In today’s interconnected world, technology has enabled the Indians generation to access everything at their fingertips. Considering their higher disposable income compared to their parents, they opt for Uber instead of purchasing cars, order food through apps instead of cooking, shop online, or move funds with just a few swipes and so on.
They are global citizens who want to travel abroad and live across the world rather than buy a house on a mortgage. They value convenience, transparency and instant gratification over ownership. But, the current cross-border banking system has not kept up with evolving needs of the average Indian consumer who belongs to a world of global commerce.
Cross-border transactions have integrated themselves in all aspects of our daily lives, be it for overseas education, international leisure and corporate travel, health tourism, foreign subscriptions, cross-border trade, investment in foreign equity, purchase of immovable property, opening accounts abroad, etc. This indicates that billions of dollars flow from one country to another every. While this presents a huge opportunity for the payment processing solution providers, cross-border transactions banking is still very archaic in this country.
Global remittance is a complex and expensive affair
There’s no doubt that global remittance has been a lifeline for many low and middle-income family groups. Around 800 million people in the developing world depend on remittances while 200 million foreign workers send money home to help pay for essentials such as food, housing, education, and healthcare. However, it’s also true that these services are expensive as they come with a cluster of hidden charges, which both senders and recipients often fail to comprehend.
As per the World Bank, in 2018, global remittances reached an unprecedented value of $689 billion. However, the average charges levied by the global remittances is approximately 7 percent of the funds sent. This means that a whopping $40 billion would disappear annually in the form of transaction fees and hidden charges for remittances.
Moreover, transferring payments across borders and currency conversions are not as quick to process as their domestic counterparts. It is because cross-border banking is largely run by public sector banks, which run on legacy technology. They are branch-based, in-person and involve extensive paperwork.
With the introduction of UPI, domestic payments have progressed leaps and bounds with mobile phone payments growing from $1bn in 2013 to over $400bn in 2019. So, in an era where technological innovation can alter industries in a matter of years, there is a major scope of disruption in an industry whose lack of speed, convenience, and reliability are preventing consumers from making global remittances as simple as making transactions domestically.
Fintech is here to change the cross-border payments industry
Armed with agility, state-of-the-art technology and a modern outlook, fintech is shifting the way cross-border banking services are consumed while providing a delightful user experience.
Traditionally, every time a cross-border remittance needed to be made, the individual had to rush to a bank or local remittance agent. Things are changing now. Technology enthusiasts are choosing to use digital remittance services. Not only does this enable them to transact while sitting in the comfort of their home, but the end-to-end digital process also protects them from identity theft.
Furthermore, since fintechs are D2C companies, they cut out the middlemen and pass the cost-savings to the end consumer. This has resulted in huge cost savings for the consumer. For example, a parent making a $10,000 transaction for overseas college fees, ends up paying total fees of Rs 15,000 – Rs 18,000 under various headings such as currency rate mark up, nostro charges, convenience fees, etc.
Indian fintech ecosystem operates on a multi-layered structure. At the bottom of the pyramid is the public infrastructure that includes UPI, Aadhar Card, etc., that are open for public consumption. Above that, there are ADI banks granted licenses by RBI to provide corporate and consumer banking services. Finally, fintech comes on the top of the pyramid collaborating with players present in the lower two layers to harness recent changes in behaviour and use of technology to provide services that effectively engage with consumers so that they can enjoy the agility of a fintech and the security of a bank.
In this fast-evolving fintech landscape, money in any currency has now almost entirely become digital while maintaining the sanctity of the regulatory framework. New-age players are challenging the status quo and urging people to realize that they deserve better than what the traditional players have been offering them. A few examples of products that the new-age players are bringing to the mainstream are: multi-currency global bank accounts, instant, secure and cost-effective cross-border remittance, mobile-based banking platforms, etc.
Fintech combined with strong digital identification and robust money laundering/terrorist financing (ML/FT) risk assessment can have a great potential in supporting more affordable and remotely accessible cross-border banking services. And as time progresses, fintech’s role in making cross-border banking seamless and effortless will become increasingly important.
The author, Mayank Goyal, is founder and CEO at moneyHop. The views expressed are personal