By Stephen Grainger, executive vice president, New Payment Platforms, Mastercard
The world of business and commerce has experienced tremendous change over the past five years — from the rise of the digital nomad, international online selling, increased cross-border trade, the sheer scale of migrant working, and the birth of the gig economy. With this change, payments have had to follow suit becoming “border agnostic” as businesses increasingly rely on country-to-country transactions.
Whether that’s the Indian worker in Dubai sending funds back to their family, the US eBay seller collecting digital payments from Europe, or the British freelancer in Mexico remunerated for a Canadian “gig”, the payments world has had to adapt.
Even through the pandemic, the global cross-border economy has continued operating efficiently behind the scenes. Despite physical borders closing, people have continued to move money without friction. Indeed, Mastercard’s cross-border platforms have seen growth over 150% since January 2020.
The scale of the cross-border ecosystem
While it’s too early to determine the patterns and behavior of the overall global cross-border payment market in response to COVID-19, it’s useful to look at the size of the ecosystem pre-pandemic. For example, McKinsey & Company valued total cross border payments in 2018 at $134 trillion.1 And in 2019, migrants collectively sent $550.5 billion back to home countries with nearly 64% ($350 billion) of total remittances sent to lower and middle-income countries. The World Bank projects remittance flows to increase to nearly $600 billion by 2021.2
Equally, the proliferation of digital technologies and tools plus cheap travel have created a totally connected world where workers are free to roam. A 2018 study found 4.8 million US citizens identified as digital nomads,3 and a Gallup poll revealed that 43% of employed Americans spend at least some time working outside the traditional office environment. The UK’s Trades Union Congress calculated that the number of remote workers rose by almost 250,000 between 2005 and 2015.4
Change is happening
So let’s assume that post-pandemic, we start to see fast-paced change:
- more workers realize they no longer require a fixed office location to be productive, so they seek better places to live overseas;
- more people turn to gigs, e.g. design, marketing, or business consultancy projects;
- migrant workers flock to “restarting” countries to make a living for their families;
- cross-border international trade develops at a faster rate as global e-commerce transcends the need for face-to-face transactions
This new normal would demand a pan-global supporting infrastructure to facilitate an improved, better way of doing business, which is acutely important when it comes to cross-border payments.
As the change becomes reality, it’s the financial institutions that will be expected to step up and provide efficient cross-border payment systems that their clients demand — especially in regions where the need for trusted, reliable cross-border payments is increasing rapidly.
Hotspots are already emerging such as the United Arab Emirates, which sent $44 billion (11% of total global remittance volume) in 2017.5 The UAE’s population comprises 15% native residents with the remaining 85% composed of foreign workers. Indian nationals account for 30% of UAE’s expatriate population; 38% of total remittance outflows from the UAE were sent to India in 2018.6 Other hotspots include Southeast Asia, the Middle East, and Africa.
It’s not just migrant workers. Globally, the gig economy now represents $2.7 trillion in annual disbursements with expected growth of 17.4% through 2023.7 The world’s largest platform businesses are heavily reliant on international digital contributors for their “supply”: 84% of Google AdSense publishers, 71% of Amazon sellers, and 91% of Upwork freelancers are based outside US.8
The small- and medium-sized enterprises, the backbone of many banks, are increasingly trading across borders. In fact, SMEs are growing at 2.3 times the rate of large corporations — especially driven by those in emerging markets. The overall B2B segment is expected to continue to grow at a rate of 4%.9
The opportunity for banks
Financial institutions and banks face hurdles when it comes to cross-border transfers such as complex in-country requirements, regulator differences, unpredictable processing times, and high and unpredictable fees. Yet banks will need to emerge from the crisis with a strategically stronger portfolio of client-led solutions to help their clients save money, time, and hassle.
The scale of the cross-border payments prize is considerable. Because of the sheer pace of innovation and the scale of global expertise required, collaboration with partners with global reach and proven ability in operating cross-border connectivity is advised — whether remittances, trade flows, or disbursements.
Collaboration is the future
A collaborative example of a resilient cross-border payment solution is Mastercard’s partnership with the Bank of Shanghai enabling Mastercard to introduce faster, more cost-effective, and transparent cross-border payments into China — now the largest export economy in the world.
Mastercard Cross-Border Services now provides customers with the ability to send international B2B payments into China with less friction and more certainty. This is non-trivial for China and the world. Mastercard Cross-Border Services connects 90% of the world’s population via cards, bank accounts, digital wallets, cards, and cash agents, all through a single and secure point of access.
Collaborations such as this provide banks with a stable, reliant interbank network to enable money to seamlessly move across borders with the certainty and predictability that the world desperately needs during and post-COVID-19. It also enables them to compete more effectively with other financial institutions and alternative payment service providers while helping to innovate and differentiate their services.
COVID-19 has amplified the importance of seamless cross-border transactions. But it was already on a fast-tracked journey. The ideal future is a world where making international payments is as seamless as domestic ones, and where financial institutions and businesses speak the same language; where digital payments touch every individual and the flow of money never stops. For this to happen, banks must collaborate with partners to develop full-service models that will enable the faster, more connected world that businesses and people are increasingly demanding.
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1. McKinsey & Company Global Payments Report 2019: Amid sustained growth, accelerating challenges demand bold actions, pg. 7
2. Visual Capitalist and World Bank
5. World Bank Migration & Development Brief, April 2019
7. ‘The Global Gig Economy: Capitalizing on a ~$500B Opportunity’, Mastercard Gig Economy Industry Outlook and Needs Assessment by Mastercard and Kaiser Associates. May 2019
8. www.similartech.com/technologies/google-adsense; https://www.webretailer.com/b/top-amazon-marketplace-sellers/; https://www.upwork.com/press/2019/10/03/freelancing-in-america-2019/
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