Cross-border payments refers to payment transactions where the sender and the recipient are based in different countries stated by Bahaa Abdul Hussein. Thanks to technology, it has become easy to carry out cross-border payments with many different options available. In recent times, fintech has been booming and has become a disruptive factor. The fintech solution to cross-border payments is a trend to watch out for in 2024.

How does it work? 

Fintech providers tap into the interbank network in order to make cross-border payments work efficiently. When a payment needs to be sent, the sender’s bank informs the recipient’s bank in another country to make the payment. The amount is then credited to the recipient’s account. Since all banks do not have direct relationship with each other, they make because of correspondent banks to effect the transfer. This poses many challenges to cross-border payments and fintech can help overcome the challenges.

Challenges involved in cross-border payments 

Here are some of the challenges that crop up during cross-border payments:

  • When many players (correspondent banks) are involved, it increases the transaction costs. Each of the intermediaries charge a fee, increasing the overall costs. There are also other costs involved like currency conversion. These costs can make the overall process expensive.
  • The time involved in cross-border payment is extended based on how many intermediaries are involved. It may even take many days for the payment to be completed.
  • A serious concern is the lack of transparency. This is due to issues with traditional banking system that can create a situation of uncertainty.
  • There are also regulatory challenges involved. Regulatory norms of both the countries need to be address while carrying out the money transfer.

Fintech solution for cross-border payments 

Fintech has robust solutions that help to address the challenges involved in cross-border payments.

  • Fintech players have their own digital infrastructure. Using this infrastructure can help in significantly reducing costs. Innovative business models that fintech players adopt can further reduce costs.
  • Fintech uses cutting-edge technology like blockchain to improve the speed at which transactions happen. It can ensure transfers happen almost instantly.
  • The use of blockchain removes uncertainties and ensures complete transparency.
  • Fintech solutions work with regulators and ensure all international norms are complied.

Apart from addressing inherent challenges, fintech also opens up new opportunities. The use of mobile payments and digital wallets allows for more effective cross-border payments. 2024 will see fintech solutions play a key role in ensuring the growth of cross-border payments.

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