Much has been said about the state of cross-border payments and remittances in today’s financial landscape. And with new technologies being developed and services looking to make this process easier, it appears that the market is ripe for development across the board.
Sadly, there remains a major problem that still hasn’t been addressed – a lot of people don’t have bank accounts. For all the growth that we have had with technology, the banking industry has never particularly been able to penetrate as deeply as we would have hoped. And this means that even though financial technology develops, its potential will always be stifled.
Money Just Doesn’t Go Around
Financial transactions are a critical part of everyone’s lives. We all want to make payments for goods and services that we buy every day. We all want to easily send money to people we love who might be on the other side of the world. And so on.
Over the past few years, there have been massive developments in technologies that can help with financial transactions. We have so many legacy payment processors, and the recent development in the crypto market has also been notable at the very least.
Nevertheless, all of these technologies tend to run into one issue – for many, there is still a banking problem. Bank accounts have become an integral part of our lives, and no matter how much the financial technology space develops, money still needs to end up in a bank account at the end of the day.
You could make payments with a payment processor and send money to someone. But, there’s a significant chance that this person will still need a bank account to get the money at the end of the day. The same goes for crypto – a person can send coins to exchange in the hopes of converting them to money, but that conversion won’t be possible if the person doesn’t have a bank account.
Then, there is the problem of cross-border payments themselves still being incredibly ineffective. Today, the global remittance market is controlled by the Society for Worldwide Interbank Financial Telecommunications (SWIFT). This organization essentially controls the participation of banks and other financial institutions in the global finance space, and with over $6.6 trillion being traded daily internationally, it has become massively overwhelmed. Speaking on the system Knox Wire investor and billionaire Stephen McCullah believes that SWIFT has massively underperformed in recent times.
“The world needs another option outside of SWIFT. Payments are stagnating for weeks at a time in many areas of the world. For far too long, 4% of the global population has determined
the financial policy of 96% of the world,” he explains.
So, how does the world move forward with international remittances if banking penetration remains so low?
A Commitment to Optimising Banking Penetration
The first step will be the obvious one – banks need to do better with expanding their reach. According to data, only about 655 of the global population is banked.
We already pointed out the importance of bank accounts to people. And in a world where digital services remain scarce, bank accounts will most likely continue to be the primary channel through which people interact with money.
This means that banks need to step their game up. There is a need to set up the right infrastructure for banks at a local, grassroots level. This way, more people can come into the global financial system and access the benefits that come with it.
Moving More Rapidly to Digital Payment Forms
Just as well, digital payments themselves also need to improve. As traditional banks work to improve their infrastructure, digital payment services can also collaborate with them to reach the most remote areas.
Digital payments are especially advantageous because they don’t need much in terms of infrastructure. For a bank to set up its services in a rural area, it would need to set up a building and transportation networks, as well as staff the office. A digital payment service doesn’t need any of this – just sufficient internet connection and contractors who can maintain its service’s uptime.
It is also worth noting that digital payments will be the primary channel for cross-border payments. As explained earlier, the SWIFT system is currently overwhelmed, with international transactions taking much longer and incredibly expensive. Thanks to digital payment services, people can now send and spend money across borders in minutes, moving away from the SWIFT system and embracing higher efficiency levels when it comes to payment processing.
The Future Is Crypto
It might seem like a cliche at the moment, but there is most likely no better conduit or cross-border payment than cryptocurrencies.
Ever since they burst onto the scene years ago, digital assets have become a huge booster for cross-border payments. Compared to traditional payment methods, crypto is faster and cheaper.
There are even stablecoins that allow people to send and receive money without having to deal with the inherent volatility of traditional crypto. So, there really is no downside here.
The problem with crypto at the moment is that it is still nascent. And with all new technologies, there is a learning curve and a little bit of time required to reach mass adoption. However, crypto enthusiasts continue to build, and the future of crypto in relation to payments looks incredibly bright.