their security measures to scale.
Banks remain critical for the growth of the industry because they maintain a valuable, unrivalled level of trust
Banks remain critical for the growth of the industry because they maintain a valuable, unrivalled level of trust for moving money. This is more important today than ever before, as cybercriminals find new ways to exploit uncertainty and gaps in security frameworks; damage from cyberattacks is estimated to amount to $10.5tn annually by 2025 – a 300% increase from 2015 levels.
While the number of payment providers across the low-value payments space continues to grow, banks offer customers valuable security capabilities that cannot be overlooked. The regulations and controls to which the banking sector is subject provide additional safeguards, which help guarantee end users that every penny they send around the world is safe and sound.
Establishing transparent payments
As work continues to improve the low-value cross-border payments space, it is imperative that transparency is kept front of mind – not just for a payment’s cost and speed, but also for its traceability.
Consumers and SMEs expect and deserve to know how much they’ll be charged for their transaction in fees and foreign exchange, how much will reach their end beneficiary, and where their money is at any given moment in time.
The correspondent banking system still has work to do in establishing this level of transparency as standard, and that is particularly true for low-value payments. Friction in the payments system is a major hindrance, costing the industry more than $2bn every year and affecting over 700 million transactions. Much of this is the result of avoidable errors, such as typos and formatting mistakes.
Emerging technologies such as artificial intelligence are bolstering banks’ threat response capabilities and enabling them to validate key information before a payment is sent. This means that, in practice, originating banks can check payment details – including the eligibility of beneficiary accounts – before submitting a transaction for processing.
Connecting a global payments landscape
Innovation has undoubtedly been a welcome step in ushering in a new era of payments. With customers more digitally connected than ever, banks have the added benefit of a global network effect to help technological advances achieve scale. Existing financial infrastructure allows new innovations to become commonplace faster, and which likely have more longevity than if they were rolled out in isolation.
This network effect underpins the global banking system and is set to become even stronger. ISO 20022 is setting a new industry standard for payments that will unlock huge opportunities for financial institutions through rich data, including boosting operational efficiency, enhancing customer experience and enabling innovative new services.
ISO 20022 is setting a new industry standard for payments that will unlock huge opportunities for financial institutions
Banks will have access to richer, better quality data, which will then be transferred appropriately along the chain of banks – unleashing even more efficient compliance controls.
The cross-border payments market is an ecosystem made up of different types of players, including banks, fintechs, and other payment service providers, with all of them innovating to find ways for better collaboration.
With a focus on richer data and responsible innovation, all market participants can work together to pioneer a new gold standard for payments. For consumer and SME payments, this promise of collaboration is particularly strong – offering a payment experience that is secure and transparent, as well as fast and seamless.
Strengthening the future of payments
The global payments ecosystem is at an inflection point, and the correspondent banking system is poised to make cross-border payments even more efficient for all. These efforts will foster financial inclusion, allowing the global economy to continue growing in a more connected way.
Low-value payments have a critical role to play, and we cannot overlook the significance of an efficient cross-border payments experience between banks around the world.
Payments are rapidly evolving, and the low-value space is a touchstone of that change. But while the future of finance might be uncertain, one thing’s for sure: banks have the core capabilities to continue to play a major role in this space.
Susana Delgado is head of SME payments and consumer payments at Swift.
