Cross-border payments are a driver of economic growth. Why?

Recognizing the importance of cross-border payments in 2020, the G20 approved a roadmap designed to improve coordination between the public and private sectors, and establish shared objectives to address existing frictions in the cross border paymentsG20 economies have made progress on the roadmap, but challenges remain related to regulatory frictions and fragmentation of settlement infrastructure. To address these and other challenges, continued collaboration between the public and private sectors is essential.

 

What are cross-border payments and why are they important?

 

Simply put, cross-border payments involve the transfer of value between a sender and a recipient in different jurisdictions. They support personal and corporate tourism, trade and business across the world, connecting consumers and merchants on a global scale. The three key factors driving cross-border payments are:

 

 

1. International travel

 

After years of lockdown during the pandemic COVID-19, global travel has continued to increase. The UN Tourism reports that international tourism reached 96% of pre-pandemic levels in the first seven months of 2024. And Visa data shows that travelers around the world are traveling for longer periods, compared to the pre-pandemic period.

 

 

2. Global e-commerce

 

While e-commerce was growing at a rapid pace before 2019, the global pandemic fundamentally changed the way we interact with the world. We have become accustomed to doing our shopping online, and global e-commerce has grown in recent years. According to the United States International Trade AdministrationGlobal B2B e-commerce sales are expected to reach $36 trillion by 2026, up from just under $10 trillion in 2017.

 

 

3. Global remittances

Remittances, money sent by people working abroad to their home countries, are a vital source of income for hundreds of millions of families around the world. In many developing countries, remittances make up a significant share of GDP and are crucial for economic stability. In 2021, remittances reached a record $773.000 billion, of which $605.000 billion went to low- and middle-income countries (LMICs). Although global remittances slowed in 2023, they are expected to have grown more rapidly in 2024, according to the World Bank. World Bank.

 

 

Innovation in payments and cross-border payments

 

As demand for cross-border payments increases, the private sector is developing innovative solutions to keep payments secure and consistent. Take remittances as an example. Imagine trying to receive cash in a remote location, which often involves going to an ATM or agent. To help address this, digitally transferred remittances, which can move money across borders from a smartphone or computer, help make remittances faster and safer. Data from the World Bank show that the cost of digital remittances is systematically lower than that of non-digital remittances.

 

 

Behind the rise of digital remittances and other cross-border use cases are innovative money movement capabilities. For example, visa direct Visa enables peer-to-peer (P2P) payments and account-to-account (A2A) transfers to individuals or small businesses around the world. It has the potential to reach more than 11.000 billion cards, bank accounts and digital wallets in more than 195 countries and territories. To facilitate cross-border transactions between companies, Visa has developed B2B Connect, which is already available in 100 countries and territories and offers same-day payment services.

 

We must continue working

 

Despite these private sector-driven solutions, frictions remain in the cross-border payments process. The Financial Stability Board (FSB) G20 Roadmap explicitly recognises the crucial role of the private sector in achieving the goals of more efficient and inclusive cross-border payments. But innovation is only part of the story. The other piece of the puzzle is reducing regulatory frictions. To put this into perspective, the impact of regulatory divergence on the financial sector is significant, totalling some $780.000 billion annually. Regulation is vitally important and helps address issues such as anti-money laundering and terrorist financing, however, countries around the world implement policies differently, which can increase costs for businesses, especially small ones.

 

What can governments do to help?

 

Data is at the heart of cross-border payments. Governments should facilitate, rather than restrict, the free flow of data. In its most recent report, the Financial Stability Board acknowledges that some friction is inevitable, but that fragmented data frameworks remain a drag on the efficiency of cross-border payments. This means governments should avoid regulatory requirements that force data to be stored or used in a single country and ensure that policies do not discriminate between domestic and foreign providers. But it also means ensuring greater regulatory cooperation between countries, including through greater interoperability.

 

In the case of cross-border payments, it would be essential ensure that transactions comply with the requirements of the different jurisdictions, including those relating to data privacy, consumer protection and dispute resolution. Regulatory interoperability relies on international cooperation through bilateral and multilateral agreements, in order to facilitate transactions.

 

Finally, governments should strive to rationalize and harmonize licensing processes to facilitate the movement of money. Improving the consistency of licensing requirements would help private sector money transfer service providers – both established and new players – to introduce innovations across jurisdictions in a faster and more inclusive manner.

 

What's left to do?

 

While there is still work to be done, progress is being made towards more efficient cross-border payments. Innovation driven by the private sector is helping. But innovation alone will not solve all the problems. To do so, governments must find ways to standardise and increase interoperability across jurisdictions, to reduce the regulatory burden. This will ensure that cross-border payments remain a driver of growth for the global economy.

 

Robert thomson
Global Head of Government Engagement, Visa