Banks and other financial service providers find themselves at a pivotal juncture in the burgeoning low-value cross-border payments market, currently valued at US$10 trillion. A recent survey by Swift, the international payments messaging firm, offers some crucial insights.
The research was conducted in December 2022 and captured the opinions of 4,205 consumers as well as 2,720 small and medium-sized enterprises (SMEs) across a variety of countries including the United States, the United Kingdom, India, China, Saudi Arabia, Australia, Germany, and South Africa. All respondents make cross-border payments at least once a month.
Consumer and SME Preferences
For consumers, the survey shows the top three key considerations when choosing a payment provider are security, trust, and transparency. SMEs echo these three sentiments exactly, but add another essential criterion: the capability to integrate the payment solution into their existing business software.
Source: ‘Small payments. Big opportunity. How to capture growth in the low-value cross-border payments market’, Swift
Customers primarily wish for a straightforward experience — they want to know the cost, timing, and progress of their transfers. Any provider that meets these expectations stands a good chance of seizing a significant share of this expansive market.
The Lure of Alternatives and the Risks of Negative Experiences
Swift’s survey also delved into what might prompt customers to switch providers. Speed, ease of use, and low fees emerged as the dominant factors for considering a different service.
Conversely, hidden fees and lack of clarity in terms of exchange rates and foreign exchange dealings were the primary sources of discontent. Such negative experiences can be so impactful that they could cause customers, be they consumers or SMEs, to sever ties with the provider permanently.
Source: ‘Small payments. Big opportunity. How to capture growth in the low-value cross-border payments market’, Swift
Security and Trust: The Bedrock of Customer Loyalty
Most customers are not experts in the mechanics of cross-border payments. Thus, they look for providers they can trust to navigate these complexities securely and transparently.
Banks, with their long-standing customer relationships and high-security standards, unsurprisingly fulfil these criteria quite well. Indeed, the report indicates that 81% of consumers and 87% of SMEs turn to their banks first when contemplating low-value cross-border payments.
Source: ‘Small payments. Big opportunity. How to capture growth in the low-value cross-border payments market’, Swift
The Value Proposition for SMEs
SMEs indicate that the ability to send low-value cross-border payments directly from their business software — common ones include payroll or enterprise resource planning (ERP) — is highly valuable.
Thus, alliances with accounting or cash-flow software providers could offer market players the opportunity to facilitate SME payments inconspicuously and effectively.
Evolving Consumer Expectations
With shifting customer preferences for faster and more personalised services, such as expectations of same-day deliveries if online retail purchases were made from a store in their vicinity, how important is it that payments are delivered to their end destination instantly?
Source: ‘Small payments. Big opportunity. How to capture growth in the low-value cross-border payments market’, Swift
Of some surprise, Swift’s research seems to indicate that while the majority of both consumers and SMEs do anticipate fund transfers to arrive fast, only 24% of consumers and 16% of SMEs are demanding immediate transaction completion.
However, these expectations are bound to evolve as domestic markets increasingly adopt instant payment systems. Several cross-border instant payment links are already in operation, notably in Southeast Asia such as between Singapore and its neighbours like Malaysia, Thailand, or the Philippines. India’s United Payments Interface (UPI) has actively been establishing connections with countries all over the world, including Singapore’s PayNow and France’s online payment system, Lyra.
Confronting the Challenges and Seizing the Opportunities
While 96% of consumers and 97% of SMEs said they were happy with the bank or a non-bank provider they currently used, three quarters (75%) of respondents said they’d consider using an alternative if it could deliver on the critical factors of speed, cost, and ease of use.
Source: ‘Small payments. Big opportunity. How to capture growth in the low-value cross-border payments market’, Swift
In such a competitive space, both consumers and SMEs ranked hidden fees, a lack of clarity on exchange rates, and delivery failure as their top three reasons for never using a provider again.
Swift pointed out that solutions for a lot of the most pressing issues are readily available, such as displaying all fees upfront, providing clear information on exchange rates, or adding the ability to track payments are all things that can be easily addressed through front-end modifications. Implementing these changes could significantly enhance a provider’s market positioning.
The future landscape of the low-value cross-border payments market is replete with opportunities. Providers who act swiftly to improve transparency concerning fees, foreign exchange, and payment statuses will be best positioned to dominate this ever-evolving market.
