Advances in technology, along with increased internet access around the world, has meant that global banking networks are evolving; boosting cross border trade and investment. Obstacles and challenges are being removed as these networks become more digitalised, introducing businesses and consumers to new products and services from anywhere in the world.

International payments are no longer just for corporates, but an essential consideration for retailers, SMEs and even individuals. Naturally, this sees a change from what used to be a majority of high value, bulk transactions, to a larger number of low value payments being processed. It's this change that financial institutions need to work on to keep up.

Whilst the world of global payments is clearly moving at a fast pace, especially within the past decade, there is a growing need to further drive innovation that supports financial inclusion for all.

Difficulties facing the global payments ecosystem

Recent years have seen a number of challenges to global trade, from geo-political tensions, to Brexit, sanctions, and trade wars, all of which have had an inevitable impact on businesses operating worldwide. When we add in the effects of COVID-19, plans for expansion beyond domestic territories are hampered.
It's not just companies that have suffered; banks are struggling too, with increased regulations, higher costs and suffering correspondent relationships, all whilst profit margins continue to shrink.

Cross border payments are being made a priority the world over, with the G20 launching a set of initiatives to make these transactions faster, cheaper and more transparent. Financial inclusion is also beginning to take precedence, with hopes to support economic growth for citizens and economies worldwide.

One way to achieve real-time payment processing goals has been through localised initiatives like SEPA and Faster Payments, which have been made possible as a result of structural and regulatory transformation. However, a number of infrastructure and fragmentation issues means the industry is a long way from being able to enjoy instant global payment clearing.

Traditional banks need to adapt their offering

Banks no longer have full monopoly over the cross border payments industry. Previously unchallenged approaches are now being tested by new players capable of offering innovative alternative solutions.

This is nothing new, and banks have long been aware of the industry disruption brought about by Payments businesses and FinTechs, as well as the subsequent need to invest in making improvements to legacy infrastructure to protect their position in the market. However, for banks facing the challenges we've highlighted, the cost of the task often puts banks off from moving forwards with their plans.

We should also consider that global payment revenues are expected to drop by 10%, from 2.07 trillion US dollars in 2019 to an estimated 1.90 trillion, thanks in part to the pandemic. With governments looking for ways to expedite economic recovery and kickstart consumer spending, now is the perfect time for banks to be collaborating with FinTechs to optimise underlying infrastructure, develop global payments, and deliver faster and lower cost solutions.