How are global payments evolving?

For decades, global payment networks have enabled cross border trade and investment, and as they evolved to become more and more digitalised, they became a key driver in accelerating growth in economies across the globe. Advances in technology, and increased access to the internet has resulted in barriers being broken down, opening up the world to products and services that previously would have been difficult to attain.

We now live in a world where not only corporates, but also retailers, SMEs, and individuals are making international payments far more regularly. This has resulted in a shift from high value, bulk transactions to more frequent, low-value payments being processed. Financial institutions offering global payments have somewhat struggled to keep pace with these changes.

That said, the global payments landscape is evolving at a rapid pace. In the past 10 years, economic recovery coupled with innovative new players have resulted in global payments being delivered faster and at lower cost than ever before. While COVID-19 has slowed growth, the need to improve the way in which payments are made across the globe has become more important than ever before.

Challenges in the global payments ecosystem

COVID-19 may have shaken up the financial services industry, but there were numerous challenges threatening to stifle global trade to begin with. With geo-political tensions rising, and Brexit, sanctions, and trade wars all causing concerns for businesses who have expanded beyond their domestic territories, making plans for further growth was becoming increasingly difficult.

Banks have also borne the brunt of rising costs with increased regulation and declining correspondent relationships adding to the complexity and cost of providing cross border payments as profit margins shrunk.

Governments around the world seek to enable real-time payment processing. The G20 recently announced it will be launching initiatives that make cross border payments a priority, providing access to faster, cheaper, more transparent transactions. Increased inclusivity will also deliver widespread benefits for citizens and economies worldwide.

Payment-integration initiatives, such as SEPA and Faster Payments, are able to process payments in real-time thanks to structural transformation; however, there are still many infrastructure and fragmentation issues for the banking industry to overcome before instant global payment clearing is possible.

Threats and opportunities for traditional banks

The tried, trusted, and tested correspondent banking approach has been challenged by emerging alternative solutions and new players. Cross border payments are no longer monopolised by banks. New and innovative non-bank Payments businesses continue to enter the market and are now rapidly gaining ground. Banks have been aware of the underlying trend toward industry disruption and understand how imperative it is that they invest in making improvements to legacy infrastructure to maintain their central position in the global payments market, but the cost and complexity of doing so is holding them back.

Additionally, as a result of the coronavirus pandemic, global payment revenues, which grew consistently for many years, are expected to drop 10% from 2.07 trillion U.S. dollars in 2019 to a predicted 1.90 trillion. As governments introduce policies to speed up the recovery and stimulate consumer spending, banks should be working with financial infrastructure providers and other FinTechs to deliver solutions at a lower cost to help spark this growth.

Collaboration plays an important part in developing global payments, particularly when it comes to optimising underlying infrastructure. This is a challenge Banking Circle is addressing by taking on the role of a financial infrastructure provider, offering solutions that bypass legacy systems. This allows Payments businesses and Banks of any scale to seize opportunities by delivering global payment services quickly, at low cost, compliantly and securely.

Find out more about our global payment solutions here.

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