Visa — Use Cases, Corridors, and Context: Digging Deeper to Improve Cross-border PaymentsPosted on Jun 21, 2023 by By Alan Koenigsberg, SVP, Global Head of Enterprise / Growth Corporates, Verticals and Working Capital Solutions | Payments Executive and Chad Harper, Global Payments Senior Fellow, Visa Economic Empowerment Institute
Cross-border payments are the lifeblood of the global economy. These financial flows drive global GDP growth, helping promote economic prosperity. According to the Bank of England, the total value of all cross-border money movement is expected to exceed $250 trillion dollars by 2027. Whether it’s a tourist seamlessly completing an instantly authorized consumer-to-business (C2B) payment to ride the subway, or a corporate executing a business-to-business (B2B) transaction to keep parts moving across its global supply chain, the evolving needs of end users are spurring payment innovation.
But there is still room to do better in meeting end user needs, depending on the use case, corridor, and context of the transactions. In some areas, such as e-commerce payments from the US to UK, end user needs are well met by existing solutions. In other areas, there are gaps which leave significant opportunities for improvement. Some gaps are driven by long-standing regulatory frictions, including currency and capital restrictions, local rules around settlement, inconsistent diligence requirements, and complex licensing requirements. Others are driven by limitations of existing solutions. This may be especially true for corridors that see low volumes.
In an attempt to address these gaps, the Financial Stability Board (FSB) and the Committee on Payments and Market Infrastructures (CPMI) have launched industry taskforces to focus on payment system interoperability and extension; legal, regulatory and supervisory frameworks; and data exchange and message standards. Policymakers have primarily focused on cost, speed, access, and transparency, but we believe that a more granular examination of the attributes and use cases around cross-border payments could be helpful.
In some instances, end users may be willing to trade cost, speed, transparency, and access in favor of other attributes, such as geographic reach and revocability/returns, depending on the use case (see Table). A closer look at how cross-border payment solutions are meeting end user needs can be invaluable in guiding the public and private sectors’ efforts to make meaningful improvements.
One Size Doesn’t Fit All: Opportunities for Cross-border Payments Improvement
A big opportunity for improvement would be with consumer-to-consumer (C2C) remittances, where compliance streamlining and licensing simplification would be helpful. While transparency and fee predictability have improved with the rise of digital remittances, there is more to be done. Additional pain points include limited speed of funds availability in lower volume corridors due to lack of direct access, which requires multiple correspondent banks — each of which will need to conduct compliance checks before making funds available to the end user.
Of course, there isn’t a “one-size-fits-all” approach when it comes to cross-border payments. Improvements beyond speed, access, and transparency can be made that unlock sizeable value for end users. These can range from fraud mitigation in e-commerce payments to information and data, as well as reach and predictability for small business B2B payments, and integration with industry software for C2B verticals.
A Deeper Dive into Cross-border Use Cases
The following are examples of where taking a closer look at use case, corridor, and context can reveal opportunities for improvement in cross-border payments:
E-commerce: On security and fraud, the private sector is bringing important innovation through investments in security and fraud startups, such as artificial intelligence-based payment fraud prevention tools and cloud-based anti-money laundering tools. As an example, Visa has prevented $26 billion in annual fraud using artificial intelligence (AI) to analyze transaction data.
C2B Vertical Payments: In the case of C2B vertical payments, existing closed loop/ ledger-based networks generally provide transparency and predictability of fees (including FX) and timing with their own internal guidelines. However, many C2B payments might require different attributes based on the vertical, such as in the case of education, health care, and real estate. Improvements to product attributes could become equally, if not more important than improvements to payment attributes. For example, health care payments may require integration with other systems, such as supporting end-to-end appointment needs at a hospital. Similarly, education payments may need to allow students to register for classes upon payment receipt or to split those payments between tuition and food.
Payers may also need value-added services, such as notifications on tracking of payment. By improving integration with other systems, not only will the payee benefit, but it will also make transactions easier and more convenient for students and/ or patients.
For real estate payments, white glove service and end-to-end support is required across the entire purchase journey, including tools to support regulatory approval to align with local laws.
B2B Small Business Payments: When it comes to B2B payments for small businesses, correspondent banking solutions (with front-end local banks) typically provide the ability to transact large ticket sizes. That said, there remains an important opportunity to improve transparency around information and data requirements. The FSB’s focus on transparency will help small businesses, but more can be done.
Serious challenges exist, starting with the diversity of messaging formats and systems by country, which make it difficult to seamlessly share payment information required to match a payment to the relevant invoice. Also, limited transparency and predictability with incoming payments makes it harder for small businesses to predict balances, while outbound flows suffer from non-transparent fees when an additional correspondent bank is involved.
Small businesses also face major challenges owing to the need for manual reconciliation, which leads to a $10 to $15 cost per invoice. Addressing this need for reconciliation by improving information and data standards holds the potential to cut costs incurred by small businesses by approximately $5 to $10B USD.
Perhaps most importantly, when cross-border payments are made more seamless, small businesses have a tremendous opportunity to grow their import and export activities. Evidence of this can be found in the healthier share of exports small businesses enjoy within the EU, which stands at approximately 42%, as compared to only 32% within geographies outside the region. If small businesses are able to achieve only half of that improvement in cross-border growth outside the EU, they stand to gain an approximately $500B USD increase in export value.
When considering potential areas of cross-border payment improvement, corridor is particularly important due to fundamental economic, political, or geographical factors. This occasionally requires innovations in local payment methods. For example:
- Where large portions of the adult population is unbanked, cash distribution to unbanked recipients is a challenge, limiting access as a receiving corridor.
- In countries where there are macroeconomic instability and restrictive monetary policies, both transaction liquidity when sending money to the corridor and reach to the corridor itself (e.g., due to capital controls, local banks are necessary, but may not be able to accommodate sizeable payment flows) may be impacted.
- In some countries, detailed and specific reconciliation information could be required as part of compliance, implying greater payee needs around consistent information and data.
Factoring in Context
The last factor that should be considered is context. There may be any number of contextual reasons that may influence how an end user approaches such payments. For instance, a sender might prioritize speed of funds availability above any other attribute, but at the same time, might not have the means to provide funds instantly due to a lack of regulatory alignment on compliance/KYC. Context matters and must be an element of consideration in cross-border payment innovations.
It Takes Two to Tango: Vital Role of Public and Private Sectors in Making Improvements
Both the public and private sectors have a crucial part to play in addressing cross-border improvement opportunities. Meeting end user needs across attributes of use case, corridor, and context will benefit from public sector intervention in close coordination with private sector investments and efforts to drive innovation.
Public sector: Regulatory fragmentation is ripe for improvement. As already identified in the cross-border roadmap, alignment of compliance and oversight frameworks, KYC identity and information-sharing, etc. can enable improvements such as enhanced security and reduced fraud. Examples of ways in which regulatory misalignment is causing end user challenges, include:
- For restricted currencies, both convertibility and ability to hold funds for those outside the country are limited — requiring a “bridge” currency (e.g., USD) to finalize the payment, impacting transparency, and predictability of fees and timing.
- Licensing requirements can include extensive documentation, higher capital requirements for players, and local settlement partnerships, leading to long-time-to-approval or even denial, impacting accessibility across users and reach. In addition, inconsistent AML/ KYC guidelines make cross-border payments more challenging and expensive.
Private sector: Given the complexity presented by the sheer number of use cases, corridors, and context, along with the diversity of improvements needed in cross-border payments, continued innovation and investment by the private sector is needed to meet the array of end user needs. Continuing investment and innovation from the private sector will be vital to making important cross-border payment improvements. Examples of global money movement innovation from Visa include the following:
- Visa B2B Connect is an entirely separate cross-border payments network focused on challenging B2B buyer/ supplier payments, which are typically high in value and have stringent data payload requirements. This solution streamlines the entire process, providing same day payment services, removing the friction associated with multiple banks in the process chain to deliver direct payments from buyer’s bank to supplier’s bank.
- Because expanding globally and accessing new markets can be complex, Visa is offering treasury-as-a-service solutions to financial institutions around the world through a network-of-networks approach. This allows institutions to provide much needed card holder and account solutions to their clients. An example of this is Currencycloud, which facilitates cross-border transactions and FX functionality. This solution enables clients to move money around the world — from virtual wallets and named accounts to the ability to send, receive, and manage multi-currency payments.
The public and private sectors can benefit from a granular focus on use cases, corridors, and context in the push to improve cross-border payments. We look forward to an ongoing dialogue on this!
About the Authors
Alan Koenigsberg is SVP, Global Head of Enterprise / Growth Corporates, Verticals and Working Capital Solutions | Payments Executive. Previously, Alan led all aspects of the commercialization of Visa B2B Connect. Prior to this role, Alan was Chief Revenue Officer at Traxpay, a payments and supply chain fintech based in Germany. He has held senior Payments, Corporate, and Investment Banking positions at JPMorgan and Bank of America Merrill Lynch.
Chad Harper helped found the Visa Economic Empowerment Institute, where he is Global Payments Fellow. He previously spent nearly 20 years at the Federal Reserve Banks of San Francisco, Chicago, and Richmond in cash, financial services, and payments outreach and analysis.
 Victoria Cleland speech at the Silk Road Cash & Payments Conference, March 29, 2023. https://www.bankofengland.co.uk/speech/2023/march/victoria-cleland-pre-recorded-panellist-at-the-silk-road-cash-payments-conference
 “Visa continues to invest in security to keep cardholders safe every day,” Visa Blog. May 26, 2022. https://www.visa.co.uk/visa-everywhere/blog/bdp/2022/05/26/visa-continues-to-1653576045810.html
 Cost estimates from Levvel Research, now Endava.
 Visa Analysis of the McKinsey Global Payments Map as of December 2022.