Is the Lion’s Share of the Cross-Border Payments Market Up for Grabs?
Citi's latest report on cross-border payments reveals that banks are losing market share to fintechs, which are more apt to address clients' main pain points: speed, cost efficiency, and transparency
Rivka Abramson| Dec 19, 2023
- As the value of cross-border payments continues to rise, traditional banks are losing ground in the space: 43% percent of the financial institutions stated they had lost at least 5% of their market share to fintechs or other disruptors.
- Fintechs' ability to develop independent regulatory and compliance processes, provide intuitive interfaces, and leverage advanced technologies to provide a superior client experience has changed the cross-border payments market.
- Papaya Global, the only fintech designed for cross-border workforce payments, relies on innovative technology to accelerate the process by 80%, offering a remarkable 95% same-day payments.
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. An increase of over $100 trillion in 10 years typically invites many questions. It should come as no surprise, then, that Citi placed one of these questions at the heart of its latest report: ”Future of cross-border payments – who will be moving $250 trillion in the next five years?“
The share of the market, notes the report, is already changing. A proprietary survey of more than 100 of Citi’s financial institution clients reveals that banks are losing market share to fintech companies in cross-border payments – and the trend is only expected to intensify in the next 5-10 years:
- 43% percent of the financial institutions surveyed stated they had lost at least 5% of their market share to fintechs or other disruptors.
- 89% of respondents said they expect to lose at least 5%-10% of their market share to fintechs or other disruptors over the next 5-10 years.
- Over half of respondents (58%) believe they will lose more than 10% of their market share to fintechs or other disruptors in the next 5-10 years.
A world of difference
The changes in the cross-border payments market are a direct result of the differences between traditional financial institutions and fintechs. ”The way in which fintechs are attacking the market is fundamentally different from the way in which big incumbent organizations are doing it,” explained David M. Brear, CEO of financial consulting firm 11:FS. “Big banks have a lot to learn in the context of creating capabilities.“
Fintechs’ capabilities address clients’ main pain points: speed, cost efficiency, and transparency. “Cross-border payments through banks involve slower transaction times and elevated foreign exchange (FX) fees,“ said Rahul Singla, Head of Fintech Investment Banking, North America, at Citi. ”By contrast, fintechs promise to offer lower prices, deliver transfers substantially faster, provide more convenience, and offer greater transparency.“
According to Singla, fintech companies can deliver on these promises thanks to, among other things, their ability to develop independent regulatory and compliance processes, offer full-service customer support, provide intuitive interfaces, and leverage advanced technologies to provide a superior payment experience.
This is certainly the case with Papaya Global, the only fintech designed for cross-border workforce payments. Relying on partnerships with tier-1 banks such as J.P. Morgan Chase and Citi, Papaya built the first workforce-dedicated rails to ensure fast payments. In addition, Papaya’s Workforce Wallet – the latest innovation in its suite of enterprise-grade solutions – accelerates the process by 80%, offering a remarkable 95% same-day payments.
A leap in cost efficiency
Paying workers via Papaya’s paytech is not only fast but also cost-effective. Most payment providers require that payroll funds be locked up well before payday, typically with a 30% buffer to cover exchange rate fluctuations. Papaya combats this problem with its transfer processing algorithm, which accounts for FX fluctuations as late as possible in the payment process, reducing currency conversion costs to a minimum.
Naturally, the payment process includes regulatory and compliance procedures. As a regulated financial services company, Papaya holds money transfer licenses across the globe, enabling compliant workforce payments everywhere. Organizations also benefit from a rapid two-day Know Your Customer (KYC) process and rigorous screenings for every payment – conducted by internal teams – that keep employee data and client funds safe.
Finally, Papaya’s platform enhances transparency for both clients and workers. Payroll managers can track payment data from start to finish on the platform’s user-friendly interface. Workers, on the other hand, can use Papaya Personal, a self-service mobile app that allows employees to stay on top of their finances by giving them access to payslips, work documents, and Papaya’s support team.
“One thing is clear,” concludes Citi’s report. “To be on the winning side of moving $250 trillion in the next five years, the time to act is now.” Papaya Global did just that.