EY: Cross-Border Payments Set for Major Overhaul

According to the latest report from EY, 'Beyond borders: Capturing growth in the dynamic cross-border payments market’, the cross-border payments industry is poised for significant transformation as regulators and financial institutions push to modernise outdated systems.

Global cross-border payment flows are growing at around 9% annually, reaching US$190.1tn in 2023 and are expected to hit US$290tn by 2030, according to data from FXC Intelligence. Business-to-business (B2B) transactions make up the largest share at US$183.5tn. 

However, the current system dominated by correspondent banking networks is ripe for innovation. 

Cross-border payments remain costly and slow, with corporate fees averaging around 1.5% and remittances as high as 6.3%.

Regulatory Push

Regulators are driving much of the change. In 2020, G20 leaders endorsed a roadmap to enhance cross-border payments globally, aiming to address challenges related to cost, speed, access and transparency.

The Financial Stability Board has set targets for the industry, including capping the global average cost of retail payments at 1% and remittances at 3% by 2030.

“Consumer expectations have evolved. They now demand fast, low-cost cross-border transactions with complete price transparency, guaranteed delivery amounts and real-time traceability,” says Steve Naudé, Managing Director of Wise Platform, a fintech that facilitates international money transfers.

Banks and payment providers are responding with new initiatives. JP Morgan's Onyx platform and Santander's One Pay FX use distributed ledger technology to enable faster, cheaper cross-border transfers.

ISO 20022 Migration

A key focus for the industry is migrating to the ISO 20022 messaging standard, which enables richer, more structured payment data. 

Over 70 countries have adopted the standard, with 80% of high-value settlements expected to operate on ISO 20022 by the end of 2025.

The global payments network Swift says 26% of payment instruction traffic has shifted to ISO 20022 messages as of August 2024, up from 15% in April 2023.

“Interoperability is hard - but necessary. Moving forward, we will continue to work closely with the financial community to advance use cases across CBDCs and tokenised assets so that value can move across borders instantly and frictionless in whatever form it takes,” says Nick Kerigan, Managing Director and Head of Innovation at Swift.

Digital Currency Innovation

Central bank digital currencies (CBDCs) and tokenisation are seen as key innovations that could transform cross-border payments. 

Major banks are exploring their potential through initiatives like the Regulated Liability Network, which aims to enhance commercial bank money through tokenised deposits.

“Shared ledgers are a game changer in global finance. By creating a shared platform that builds on the core attributes of blockchain - programmability, immutability and traceability, these systems facilitate the integration of digital currencies, enable real-time data sharing and streamline the settlement of financial transactions,” says Stella Lim, Chief Commercial Officer at Partior, a blockchain-based interbank clearing and settlement network.

The cross-border e-commerce sector is expected to grow from US$1.92tn in 2024 to US$3.37tn by 2028, presenting opportunities for embedded payment solutions. 

Banks and payment providers are looking to integrate alternative payment methods like digital wallets and buy-now-pay-later options into e-commerce platforms.

“The industry is in a critical moment of transition, and the trends highlighted in this paper are unequivocally essential for all organisations that participate in, use or provide cross-border payment solutions,” concludes Tim Moncrieff, Global Head of Strategic Initiatives at Visa Direct, Visa's real-time push payments platform.

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