Global economies are becoming increasingly connected. More significantly, the cross-border payments industry has undergone an accelerated revolution, thanks to the Covid-19 pandemic that transformed transacting patterns.
Digital payments, in particular, are supercharging the movement of money across borders. In 2022, the cross-border payment industry recorded US$156 trillion, with a YOY increase of US$7 and US$8 trillion.
The Boston Consulting Group, in a report, expects this value to hit US$250 trillion by 2027.
Businesses, especially smaller ones, are expanding outwards. A 2022 survey revealed that 75% of small businesses want to take their businesses internationally. However, the survey also found:
- 45% of respondents said cross-border payment fees were high and exchange rates poor
- 40% lamented a lack of transparency in the payment process
- 1/3 was frustrated by limited network reach
Partnerships between financial institutions, money service providers, fintechs and non-bank payment providers can help tackle these challenges.
Here are the benefits of forming partnerships:
Reduced costs
By leveraging the existing infrastructure of a partner company, a payment service provider can reduce the cost of developing new infrastructure or expanding into a new market. Partners can also share compliance responsibilities and expenses by taking on different roles according to their expertise.
Faster payments
Fintechs can use blockchain technology to facilitate instant, low-cost cross-border payments, while banks can provide regulatory oversight and risk management framework. Together, they form a partnership that can build consumer confidence and technological trust at the same time.
Better regulatory compliance
Partnerships help financial institutions comply with regulatory requirements, particularly anti-money laundering and counter-terrorist financing. Banks have a long regulatory compliance history and can help fintechs and non-bank payment providers navigate the complex regulatory landscape. Their familiarity with compliance and regulatory frameworks means better controls and more secure transactions.
More payment options
Non-bank payment providers can offer mobile payments and other digital payment options that are more accessible and convenient for customers. However, in some developing destinations, more traditional payout options like cash pickups and home deliveries are preferred, which also requires domestic partnerships.
Key partnerships in recent years
In 2021, TransferWise (now Wise) partnered with Visa to offer a multi-currency debit card that allows businesses and customers to hold and convert 55 currencies. The partnership enabled Wise to leverage Visa’s infrastructure and network of partners to expand its reach, while Visa gained a strong use case for its partnership programme.
PayPal acquired Xoom, a digital money transfer service, in 2015. The acquisition combines “PayPal’s global scale with Xoom’s capabilities”. As a result, Xoom helped accelerate PayPal’s entrance into the international remittance market while PayPal expanded Xoom’s services globally.
While not a new partnership, Western Union boosted its decade-long partnership with Mastercard in 2021 to enable customers to send money directly to a recipient’s debit card. This collaboration expanded the options for both Western Union and Mastercard users.
Singapore and Thailand linked their real-time retail payment systems, PayNow and PromptPay, in 2021. This collaboration allows senders from these 2 countries to complete transactions using a mobile phone. This partnership purportedly shortened transfer time from 1 to 2 working days to less than 5 minutes. In February 2023, Singapore announced a similar linkage with India.
Ripple, the leading provider of enterprise blockchain solutions for global payments, acquired 40% of Tranglo in 2021. This partnership assists Ripple in meeting growing demand in Asia Pacific and scales its On-Demand Liquidity (ODL) service. As a result, Tranglo has revitalised volume in key corridors, processing over USD1 billion in ODL transactions since the launch of ODL. Some of the advantages of this partnership are credit facilities and 2x network reach.
Partnerships can benefit all parties
While fintechs and banks are often seen as fierce competitors, almost half of the banks surveyed by the Economist Impact still opted to partner with fintechs.
That is unsurprising – vital operational functions often encumber banks, while fintechs cannot avoid banks for FX transfers and last-mile payouts.
However, each has unique advantages in the end-to-end payment process, and partnerships can bridge the gap and benefit all parties.
