The Pain Points of Cross-Border Payments: Four Key Problems Next-Gen Providers Need to Solve
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From small and medium-sized enterprises (SMEs) paying international suppliers, to workers sending remittances to families back home, to powering the gig economy and beyond, cross-border payments make the world go round.
The total value of global cross-border payments is set to hit $290 billion by 2030, and a large chunk of that volume is up for grabs because the options available today…aren’t great. While the modernization and digitization of cross-border payments is already well under way, they still suffer from four major issues that both consumer and business users universally cite:
Slow movement of funds from point A to point B
High fraud risk and poor perceived security
High costs and a lack of fee transparency
Unnecessary complexity and difficulty of use
In this article, we’ll take a deeper dive into each of those pain points and analyze where the major issues are, how users are impacted, and what the way forward might look like.
Speed: Today’s Cross-Border Payments are Too Slow
The flow of digital payments is complex by nature, but cross-border payments are worse. A traditional cross-border payment can easily touch four different banks between the sender and recipient, and that journey and the potential hangups at each stop contribute to one of the major pain points for users: speed. A cross-border payment moving through banks can take days to arrive at its end point, especially if there’s a weekend involved.
And users notice.
52% of consumers say cross-border payments are slower than domestic payments, and business users agree, with 32% of SMEs saying it takes too long for funds to be delivered.
Worse still are failed payments that need to be reissued. A third of consumer respondents have had a cross-border payment fail and half of them cited immediate negative impacts, including to their mental well-being. For businesses, a failed cross-border transaction often means a delay in paying an international supplier. That has potentially significant impacts on relationships and important supply chain connections. Globally, 37% of SMEs have run into failed or late payments, including 40% in the United States.
Security: Cross-Border Payments Have a Reputation for Being Risky
34% of consumer respondents say they’ve avoided using cross-border payments because of concerns about fraud. 42% feel that cross-border payments are a higher fraud risk than domestic payments, even though those same respondents were more likely to have personally been victims of domestic payments fraud.
On the business side, fraud is the most cited pain point for SMEs, with 41% saying it’s a concern. While that number is down slightly from a few years ago, the fact that fraud beats out costs is a clear indicator of the reputation cross-border payments carry.
The concerns aren’t without warrant. It’s hard to pin down the exact value of global losses due to cross-border payment fraud, but we know it’s enormous. According to the European Central Bank, cross-border transactions accounted for 63% of card fraud in the Single Euro Payments Area, despite making up just 11% of total card payments. That’s a huge imbalance. And instant options aren’t necessarily any better at the moment, with authorized push payment (APP) fraud out of control in places like the United Kingdom.
Costs: Cross-Border Payments are (Way) Too Expensive
The costs of cross-border payments are a problem for all user types, but they’re especially concerning for businesses. 40% of SMEs say poor FX rates or high fees are a top pain point. In some extreme cases, sending a cross-border payment can cost SMEs ten times more in fees than they’d pay to send the same amount domestically.
Globally, cross-border payment fees average 6.25%, and a staggering 12.10% through banks. That’s way, way too high – especially with extremely low-cost domestic options coming online, like FedNow and other real-time payments systems already in operation around the globe.
But the fees themselves are only the first half of the problem. The other side is that users often don’t understand what they’re paying for. 57% of consumers and 35% of SMBs cite lack of fee transparency or hidden fees as a problem.
Complexity: Users Find Cross-Border Payments More Difficult Than Domestic Payments
Cross-border payments are seen by many users as being too complex – an especially big problem in a world where new tech is increasingly offering consumers simpler, more convenient payment options. Overall, 46% of consumers say it’s harder to make a cross-border payment than a domestic payment.
The Way Forward
It’s clear that cross-border payment providers need to find ways to speed up transactions, lower costs, simplify and secure systems, and increase overall transparency. Legacy systems like wire transfers are not up to the task, so new payments technologies will have to be tapped to bring cross-border payments into the 21st century.
Note: All statistics without specific in-text citations are from the Mastercard Borderless Payments Report 2023.
Originally published on Digital Payments Intelligence at DPIntel.com
Download the free 40-page report Payments IQ: Cross-Border Payments in 2025 and Beyond.