Citi has launched its latest Global Perspectives & Solutions (Citi GPS) report titled: ‘FUTURE OF CROSS-BORDER PAYMENTS — Who Will Be Moving $250 Trillion in the Next Five Years?’ Its findings indicate that the expected increase of cross-border payments presents a major opportunity for players in this space.
“Our vision to be the preeminent banking partner for institutions with cross-border needs grows ever more relevant every day. With international networks fully engaged and payment activity continuing to grow across borders, clients need solutions that meet their global needs,” says Jane Fraser, Chief Executive Officer, Citi.
“Our industry is on a journey to reach the next phase of evolution within cross-border payments. We’re partnering closely with financial institutions, FinTechs, corporates, and industry experts — all of whom have contributed their perspectives in this paper — to continue building best-in-class experiences for clients and using technologies such as artificial intelligence and digital assets to make it happen,” she adds. Concluding, “I’m excited to see the immense opportunity that the next five years will bring as we work together to transform cross-border payments.”
Cross-border payments is a large and growing business with expected 2022-27 growth rates in the high-single digits for innovative players who invest in this business. Cross-border payment volumes historically track merchandise trade growth, which should be in-line with nominal GDP growth. The Bank of England estimates that the value of cross-border payments is set to increase from almost $150 trillion in 2017 to over $250 trillion by 2027, equating to a rise of over $100 trillion in just 10 years. This presents a major opportunity for players to be part of the cross-border payments space.
Market share shifts will hurt some incumbents. According to a proprietary survey conducted by Citi, almost 90% of financial institution clients believe at least 5% of market share will be lost, predominantly to FinTechs, over the next 5-10 years, with 40% noting share of wallet had already been lost.
“Competition is increasingly multi-faceted within the industry. Payments are moving away from traditional instruction methods, which are tied to batch and files, and moving towards API connectivity”, says Shahmir Khaliq, Global Head of Services, Citi. “This is leading to a heightened opportunity for FinTechs and other participants that will be enabled through traditional financial infrastructures. Regulation is also increasingly fostering innovation via initiatives such as open banking and there has been a consequent increase in players that can deliver technology nimbly and leverage digital client experiences as a differentiating factor,” he adds.
Challenges exist in responding to how the industry is evolving, with legacy technologies in place and competing regulatory obligations to adhere to, both of which consume significant investment budgets. That said, our research revealed that financial institutions are focused on innovation and exploring this across traditional fiat currency and digital asset spaces. Fiat industry innovation focuses on a true 24×7 “always on” model, and initiatives exist to bring domestic offerings that are instant and 24×7 across borders. Alternative payment methods such as digital wallets provide another fiat solution to deliver faster, and cheaper payments.
“The world of cross-border payments has never been more attractive from a business opportunity perspective,” says Amit Agarwal, Global Co-Head Payments & Receivables, Citi Treasury and Trade Solutions. ”The growth of e-commerce and new business models such as marketplaces, d2c or shared economies have eliminated borders for companies and consumers alike, with cross-border payments growing alongside them driving advancements across speed, cost efficiency and transparency,” he adds. “At Citi’s Treasury and Trade Solutions, we have made it our key strategic objective to enable our financial institution clients who work with us to win share of their clients’ payments wallets through differentiated client experience,” says Debopama Sen, Global Co-Head Payments & Receivables, Citi Treasury and Trade Solutions. “This entails constant focus on delivering best in class scalable solutions focusing on addressing our clients’ and ultimately their clients’ clients pain points and opportunities.”
“The digital asset space, albeit promising, is still in its early days,” says Ronit Ghose, Head of Future of Finance, Citi Global Insights. “However cross-border payments providers must stay vigilant and ensure readiness to embrace this space if and when it is ready to scale, with CBDCs, stablecoins, and tokenised deposits in focus,” he adds. Key emerging technologies also have the ability to disrupt cross-border payments. Artificial intelligence could provide revenue streams through behavior prediction to cross-sell or to mitigate risk through fraud detection capabilities. The Metaverse could provide a new channel of payment experiences. Embedded finance and open banking can leverage application programming interfaces (APIs) to provide payment experiences in new places and across banking providers.
There is a greater emphasis on client experience, and the key ingredients to delivering a best-in-class cross-border payments experience include shifting to a client-centric culture and having an end-to end mindset, aiming for consolidation and simplification to improve the overall payments experience for clients, harnessing the power of data, and leveraging it to simplify the client experience. According to our proprietary survey, over 50% of financial institutions see the need to revamp front ends to improve client experience to compete against disruption.
This report builds on qualitative contributions from key market infrastructure experts from within and outside of Citi, FinTechs, and a diversified set of banks spanning across four continents. It also outlines the key findings from a survey of more than 100 of Citi’s financial institution clients. Their priorities were resoundingly clear: Speed, cost-efficiency and transparency are critical to delivering best-in-class client experiences.