Cross-border transactions are growing—and fast. In fact, the world could see cross-border transactions grow from $29 trillion in 2019 to around $39 trillion by 2022.1 Much of this surge can be attributed to broad trends like global trade improvements, borderless e-commerce, cross-border B2C payments and web-centered businesses.
In the face of this increased demand, global businesses are turning to their banks and fintech partners for solutions that make payments more instant, secure and transparent—all to help them remain competitive in the global marketplace. In turn, these payments providers have turned to the latest digital innovations to transform the cross-border payments experience for treasurers, their beneficiaries and their customers. Of the ongoing innovation, here are four key cross-border payments experiences accelerating into the digital age.
Businesses are unique, and they transact across a variety of countries and currencies. The treasury departments within these global organizations continually test digital solutions to optimize their cross-currency workflow without disrupting their existing operations. And that’s why application programming interfaces (APIs) have risen to the top.
As easy, plug-and-play solutions, APIs integrate seamlessly into existing treasury infrastructure and interfaces. As a result, treasurers can access real-time visibility into FX rates directly from existing systems and can more effectively manage currency exposure, mitigate risk across their global accounts and accelerate reconciliation due to having FX rates earlier in the process. Via API connectivity, corporate treasurers can also lock in FX rates for predetermined periods of time—enabling them to price their goods in the currency that works best for their client while still effectively managing funds on the backend.
Businesses now have greater access to diversified settlement mechanisms with global reach, and providers can offer payment options without the burden of complex, technical overhead. For instance, providers can partner with banks to leverage local clearing rails to complete cross-border payments, as opposed to using wire payments. As the industry continues moving forward, it is now looking beyond traditional clearing rail advancements and leveraging technologies like SWIFT GPI, virtual account management and API connectivity to enhance the beneficiary and sender experience.
For the beneficiary and sender, API connectivity helps provide greater visibility and transparency into the when and how of their payment status. For the sender, they can see FX rates upfront before sending a payment. When an issue arises during a payment, beneficiaries can track the payment and receive updates in real time. Once implemented, beneficiaries and senders can better manage their cash positions wherever they operate a bank account, which can help lead to greater predictability.
Many businesses have direct deposit accounts (DDA) in countries where their beneficiaries are located. This setup means businesses have money spread across different countries, accounts and currencies—all of which can lead to complex reporting, idle cash balances and unnecessary cross-currency risk exposure. This is where virtual account management solutions fit in.
Virtual accounts provide clients with the flexibility to manage cash flow across currencies through a centralized account structure. Therefore, businesses no longer need to maintain multiple local accounts in the same markets. In fact, with centralized account structures, businesses can obtain better payment sequencing and manage detailed reporting under one umbrella. Additionally, through this structure, companies can easily transfer and/or concentrate their balances held in one account in one currency to another account in another currency, or fund local payments using a centralized account. This enables businesses to maximize their liquidity, reduce their risk exposure and operate in the currencies that make most sense for their business.
There’s a growing demand for real-time payments in the cross-currency, cross-border payments space. Through globalized partnerships, providers can offer senders more ways to make FX payments in real time. Instead of a prolonged settlement period, clients can pay their out-of-country customers and vendors instantly, with little to no friction points.
In addition, thanks to distributed ledger technology, cross-border payments will soon become settled faster, cheaper and more securely. Known as blockchain, this shared, digitized, immutable ledger technology will help make cross-border wire transfers or sanction screenings more efficient by decreasing the number of days they take to clear. It will also make information sharing easier for international trade and transactions, which would increase payment visibility across the entire payments continuum.
The push to make end-to-end money movement more instant, secure and transparent across borders has the payment industry continuously looking to improve the user experience. Embedding digital innovation into traditional clearing rails to improve existing technology is one example; creating new solutions like real-time payments and wallets is another. This is driving current digital trends and will continue to set the agenda into the future—all of which will produce new technology and payment methods and the emergence of a variety of non-bank payment providers.
In this sea of transformation, treasurers shouldn’t have to innovate alone; and navigating through seemingly disparate solutions and integrations may seem daunting. Collaborating with a trusted partner who can provide a suite of connectivity will be key to embedding cross-currency solutions into existing workflows to ensure businesses keep up with rapid global expansion and increasing client demands.
As an industry leader who not only understands the challenges of making this journey but also actively invests in innovation and the capabilities to help global businesses win in an increasingly interconnected world, J.P. Morgan is committed to meeting your cross-currency needs and supporting you every step of the way. Connect with us, and we’ll help you find the right solution for your business.
To learn more, please contact your J.P. Morgan Treasury Services representative.
“Payments Across Borders: Three Observations on Challenges and Developments,” The Federal Reserve.
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