Today, we can do everything online with the help of our smartphones and desire the same kind of response in financial services too, also to provide cross-border money transfer systems. The international money exchange systems are emerging and this change is occurring due to newer digital technologies and fast payment methods. Cross-border transaction methods need to increase their transparency and interoperability in order to be accepted and trusted by a larger audience. Also, international trades are increasing day by day, thus there is a need to have quick and efficient cross-border payment methods. Banks and financial organisations will be pressured to develop seamless and transparent methods of fund transfer. Lets dive deep into understanding the problems that businessmen and normal people face with existing cross-border payment processes and the improvements they would like to see.
Why cross-border payments need transparency
While making international payments, anybody would expect a quicker and transparent flow of money. The process of money transfer should be trackable by the sender and the receiver. Transparency would help people in understanding transaction costs and deductibles involved in their payments in a much better way. This will also help in tracking down where things went wrong in case of any discrepancy. A fair and transparent system will save time, prevent payment failures, decrease the chances of late fee payment, and result in increased trust of people in financial institutions.
Role of Fintech in Cross-Border Payments
Cross-border payments have always been a challenging process for people as well as businesses. International money transactions have always scared people due to their lengthy and cumbersome guidelines and processes. Although the reason behind this grave situation is very simple, the absence of overlooking organisation. There is no ubiquitous organisation that has the power to connect and establish communication among the banks present worldwide. There is a lack of a proper system for managing international transactions. Some financial institutions are there such as Schemes, SWIFT, and Correspondent banks but they lack transparency in transaction fees. Moreover, high variability in the currency rates increases the complexity of money transfers. International trades are going through the roof, hence the payment system also needs to be more transparent and easier. Sending money via banks still remains a difficult process.
Since fintechs have entered the market, the whole scenario has changed; giant players in this field such as Amazon and Alibaba have changed the way people did transactions previously. They have removed the barriers that existed in traditional banking by developing applications that let customers pay from any part of the world with the help of their smartphones.
Money transfer through banks is a complicated process because the policies of sender and receiver countries vary greatly and fail in fulfilling customer desires. Although countries are trying to change their strict and confusing policies, there is still a long way to go.
The major factors that decide the smoothness of transactions are speed, cost, and transparency. Cost covers the aspects such as account fees, transaction fees, and FX conversion; they make international transfers extremely expensive. The time for money transfer is increased massively due to the process of funding and defunding. Usually, people are unable to access their transfer details as banks do not provide a proper tracking system for their users. This creates an environment of constant confusion and potential risks. International payment methods are crucial for migrants who travel across the world, they need an easy system for transferring money quickly without exorbitant charges.
As international trades are increasing with easier fintech options, it is also providing an opportunity for fintechs to grow. A high number of transactions are taking place every year due to which fintech companies are generating huge profits. Fintech eliminates the need to incorporate a middleman for making international payments. Financial technology companies provide contactless, quick, and safer transactions.
China is one of the biggest markets in terms of using fintech services and is fostering startups to bring revolution to the financial sector. Earlier, money transfers required the sender and the receiver to be present physically to make transactions possible. But now people can make real-time money transfers all over the world quickly and safely. Many fintech companies started by raising funds initially but within a short span of time, they were able to turn into profit-making companies. The fintechs allowing international money transfers have shown tremendous growth over the years.
Fintech companies like TransferWire, WorldRemit, and InstaReM have changed the way of international remittances; making themselves the first choice of consumers all around the world.
But what has resulted in the success of fintech companies and why are they being preferred over traditional banks for making cross-border payments? The undeniably great advantages of fintech companies have made them a winner in the domain of cross-border payments. Fintech companies allow quick money transfers through their apps eliminating the time that goes into making transactions through a bank. Some of them also provide direct connectivity to central banks such as TransferWise.
There is no need for a middleman in fintech services which drastically reduces the cost of money transfers, unlike traditional banking which employs a generous amount of money for international transfers. Hence fintech companies are a cutting edge competition for traditional banks. Fintech platforms offer their customers to choose from a wide range of payment options including credit cards, debit cards, and other methods such as Google Pay and Apple Pay. In addition to these advantages, fintechs eliminate the confusion regarding exchange rates, as they provide multi-currency accounts in which receivers get the money in the desired currency. Also, the introduction of Artificial Intelligence has worked wonders for cross-border payments via financial technology. Big Data and Machine Learning provide them insights for studying their audience through data such as transaction frequency, the device used, location, and many more.
Fintech companies that are able to provide the solution to international fund trade are blooming tremendously. With the advent of trending technologies, they will be able to upgrade existing services and also incorporate new required changes. Newer ways to transfer money from one country to another through fintech will enhance the pace and lead to making cross-border money transfer easier like shopping online.