Will Instant Cross-border Payments become a reality in Europe?

Instant cross-border payments is the holy grail of the global payment industry. But in reality, it has been a bit more elusive.

Nonetheless, real-time cross-border payments remain a core area of interest for all – from enterprises to fintech companies to governments. Everyone desires it, though challenges persist. Several initiatives exist or are emerging to address these and drive more innovation and optimisation.

But some questions linger: Where are we today when it comes to instant cross-border payments and what does the future hold? How will regional payment initiatives fit into larger global ones? Will end customers like the payment experience?

Necessity for faster cross-border payments – what steps are being taken

Cross-border payments involve the transfer of money between different countries using methods such as card payments, bank transfers, alternative payment methods, etc. Funds are routed through multiple intermediaries and go through a complex set of processes before reaching the recipient’s bank account. Because of the number of parties involved, cross-border payments can be delayed.
For individuals and businesses, fast and seamless global payments are becoming essential. Everyone desires instant payments that removes unnecessary complexity, provides a clear view on costs, and are safe.

In 2020, the G20 made cross-border payments a key priority and set a standard of settling 75% of international transfers within 60 minutes. This has led to several innovations, such as open banking-based Real-time Payments, the ISO 20022 messaging standard, Swift GPI, the European Digital Wallet, and CBDCs (for e.g., the digital euro in the EU).

The ISO 20022 is the new global messaging standard for international payments. It allows financial institutions to share richer, more granular data for faster payment settlements. It tackles issues present in earlier messaging standards that cause inefficiencies, errors, and delays. ISO 20022 provides a common language for financial messaging, leading to a more seamless payment process. While this has been a boon for cross-border trade, we need higher adoption and collaboration between parties to fully realise its potential.

Swift GPI is a new standard in global payments that dramatically improves speed, accuracy, and transparency in cross-border transactions. Over 4000 financial institutions are members of SWIFT gpi, processing over $300bn a day in more than 150 currencies.

Similarly, the Swift Go service targets SMBs and can be used for low-value cross-border payments of up to 1000 USD, EUR, or GBP, with more currencies being added. Over 600 banks across more than 120 countries are a part of this service.
Other innovations like banking APIs give access to real-time foreign exchange (FX) rates, which enable more effective reconciliation in cross-border payments. On the other hand, virtual accounts help businesses to manage cash flow in multiple currencies, reduce risk, and increase liquidity.

Real-time payments based on open banking rails are picking up in Europe. These are instant digital payments that can be made 24×7 round the year, which makes them ideal for cross-border commerce. Users can transfer money quickly and easily between bank accounts within one country or across borders. They are also more cost-effective than cards. Examples of real-time payments in Europe are SEPA, TARGET Instant Payments Service (TIPS), Faster Pay in the UK, and P27 for the Nordics.

Evolving customer needs require newer tech solutions – what are the accompanying challenges

While there is much opportunity in taking a globalised approach, some factors still hinder instant cross-border payments.

Expensive; not always cost-effective
Cross-border transactions involve multiple banks, intermediaries, and payment infrastructures. Each party involved in the process charges their own fees, all of which add up, leading to high costs for the customer. As a result, businesses may struggle to make instant cross-border payments cost-efficiently.

Long-drawn, complicated processes
Since multiple parties are involved in cross-border payments, it leads to much complexity and many moving parts. This increases payment processing times, leading to delays which impact businesses.
A lack of visibility into real-time data, such as payment status, FX rates, etc. can make it difficult to track payment status, or get a clear picture of the total costs or when the payment is expected. This can lead to inefficiencies and add friction into the process.

Multiple countries, elaborate compliance rules
Cross-border payments need to undergo stringent compliance checks, which while necessary, also increase the processing time and lead to delays. Also, navigating compliance in multiple countries is tricky. With different processes and regulations in different countries, a lack of consistency adds a lot of friction to the process.

Data security issues, fraud security
With cyber-attacks and fraud events becoming more sophisticated, payment data is constantly under threat. Securing data from theft requires state-of-the-art technologies. Legacy technology and outdated methods can lead to vulnerabilities. Plus, changing regulation can also cause businesses to struggle to keep up, thus creating room for errors, potential breaches, and legal penalties.

What Can We Expect in the Future

The ability to make and receive instant cross-border payments in any currency can usher in tremendous opportunities for all parties – from consumers to enterprises to governments.
With rising digitisation and increasing adoption of digital payments, the future will see greater collaboration and interoperability in cross-border payments, with a greater focus on customer experience.

ISO 20022 will enhance transaction with richer data exchange
With the full adoption of ISO 20022 in 2023, banks and financial institutions will be able to share and access more consistent and structured data from transactions, including cross-border ones. More standardisation will increase visibility and transparency into payments, and make cross-border payments more secure for all users. What will be required is universal adoption of ISO 20022 as the common language across different markets.
Central Bank Digital Currencies (CBDCs), like the digital euro in the EU, could be another disruptor that can bring about faster and smoother cross-border payments. CBDCs are digital versions of fiat currencies and can be used in the same way as cash. They are more secure, more efficient, and cost-effective, and can be closely monitored by banks. However, success will vary based each country’s financial goals and how advanced they are in their CBDC roadmaps.

Striking Higher Interoperability
For instant cross-border payments to become truly efficient, there is a need for greater interoperability between different payments systems. The key is to work on ways to seamlessly integrate local payment methods and processes into the global initiatives.
Different market conditions, tech maturity, and local regulations have led to diverse payment systems and approaches. Striking interoperability between these will be one of the main challenges to creating a global payment infrastructure.

A Greater Focus on Customer Experience
Innovation in cross-border payments will focus on the needs of customers and what makes sense for them. Enhancing customer experience in cross-border payments is imperative. Businesses must invest in newer, more innovative ways to make cross-border payments faster and more seamless. Strong security measures to counter the rise in fraud and comply with local laws will also be of strategic importance.

Increased Push to Adopt Advanced Tech
Brands will look at ways to balance speed, security, and convenience and deliver a superior customer experience.
Legacy methods can seriously hinder all efforts to achieve faster cross-border payments. Without real-time monitoring tools, automation and Artificial Intelligence and Machine Learning capabilities, businesses will remain slow and inefficient and also become more vulnerable to fraud.
Modern payment tools utilize stringent fraud prevention measures, using AI and ML to constantly learn and update to detect and mitigate more sophisticated fraud. Plus, these algorithms help automate payment processes, thus reducing errors and delays and saving costs.

How Can Novalnet Help

We can help you modernize your payments to match the pulse of the market and consumers and maximize value.
As a global PSP with decades of experience, we help Europe’s leading brands to process their payments securely. With our technology, you can accept payments globally in 125+ currencies in 150+ automated country-specific payment methods. Plus, our AI-based risk management solutions and advanced analytics solutions help you design the best payment experiences for your customers, all in a fully secure PCI DSS-certified environment.
Get in touch with us today to know more.

Jose Augustine

Jose Augustine is the Chief Business Development Officer at Novalnet with extensive experience in European payment industry and a knowledge powerhouse.