Cross-border payment trends continuing in 2022
International transactions are booming. With consumer behaviour fundamentally altered by the COVID pandemic, digital payments are now entrenched across all regions and demographics at levels unimagined. They are expected to soar even more in 2022 to a total of $156 trillion!
Five trends will further shape cross-border payments in 2022:
1. Payments meshing with shopping experience
Consumers are accustomed to using apps that deliver a fast, seamless and interactive experience. Making payments through an app should be no different. The step between making a final choice and payment is often the most stressful, with second-guessing possibly leading to no purchase. As the adoption of contextual embedded finance continues to expand, Fintechs, markets places and other software providers will continue to mesh payments into the shopping experience itself. Alternate methods of payments such as Buy Now Pay Later (BNPL) and Real-time Payment (RTP) gives consumers the ultimate freedom and flexibility of purchasing without consciously making a payment.
Payment will become more and more invisible.
2. Micropayments for creators
During the pandemic, as the physical world came to a standstill, artists, content and media creators joined influencers and other social media creators in the virtually connected, borderless world. They spawned a vast and growing creators’ economy. Crunchbase, a business information search platform, estimates 50 million people around the world consider themselves creators and says influencer marketing was poised to top $3 billion by the end of 2021. However, content/media consumers are still asking, “How do I pay for content in a fast and easy way without committing to monthly subscriptions?”
With the introduction of biometric payments and alternate payment methods it is now possible to create a seamless user experience. However, transactions for less than a dollar remain expensive and full of friction. New services and platforms such as Patreon and Cameo are making it easier for creators to collect the payments but more needs to be done. A new entrant, pingNpay, is introducing a stable coin-backed network for micro payments that are denominated and anchored in the local currency of its markets. A blockchain based, digital currency network can facilitate real-time transactions at very low cost. As this space continues to grow, we will continue to see innovative models and new entrants.
3. Interoperability and last-mile connectivity spreads access to all
As the global economy becomes more and more interconnected, the contribution of small and medium-size enterprises (SMEs) in international trade continues to increase considerably. SMEs, along with micro enterprises, are the backbone of the global supply chain but have the least access to the means to finance and participate in international payments. Even today the last mile of the payment’s journey is plagued with inconsistencies, due to varying policies, regulations and infrastructures among countries. In emerging economies where much of the population does not have a bank account, the last step to delivering payments incur additional cost and time. In an attempt to create more cross-border interoperability between the different local payment networks, industry players such as Thunes will continue to devise new capabilities that can support a truly financially inclusive environment.
4. Heightening security in digital transactions
Unfortunately, online fraud is surging along with the mushrooming digital economy and adoption of digital payments. The latest Mastercard survey on cybercrime indicates an increase by as much as 49% in past year alone. This systemic risk to the digital economy will continue to draw the attention of regulators and the financial crime prevention authorities.
Use of biometric authentication, more trust in digital identities, and mandatory customer authentication via 3D Secure protocol other strong forms of two-factor authentication (2FA) will need to evolve into frictionless user experience. The maturing use of artificial intelligence in fraud detection and money laundering prevention will continue to increase straight through processing and lower cross-border transaction costs.
5. Digital currencies & Web 3.0
Global crypto currency volume rose by 32% in 2021, according to cryptocurrency exchange platform Coinbase. The adoption of crypto currencies is set to accelerate as the metaverse and Web 3.0 emerge.
Fiat currency continues to be the dominant currency in the mainstream. But the highly regulated fiat-to-crypto on-ramp and off-ramp infrastructure will continue to evolve. And eventually, digital currencies, riding on the rails of blockchain technology, will likely become the preferred mode of payment, enabling instant, real-time settlement and secure transactions in the digital marketplace.
We also will likely see the centralized exchanges and custodial services driving down cost per transaction and improving the overall speed of the transaction.
The increasing importance of the digital currencies and the fast-maturing digital infrastructure has drawn increasing attention from central banks across the world. A Bank of International Settlement survey in 2021 found 86% of the world’s central banks are exploring digital currencies in various use cases. They will likely continue their feasibility study in 2022 and a few will probably make the plunge. China already is set to introduce its central bank digital currency (CBDC) during the Beijing Winter Olympics in February this year.