The rapid globalization of organizations & brands and deeper penetration of internet access across the world have increased the need for fast, efficient, cost-effective cross-border payment systems.
What Are Cross-Border Payment Systems?
Cross-border payment systems facilitate transactions between individuals, banking institutions, and businesses of one country to another. These transactions can be retail, wholesale, or recurring in nature. They are carried out through financial institutions and correspondent banking networks.
Cross-border payment systems form an integral part of the day-to-day functioning of e-commerce businesses. These systems provide businesses with the opportunity to expand to international markets by equipping them with an efficient system for carrying out international transactions.
For your better understanding, listed below are a few examples of such payment systems that you definitely would’ve used but didn’t know what they were.
Popular Cross-Border Payment Systems
- Credit card payments
- Alternative payment methods
- International wire transfers
- International ACHs
- Prepaid debit card
Cross-border payment systems used to be less effective before the advent of Fintech. They used to be complex, slower, and more complicated. Literally, it used to take more than a few days to transact with a cross-border business.
Fintech companies worked on making the transactions faster and simpler. They came up with applications like Paypal and Venmo that provided a safe, secure, and compliant way of making payments quickly. Now a lot of small e-commerce businesses rely on these systems for transactions.
Now that we have a clear understanding of the concept of cross-border payment systems, let’s explore the advantages of using such payment systems.
Advantages Of Using Cross-Border Payment Systems
- Cost-effective: Cross-border payments used to be expensive and complex especially if more than two parties were involved. However, with the use of modern fintech technologies they’ve become accessible to the larger public. These technologies are significantly cheaper than the traditional payments system and in some cases can be effectively free.
- Efficient: Cross-border payments are now faster in addition to being cheaper all thanks to the advancements in financial technologies.
- Access to a wider audience: Cross-border payment systems equip businesses to reach out to a larger target audience by opening up the avenue of international payments. This bolsters the growth of the business as they can reach audiences across countries without spending significant money on it.
The onslaught of the pandemic increased people’s reliance on technology. In 2021 the number of smartphone users increased to 3.8 billion, which accounts for almost half the population of the world. With increased accessibility and the advent of new technology, cross-border payment systems have evolved from being limited to transactions between businesses to emerging as effective solutions for the changing trends in consumer behavior that we are going to explore below.
Cross-Border Payment Systems – A Creative Solution For Changing Consumer Behavior
- International Trading: International trading is not a new concept. For years, individuals and organizations have invested in stocks, derivatives, commodities, and bonds in the international market. However, these transactions were due to a lack of infrastructure and a quick secure payment system. The entry of fintech in cross-border payment systems has simplified the process, opening the avenue to a wider consumer base. The lack of complexity makes it easier to invest in international markets.
- Keeping Up with Consumer Demands: Cross-border payment systems like Paypal/Venmo are uniform and cheaper in comparison to availing individual banking services. Not only are these systems effective alternatives to the traditional international payment systems, but they also provide additional services at lower costs in order to lure in customers. From discounting movie tickets to rewards for carrying out transactions through their mediums, they’ve gamified the system in a way where the usage of their app is the most convenient form of payment for a consumer.
- Aiding the Growth of Small and Medium Enterprises: SME’s don’t have enough capital to create infrastructure to carry out complex international transactions. APMs (alternative payment systems) provide them with the ease of doing business that helps them be affordable and flexible. With the best account software for small businesses and automation of payment systems, such businesses find it easier to develop their ideas and invest in them.
- Complying with International Standards: Since each country has its regulations and laws regarding cross-border payments, it can be difficult and complex to carry out international transactions. However, uniform payment systems like Paypal are already compliant with the laws of the country where the usage of their application is allowed, eliminating the complexity of transactions for the businesses.
Fintech is increasingly disrupting traditional markets through automation, digitalization, and informatization, which is all for the good because they are playing an important role in revolutionalizing the concept of money and the impact of going cashless.
Cross-border payment systems have evolved into applications that are accessible at the tip of our fingers. This not only increases consumer satisfaction but also helps circulate more money in the economy as it becomes easier to spend more. And for the developing countries, it’s cherry on the cake as they get more influx of international money in their economy.
These systems purport transparency, security, and efficiency along with convenience. The decrease in the cash system assists in eliminating the use of black money and automation makes it easier to trace illegal transactions.
These payment systems are an effective tool to bolster economic growth and revolutionize the ways this world transacts.
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