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How Overseas Workers and SMEs are Navigating The Evolving Cross-Border Payments Landscape

The past few years have seen seismic shifts in the way people around the world work and do business. The difficult economic backdrop is continuing to play a huge role in how consumers and businesses, both small and large, approach their finances.

Economic uncertainty is driving many to adopt different ways of working. New research by Mastercard shows that half of consumers surveyed globally are now setting up ‘side hustles’ and considering working abroad in the next three years to find new sources of income. Adopting a “digital nomad” lifestyle means having to adapt to the evolving payments landscape, fast.

“We’ve seen a fundamental shift in the workforce payment flows as the gig and freelance economy booms,” said Hal Ramakers, senior vice president of global solutions at Brightwell, a global payments technology company. “Nonetheless, increases in the cost of living and growing inflation means many workers are living paycheck to paycheck so need access to their money in real time.”

With real concerns around receiving and sending payments when working abroad, Mastercard’s 2023 Borderless Payments Report — which draws on the views of over 11,000 consumers and small businesses across 15 different markets in the Americas, Europe, the Middle East, Africa, and Asia — offers key insights on the changing nature of cross-border payments and challenges faced by both consumers and small businesses.

The urgent need to power faster, more transparent remittances

There is increasing demand for low-cost and reliable international payments, as more people choose to work abroad and businesses look to source suppliers and seek out new markets internationally. However, despite advances in mobile technology enabling digital payments, the report indicates that a quarter of those working abroad still worry about how they will send money back home to loved ones.

“Overseas workers are facing numerous challenges when it comes to sending and receiving remittance payments, with our report citing lack of transparency and visibility, and fear of late and failed payments, as major concerns,” said Alan Marquard, executive vice president and head of transfer solutions, Mastercard.

Indeed, 79% of consumers who make cross-border payments said real-time visibility of their finances is important. Even with technological innovations like digital wallets and new money transfer apps entering the market, Marquard said international payments can often still be slow and expensive.

“Hidden fees and high money-transfer costs mean consumers continue to struggle with remittance payments. This can be especially problematic in markets facing economic instability,” he said. Globally, three in ten (31%) say the lack of transparency over fees and how much money will be received is a key pain point.

Small businesses rely on cross-border payments for survival

With consumers facing challenges around remittances, how are business owners faring when it comes to international payments?

“For most small businesses, revenue growth is increasingly dependent on cross-border trade. Without that international income, 35% of businesses say they would struggle to survive,” Marquard said.

There are additional concerns around the speed of transfers. “Traditional processes, like wiring funds, really slow down the international payments journey since you’re hitting multiple stops towards the final destination of deposit,” Ramakers added. “As a result of those multiple stops, you’re seeing an increase in costs coupled with a lack of real visibility or transparency.”

This dependence on foreign trade is particularly frustrating for small businesses that already deal with fluctuating FX exchange rates and high money-transfer fees. International payment costs can be 10 times as high as domestic costs.

“Doing business internationally is already fraught with many obstacles. Barriers to trade shouldn’t be one of them. It’s unfortunate that over a third of small businesses experienced late or failed payments and as a result were unable to purchase essential supplies and subsequently suffered reputational damage,” Marquard said.

It’s not just businesses that experience this either. A third of consumers who make and receive cross-border payments say they experienced an issue that resulted in a late or failed payment, with the highest numbers in India, the US, and the UAE. Three quarters of those who experienced an issue say they could not support their own in-country payments, and 36% say it impacted their ability to send money to family or friends back home.

Collaboration with fintechs is key to addressing cross-border challenges

The pressing question now is how can financial services providers offer practical solutions to help solve these problems?

Marquard is confident that greater collaboration within the financial sector is key.

“An interesting theme from the report is an increased drive for partnership between established payments providers and innovative fintech companies,” he said. “We need to acknowledge the multiple dimensions of solving the international payments issue, and at Mastercard, we understand that industry collaboration is key for high levels of innovation that can address some of these pain points.”

Marquard echoes findings from the report that traditional banking institutions have been slow off the mark when it comes to international payments. Considerations around compliance, treasury, and user experience often mean that building a remittance function from scratch is difficult. Innovative fintech companies have spotted this gap in the market and responded with slick remittance apps featuring seamless payment processes and enhanced customer experiences for businesses and consumers.

To support fintechs that need to scale their solutions, Mastercard has developed a partnership network collaborating with innovative technology companies like Brightwell that provide a mobile-first platform and suite of financial tools for SMEs and global workers. These partnerships, Ramakers said, are crucial to enabling seamless international payments when it matters the most.

“Due to our partnership with Mastercard, Brightwell can provide much faster and cheaper payments in real-time. Whether that’s sending money to a bank account, digital wallet, or cash pickup, we’ve made it easier for SMEs to pay their overseas workers,” Ramakers said. “This is critical since most people working in the gig economy are often migrants who may need to be paid daily or weekly so they can quickly send money back home to loved ones.”

Closer collaboration across the financial sector is needed to overcome these barriers. Doing so creates opportunities to not only boost the economic prospects of individuals and small businesses, but to support economic growth across the globe.

Source: Business Insider