Adam Swartzbaugh, Co-Founder & CEO of Almond FinTech, talked to BankBeat about how tech is helping facilitate cross-border transactions for banks and their business customers.
What are some of the typical problems with cross-border payments and what has historically been the solution?
Adam Swartzbaugh: Borderless payments are in need of innovation for several factors. Transactions using traditional methods like SWIFT are expensive and often as high as 10 times the cost of a domestic transfer. Fluctuating exchange rates and currency conversion fees worsen the problem, causing uncertainty and loss of value for both parties involved. The traditional cross-border payment process is also impacted by lengthy processing times, taking days and even weeks. For businesses, processing times can be even longer.
Transparency is another concern. Customers are often in the dark regarding transaction status, fees and timing. All of these factors ultimately impact the customer experience. Additionally, traditional systems often exclude unbanked populations, particularly in developing regions, who lack access to banking services.
While still the primary method, SWIFT has seen little innovation since it was developed in the 70s. Recent initiatives like SWIFT Global Payments Innovation promise to improve transaction speeds, but there remain significant variations across payment routes.
Why will more small businesses need this service?
A.S.: Businesses are increasingly expanding their operations globally and show no signs of slowing down. In fact, a study from leading international bank Standard Chartered found that nearly half (49 percent) of U.S companies believe their biggest opportunities for growth are outside the United States. This is an increase from 35 percent just four years ago.
The increase in digital and e-commerce businesses also means there is a greater need for cross-border payments. In fact, ecommerce is projected to account for 41 percent of all global sales by 2027, according to the Boston Consulting Group.
As a result, B2B cross-border payments will be increasingly critical, and experts project that payments will exceed $56 trillion, a 43 percent increase from last year.
What’s the regulatory front looking like for banks when it comes to these transactions?
A.S.: The regulatory landscape for cross-border payments is complex, involving international, regional and domestic regulations. As examples, stringent anti-money laundering and Know Your Customer requirements aim to prevent illicit activities. Compliance with sanctions regimes and payments regulations is also crucial, as well as data protection laws like the EU’s GDPR for handling sensitive information. Foreign exchange controls, taxation laws and regulatory oversight also play significant roles, requiring banks to maintain strong compliance programs and reporting procedures.
Failure to comply can result in severe consequences, including fines, regulatory sanctions and reputational damage. One example is Wells Fargo, which received a $97.8 million fine for “unsafe or unsound practices relating to historical inadequate oversight of sanctions compliance risks.”
As competition for cross-border payments increases and innovation makes it less costly, smaller banks will likely pursue such services. This means they’ll also be subjected to similar risks as large national banks like Wells Fargo.
What are the fee structures generally like for these transactions?
A.S.: While cross-border payments remain costly, there is a growing expectation of offering such services — and for good reason. According to Federal Reserve Gov. Michelle W. Bowman in a February speech, “Faster, cheaper, more transparent, and more inclusive cross-border payment services offer widespread benefits for citizens and economies around the world, with the potential to support economic growth, international trade, global development, and financial inclusion.” There is also growing demand from consumers and businesses, which has led to a race among existing financial institutions and new entrants.
How can banks improve cross-border payments services?
A.S.: Blockchain technology is proving to streamline payments. With greater transparency, security, and efficiency, blockchain minimizes the need for intermediaries, thereby reducing transaction costs and processing times.
Additionally, using crypto as a bridge currency can further reduce transaction costs and processing times. This is how Almond’s technology works. The process begins with a deposit made in fiat currency at the sender’s financial institution. Funds are then transferred as digital currency across borders via a network of digital currency exchanges. The funds are then transferred back from digital currency to fiat currency at the destination country and received by the beneficiary. With seamless fiat-crypto conversions, the speed of settlement is significantly increased, from days to hours.