The US payments sector is a large and complex industry with a wide range of players and services. In recent years, there has been a growing trend toward digital remittances and cross-border payments. These digital payments offer a number of advantages over traditional methods, such as faster processing times, lower fees, and greater convenience.
What are digital remittances and cross-border payments?
Digital remittances are electronic transfers of money from one country to another. They can be made through a variety of channels, such as online platforms, mobile apps, and bank transfers. Digital remittances are typically faster and cheaper than traditional methods, such as sending cash through a courier or Western Union. They are also more convenient for senders and recipients, as they can be made from anywhere with an internet connection.
Cross-border payments are made between two parties in different countries. They can be used for a variety of purposes, such as international trade, business-to-business payments, and remittances. Cross-border payments are typically more complex than domestic payments, as they involve multiple financial institutions and clearing systems. However, digital payments can help simplify the process and reduce costs.
The Emergence of Digital Remittances and Cross-Border Payments
The global digital remittance market has been appraised at approximately USD 19.65 billion in 2022, with an anticipated increase to USD 21.83 billion in 2023.
Presently, the United States holds the distinction of being the largest remittance-sending country worldwide. Immigrants residing in the United States sent an estimated total of $68 billion in outward remittances in 2020. Approximately 14% of the U.S. population, or over 44 million people, are foreign-born.
Multiple factors are driving the growth of the US digital remittances market:
- The surging adoption of smartphones and internet connectivity
- Heightened demand for rapid, secure, and cost-effective cross-border payment solutions
- The rising number of migrant labourers across the globe
Furthermore, the implementation of favourable government regulations aimed at promoting digital payments and facilitating financial inclusion has also contributed to expanding the digital remittance market.
Benefits and Opportunities for Individuals and Businesses
Digital remittances and cross-border payments offer a number of benefits for individuals and businesses. These benefits include:
Reduced Time and Effort: With the introduction of digital payment apps, people in the US can now conveniently transfer funds across countries without having to visit the bank to obtain SWIFT codes and routing numbers for international transfers.
Cash management: A PYMNTS report stated that 56% of U.S. businesses saw enhanced cash management capabilities as a direct benefit of cross-border payments innovation. In addition, people prefer push payments, digital wallets, automating payables, and enabling business partners to choose how they would like to receive payments.
Reduced Fraud: With the rapidly increasing number of cases of credit card fraud in the US, security remains a major concern for businesses and individuals alike. Trust remains a major concern, and when it comes to digital payments, fintechs and payment facilitators provide multi-factor authentication, network tokenization, and other security measures when it comes to cross-border payments. According to Paypal’s survey, 59% of U.S. consumers trust unfamiliar businesses more when they offer PayPal.
Transactional Transparency: Traditional cross-border payment services in the US often lock in FX rates as soon as a transaction is confirmed. They take longer to complete and may involve many intermediaries. As a result, these processes are less transparent than they could be.
But with digital cross-border payment platforms, every transaction detail, along with beneficiary information and a unique ID is provided to the user. In addition, transparent payment platforms also assist payees in avoiding deficits caused by unfavorable currency conversion rates.
Major Fintech Stakeholders Transforming the US Payments Sector
The US has a number of different cross-border payment platforms available, each with its own features and benefits. Some of the most popular platforms include:
PayPal is a well-known online payment platform that offers a variety of features for sending and receiving money internationally.
What they do:
- PayPal uses the power of webhooks to receive real-time information on events taking place in customers’ gateways and respond to them quickly and effectively. They use network tokenization, which can help improve authorisation rates and reduce costs.
- It is a fully customizable payment platform that can adapt to customers’ changing needs. It is one of the world’s largest online payment platforms, with 300 million active users and multiple local payment methods. This enables faster processing of transactions.
- About 59% of U.S. consumers trust unfamiliar businesses more when they offer PayPal. It supports multiple payment instruments like credit and debit cards and popular digital wallets like Apple Pay and Google Pay, all seamlessly integrated into one payment platform. This makes tracking transactions very easy for customers.
- Paypal constantly deploys and authenticates transaction rules in real-time to adapt to evolving patterns with advanced machine-learning-based fraud protection. They also prevent costly card fraud with 3D Secure authentication and keep transactions secure with network tokenization. This reduces the chances of fraud in cross-border payments.
Wise (formerly TransferWise):
Wise is helping to solve the problems of high fees, slow settlement times, and a lack of transparency that have plagued the cross-border payments industry for years.
What they do:
- They use the mid-market exchange rate: With Wise Business, one can use local account details to pay and get paid like a local. They don’t have a high markup for cross-border and currency conversion fees. This means reduced costs for the customer.
- They have low fees: Wise’s fees are much lower than those of traditional banks. This is because they use a peer-to-peer network to process payments, eliminating the need for middlemen.
- They are fast: Wise payments are typically settled within 1-2 days. This is much faster than traditional bank transfers, which can take up to a week or more.
- They are transparent: Wise is very transparent about their fees and exchange rates. You can always see exactly how much you will pay before you make a transfer.
Some other players include:
- The Western Union Company is one of the top leaders in cross-border, cross-currency money movement and payments, with a global financial network across 200 countries and territories and over 130 currencies. Western Union partnered with Google Pay back in 2021 for users in the U.S. They now enjoy a seamless peer-to-peer in-app experience when sending cross-border payments to family and friends through Western Union’s bank account or retail network throughout India and Singapore. Users may fund their transactions using Google Pay (debit or credit card linked to their Google Pay account), bank account or card.
- Remitly is a leading digital financial services provider for immigrants and their families in over 150 countries around the world. As a mobile-first digital remittance company, they have expanded core cross-border remittance products to over 2,100 corridors worldwide. They enable US consumers to shift small sums across borders directly to debit cards or digital wallets with ease.
A Greener Future Outlook
The US payments sector is constantly evolving, and there are a number of key trends that are shaping the way that people send and receive money internationally.
The rise of fintech companies: Fintech companies are using technology to disrupt the traditional payments industry. These companies offer innovative new products and services, making it easier, faster, and cheaper to send and receive money internationally.
The growth of mobile payments: Mobile payments have gained widespread acceptance as people use their smartphones to make payments for various goods and services. This trend is also impacting the cross-border payments space, as people are increasingly using their smartphones to send and receive money internationally.
The growing number of users in the Digital Remittance Market: According to Statista, the number of users is expected to amount to 3.04m users by 2027. In addition, the transaction value is expected to show an annual growth rate (CAGR 2023-2027) of 4.28% resulting in a projected total amount of US$32.83bn by 2027 in the US.
Digital payment regulators and fintech play a significant role in the US payment sector. At Purple Quarter, we support the visionaries who act as the driving force in this landscape. As a search firm with expertise in continually solving growing businesses’ leadership needs, Purple Quarter is well-positioned to comment on the value that fintech companies will play in evolving digital inclusion needs in remittances and payments. It is safe to conclude that the future of digital remittances and cross-border payments will continue to be a beacon in the complex ecosystem of business.
Authored by Tathagata Chakrabarti
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