Global B2B international payments are expected to total $150trillion annually, with the total cross border segment estimated to hit $156trillion by 2022. But cross-border payments continue to be associated with slow and costly processes that impact both consumers and businesses.
Samarth Bansal is the APAC business development lead at global technology company Wise, building partnerships with financial institutions to make money movement across borders faster, cheaper and more convenient.
Wise has created a global cross-border payments network to move money across borders cheaper, faster and more conveniently for 10 million individuals and businesses.
Here Bansal discusses why a lack of transparency is closely connected with the challenges associated with cross-border payments. And why he believes the key to success is collaborations built with the customer at the centre.
Customer expectations are bigger than ever: the best-in-class experience that customers receive today is tomorrow’s baseline expectation. When one company raises the bar for customers, it primes consumers to expect something more across all aspects of their lives.
Look at the advent of BBM (BlackBerry Messenger) and the way it overhauled customers’ expectations on how messaging should work — instant, convenient and on-the-go. That innovation which took root in personal communication led to a knock on effect on other communication verticals, such as Slack for team collaboration or Facebook Chatbots for customer engagement.
These expectations have also spread to other industries, whether it’s aviation, entertainment or health. In the same vein, customers are also expecting these same seamless experiences from their financial services providers.
While there has been significant progress made with domestic banking — think mobile banking and the ability to send funds to a phone number — the story is very different as soon as there is a cross-border element. Lack of transparency, slow speeds and hidden costs are historic pain points of cross-border payments that continue to plague consumers and businesses of all sizes even today.
Spotlight on Ksisters
Take for example Ksisters, a Singapore-based fashion and lifestyle e-commerce brand that uses Wise Business for its international payment needs. It works with international suppliers to bring South Korean products to consumers all around the world. The timing, speed and costs of payments are crucial to business operations, but traditional methods it had been using were slow, opaque and inconsistent — taking between three to five working days and costing up to 20 per cent more in fees previously.
Ksisters’ experience is not uncommon: even though sending an email around the world takes seconds and is virtually free, moving money across borders is often still slow, non-transparent and expensive. This problem affects everyone who has ever needed to manage multiple currencies, but these inefficiencies are often hardest on those who can least afford it — entrepreneurs, freelancers and resource-lean smaller players who don’t have the option to wait for or negotiate better rates.
While there are many issues in the cross-border payments space, let us focus on perhaps the simplest to understand and change, but the one that has seen the least improvement — transparency.
What is transparency and the size of the problem in cross-border payments
Transparency — or lack thereof — is closely intertwined with the friction associated with cross-border payments, including high fees and a frustrating user experience.
If you were to use the remittance service provided by your bank today, you would be hard pressed to find the true cost of the service. It almost feels like rocket science, one that requires you to sit down and conduct a complex calculation. A survey by Wise (formerly TransferWise) found three in four Singaporeans are unaware of hidden costs of international payments, with a whopping 88 per cent underestimating how much fees are charged.
A large part of this confusion is the continued murkiness around remittance fee structures. Remittance prices are made up of several variables, including the service fee and the foreign exchange rate. However, most banks and money transfer providers don’t exchange your money using the real mid-market rate as seen on markups up to 5.6 per cent during the height of pandemic restrictions in 2020. These are just a few examples where lack of transparency could result in hefty monetary loss for the customers — in fact, hidden fees were estimated to cost Singaporeans an alarming S$2billion in 2019 alone.
To prevent this adverse behaviour, international communities and regulators around the world are making transparency a mandate. The Remittance Community Task Force, composed of international organisations and inter-governmental bodies, published its Blueprint for Action with concrete policy recommendations for public authorities and remittance providers which includes transparency pricing as a key recommendation. In Europe, new rules kicked in last year requiring online money transfers and card-based transactions to show the total costs including upfront fees and the exchange rate margins. In Australia and Singapore, regulatory bodies have recognised and called for more transparency in financial services.
Transparency will become the global standard moving forward, and this couldn’t come sooner. Every year, trillions of dollars are transacted across borders by businesses and individuals around the world. Global cross-border payment flows are expected to reach $156trillion by 2022, with business-to-business (B2B) transactions making up the largest share, followed by consumer transactions. These figures indicate the sheer size of the cross-border payments industry and its impact on individuals and businesses — and yet, the average cost of remittances is at 6.38 per cent, more than double the UN’s 2030 Sustainable Development Goals to reduce this to less than three per cent.
What more can be done?
Here-in lies the opportunity for customer-first organisations to lead the way by setting the standards in their core markets. Customers want brands they can trust and research shows that transparency fosters trust and loyalty. Studies have found that the key to creating trust is to simply do what customers expect of you. In this context, that means making their banking experience seamless, quick, and most importantly, transparent, by charging them exactly what you said you will be charging with no hidden fees.
So, why aren’t more players doing this? One of the reasons why only a few incumbents adopt transparency is because it exposes the inefficiencies that exist in the legacy infrastructure that is used to move money around the world. This infrastructure is not built to service the 21st century customer — unknown intermediary fees, high bounce-back rates and manually intensive processes are just some factors that make the cost of cross-border remittance high for banks. The poor customer experience only compounds this by impacting revenue margins. Saddled with these costs, incumbents have little incentive to adopt transparency, instead maintaining the status quo of hiding costs in the FX spread.
However, times are changing, and fast. With transparency being a global mandate and customers expecting it as the norm, banks around the world are waking up to this reality. We’re seeing a growing trend of banks looking towards technology like APIs to integrate transparency-first features into their existing infrastructure. In doing so, incumbents are able to deploy more innovative services and better experiences for the end-user without having to build the entire functionality from the ground up.
Collaboration with Shinhan Bank
One recent example is the partnership between Shinhan Bank, one of South Korea’s oldest and largest national banks, and Wise, a global tech company building the best way to move money around the world. With a common vision to modernise old world banking, Shinhan Bank integrated Wise Platform, Wise’s infrastructural solution for banks, to become the first South Korean bank to provide transparent, low cost international money transfers at the mid-market exchange rate to its 11 million customers.
By adopting transparency, Shinhan Bank was able to remove processing inefficiencies and have end-to-end visibility on funds, allowing it to reduce the overall costs to process international transfers and pass those savings onto the customer — thereby cementing its position as a price leader.
Such partnerships are a win-win-win: A win for Shinhan Bank’s customers by catering to their needs; a win for Shinhan Bank by becoming a market leader and reducing operational costs; a win for Wise in getting one step closer to our mission of money without borders, making cross-border payments instant, convenient, transparent and eventually free for everyone.
Today, transparency isn’t just a nice-to-have technical innovation — it’s a critical competitive advantage. Through deeper collaboration between financial institutions and fintechs, the industry can work together to push for heightened transparency by removing inefficiencies in cross-border payments. As a customer who gravitates towards the next best experience, I simply can’t wait.