Introduction

The global cross-border payments market is undergoing a seismic transformation. Valued at USD $190.1 trillion in 2023, it is projected to grow to $290.2 trillion by 2030, driven by the expansion of consumer-initiated transactions and the increasing globalization of trade and commerce. However, despite its scale, the market remains plagued by inefficiencies, high costs, and fragmented infrastructures. Retail cross-border payments, for instance, can cost up to 6% of the transaction value, with remittances being the most expensive segment.

This presents both a challenge and an opportunity for financial institutions and payment service providers. The solution lies in instant payments interoperability—a seamless, efficient, and cost-effective framework that connects payment systems across borders. By leveraging advancements in technology and innovative payment solutions, the industry can unlock the full potential of this burgeoning market.

The Challenges of Traditional Cross-Border Payments

The cross-border payments market is divided into two distinct categories: wholesale and retail. Wholesale payments, typically high-value transactions between financial institutions, corporations, or governments, account for the majority of the market. Retail payments, on the other hand, involve smaller transactions between consumers and businesses. While wholesale payments benefit from relatively low transaction costs (averaging 0.1%), retail payments face significantly higher fees, ranging from 1.5% to 6%, according to the IMF.

The inefficiencies of traditional cross-border payment systems are well-documented. The reliance on correspondent banking—a model that often involves multiple intermediary banks—results in slow processing times, high costs, and a lack of transparency. Additionally, issues such as exchange rate fluctuations, security concerns, and limited accessibility in underdeveloped regions further complicate the process.

These inefficiencies have created a pressing need for innovation. The decline in the number of active correspondent banks—down by 25% between 2011 and 2020—has only exacerbated the problem, reducing competition and driving up costs.

The Role of Technology in Driving Efficiency

The good news is that technology is paving the way for a more efficient and interconnected payments ecosystem. Key advancements include:

1. ISO 20022 Standards: The adoption of ISO 20022—a global standard for payment messaging—facilitates communication between payment systems and adherence to regional payment schemas, improving interoperability and reducing errors.
2. Fintech Innovations: Fintech companies are developing solutions that simplify multi-currency transactions, enhance transparency, and accelerate processing times. These innovations are particularly impactful in retail payments, where costs and inefficiencies are most pronounced.
3. Blockchain Technology: Blockchain networks enable real-time cross-border payments, reducing reliance on correspondent banking and lowering transaction costs. By providing a decentralized and transparent ledger, blockchain also enhances security and trust.
4. Cross-Border CBDC: Cross-border Central Bank Digital Currency (CBDC) implementations are evolving rapidly as central banks explore how digital currencies can enhance international payments, providing alternate and safer railways to crypto-currency networks.

These technological advancements are driving significant growth in the cross-border payments market, particularly in the B2B segment, which has benefited from increased global trade, international business expansion, and greater digital adoption. On the consumer side, the rise of e-commerce and efforts to promote financial inclusion are also contributing to market growth.

The Path to Instant Payment Interoperability

The future of cross-border payments lies in instant payments interoperability—a framework that enables seamless connectivity between domestic and international payment systems. This approach addresses the core challenges of traditional systems by:

• Reducing Costs: By minimizing intermediaries and streamlining processes, instant interoperability can significantly lower transaction fees.
• Enhancing Speed: Instant Payment processing ensures faster transactions, improving the user experience for both businesses and consumers.
• Increasing Transparency: End-to-end visibility into payment status and costs builds trust and reduces uncertainty.

Initiatives like the G20 Roadmap for Enhancing Cross-Border Payments are already setting ambitious targets, including reducing average retail payment costs to below 1% by 2027 and remittance costs to below 3% by 2030. Achieving these goals will require collaboration between public and private sectors, as well as the adoption of interoperable payment infrastructures.

Montran’s Role in Enabling the Future of Payments

Montran is at the forefront of this Payments Transformation. With over 45 years of experience, we provide industry-leading payment and cash management solutions to commercial banks, non-bank financial institutions (NBFIs), and corporate clients. Our expertise extends to critical payment and securities market infrastructure solutions for central banks and clearing institutions in over 90 countries worldwide.

Our solutions are designed to address the key challenges of cross-border payments:

• Streamlining Processes: By leveraging advanced technologies, we help financial institutions reduce operational complexities and lower transaction costs.
• Ensuring Compliance: Our platforms integrate robust anti-money laundering (AML) and combating the financing of terrorism (CFT) controls, ensuring compliance while minimizing costs.
• Enabling Interoperability: We provide the infrastructure needed to connect domestic and international payment systems, delivering seamless, real-time transactions.
• Reducing Fraud: By implementing Verification of Payee (VoP) for cross-border instant payments (aka confirmation of payee), reducing errors and providing confidence on funds destination, as well as by implementing KYC-based transaction and amount limits.

The Road Ahead

The cross-border payments market is poised for unprecedented growth, but realizing its full potential will require a concerted effort to overcome existing inefficiencies. Instant Payments interoperability is not just a fast and modern solution to addressing the need to evolve cross-border payments—it is the very foundation for a more inclusive, efficient, and transparent global payments ecosystem.

As the industry evolves, Montran remains committed to empowering financial institutions with the tools and technologies needed to thrive in this dynamic landscape.

Contact us to learn more here.