Note4Students
From UPSC perspective, the following things are important :
Mains level: Cross-Border Payments;
Why in the News?
Despite being worth $181.9 trillion in 2022, cross-border payments still have inefficiencies prompting the G-20 to focus on improving them for economic growth.
Present Status of the Global Cross-Border Payments Market
- The cross-border payments market was valued at approximately $181.9 trillion in 2022 and is projected to reach $356.5 trillion by 2032, reflecting a compound annual growth rate (CAGR) of 7.3% from 2023 to 2032.
- The growth is driven by increasing globalization, the rise of e-commerce, and technological innovations in the financial sector. The demand for faster, more secure, and transparent payment solutions is compelling banks and fintech companies to enhance their offerings.
- The market includes various channels such as bank transfers, money transfer operators, and card payments, with a significant share coming from business-to-business (B2B) transactions.
Difference Between Old and New Systems
Cross-Border Payment |
Features | Challenges |
| Old System | Cross-border payments relied on manual processes involving letters of credit, checks, and extensive documentation. | It faced challenges such as high transaction costs, slow processing times, and limited access due to regulatory burdens. |
| New System | Incorporates technological advancements such as blockchain, digital wallets, and instant payment systems.
Example: peer-to-peer transactions and interlinked payment infrastructures |
challenges around scalability, security, regulation and standardization. |
Challenges to Cross-Border Payments
- High Costs: Transaction fees remain a significant barrier, with various financial institutions imposing different charges that complicate cost-effectiveness.
- Low Speed: Processing times can vary greatly, often taking several days due to intermediary banks and regulatory checks, which can frustrate users seeking rapid transactions.
- Limited Access: Many individuals and businesses still face obstacles in accessing cross-border payment services, particularly in underbanked regions.
- Insufficient Transparency: Users often lack clarity regarding fees, processing times, and the overall transaction process, leading to mistrust and reluctance to engage in cross-border transactions.
- Regulatory Compliance: Navigating diverse legal frameworks across jurisdictions complicates transactions, with anti-money laundering (AML) and counter-terrorist financing (CFT) regulations adding layers of complexity.
Way forward:
- Adoption of Emerging Technologies: Leveraging blockchain, digital currencies, and AI can streamline processes, reduce transaction costs, and enhance transparency, making cross-border payments faster and more accessible.
- Regulatory Harmonization and Collaboration: Promoting global regulatory alignment and fostering collaboration between financial institutions and governments can simplify compliance, improve transaction efficiency, and broaden access to underbanked regions.
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