Cross-border payments

Business Times

2 days ago

THE global financial landscape is shifting, and banks are feeling the pressure to recalibrate. With evolving international policies and changing market dynamics brought on by tariff uncertainties, the need for greater agility and efficiency has never been greater.
At this critical juncture, transforming cross-border payments has become crucial. Banks have traditionally relied on correspondent banking to facilitate international transactions, but this method often falls short, especially when measured against the expectations of today's customers (retail and businesses alike).
Much like e-commerce platforms such as Shopee and Amazon, which enable businesses to expand seamlessly into new markets without setting up local stores, banks use correspondent relationships to facilitate cross-border payments without needing a physical presence in every country. But this once-efficient system now needs to evolve to meet the expectations of today's fast-paced, customer-centric economy.
Why it's time to fix international payments plumbing
The gap between customer expectations and realities of modern banking has widened. People have always expected payments to be fast, transparent, and cost-effective. And, with every new generation and wave of tech advancements, these expectations only grow – faster, more transparent, and cheaper than ever before.
At the same time, demand for international payments is surging, especially for low-value cross-border transactions. This has contributed to S$3.9 trillion in global outflows in Asia, underscoring the need for a more efficient and affordable payment system.
Yet, many of these transfers still take too long. On top of that, hidden fees and foreign exchange markups are often concealed from the consumer, leaving them unaware that they're paying more than they should.
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In fact, 56 per cent of Singaporeans who have made international payments think they know the full cost, but are unaware of the hidden fees. As a result, Singaporeans lost some S$590 million to these fees in 2023 alone.
These inefficiencies are recognised at a global level, with initiatives like the G20 roadmap for enhancing cross-border payments aiming to address these issues by setting quantitative targets to improve the speed, cost and transparency in international payments.
But banks and the traditional transfer system aren't deliberately creating this disconnect between what customers want and what they get – the international banking model is simply built on legacy methods.
The model's reliance on 'middlemen' or intermediaries slows transactions and increases costs. For instance, if a bank in Singapore doesn't have a direct correspondent relationship with a Brazilian counterpart, it will need to route the payment through intermediaries, perhaps through Japan, the UK, then the US, before finally reaching Brazil.
This journey adds extra fees and makes lower-value transfers too costly for consumers and small businesses. Settlement times also drag, as payments navigate complex networks and regulatory checkpoints, sometimes taking days to clear. As the number of handover points increase, so do the chances of a payment getting stuck or having limited visibility for compliance.
One way to fix this is through connecting local payment systems across borders. By enabling direct settlement between these rails, it removes the need for middlemen. For example, linking Singapore's PayNow with Thailand's PromptPay allows real-time transfers between the two countries, making payments faster and cheaper. But scaling these connections globally is complex. It takes time, significant investment, and coordination between regulators.
Making smarter cross-border payments
Fixing cross-border inefficiencies requires a broader approach that complements correspondent banking relationships.
Banks need technology-driven solutions that modernise transfers, making them as fast, intuitive, secure, and transparent as today's consumers expect. But this isn't an easy task – cross-border payments are one of the toughest financial services to get right.
Scaling a payments network globally is complicated, expensive, and time-consuming – something no bank can easily tackle alone. And, realistically, given that cross-border payments typically make up only a fraction of a bank's overall services, building a global payments infrastructure from scratch would mean massive investments that many banks neither want nor need.
After all, most banks are, first and foremost, built for their local markets. Their focus is on core services like loans, credit, and domestic payments. These systems, designed primarily for domestic transactions, still serve their purpose well, remaining efficient and cost-effective.
When it comes to international payments, however, efficiency and cost control are often blind spots. Many banks assume the delays and high costs are simply part of the system— or that solving these challenges means taking it on alone.
But the landscape is changing. Technology advancements now enable new approaches that improve cross-border payments without requiring banks to overhaul their entire infrastructure. For example, some systems tap into local payment rails across markets worldwide, linking these networks to create more efficient paths for global transactions. This makes the process faster and more cost-effective. Some of these solutions can also complement a bank's existing correspondent relationships, including the Swift network, helping to reduce friction while enhancing capabilities.
The tricky part is choosing the right solution.
Banks must assess providers based on how transparent they are with fees and services, the reach and quality of their currency network, and whether they give banks visibility over the payment process. Reliability and efficiency throughout the whole process are key.
Importantly, with Singapore being such a thriving fintech hub, local banks must also team up with tech firms to develop solutions that not only streamline operations but also stay in line with evolving regulations.
The road ahead: Simplicity, transparency, and efficiency
The transformation of correspondent banking is well underway, driven by the need for simplicity, transparency, and efficiency. The challenges faced by banks attempting to modernise cross-border payments highlight the necessity of ecosystem partnerships.
Singapore's financial institutions are well-positioned to lead this shift. By prioritising infrastructure modernisation and partnerships to leverage emerging payments innovation, they can set new benchmarks for cross-border transactions.
The path forward is clear: banks that embrace innovation and collaboration will not only compete, but lead in the evolving landscape of global finance.
The writer is general manager, Wise Platform, Asia Pacific