Making frictionless cross-border payments a reality

The last decade has seen the rise of cross-border e-commerce and with it the monumental transformation of the global payments industry.

An earlier version of this article was published in the Summer 2019 issue of Financial IT.


In almost every area of business, technology is transforming how things are done. In the payments industry, convenience remains a major theme the world over, led by consumer preferences that include a higher-degree of personalization, mobility, and global connectivity.


With consumer desire for a frictionless global experience, cross-border trade arguably represents one of the biggest business opportunities available to merchants today.



The rise of international e-commerce

The demand for cross-border trade is growing, fueled in large part by the rise of cross-border e-commerce and the global rise in smartphones. Increasingly, tech-savvy consumers are demanding the one-click convenience they’ve grown used to. Unfortunately, cross-border payments have largely not yet caught up to this customer expectation, despite research showing that 57% of online shoppers have made a purchase beyond their geographic boundaries in the past six months.



The need for cross-border payments

By far, e-commerce is growing the fastest in emerging markets, and as this trend continues, the potential for cross-border trade will only increase.


However, despite this significant opportunity, merchants are being held back by inflexible cross-border payment infrastructures and dated processes which make it hard for them to reach potential customers.


The solution? Only by combining local market knowledge and new technology can these barriers be overcome and cross-border trade truly succeed.



Adapting to alternative payment preferences

Historically, the payments ecosystem was burdened by complicated infrastructure and out-of-date processes. This remains one of the biggest challenges of cross-border e-commerce. The ultimate aim is to be able to offer frictionless payments experience to customers, regardless of where they are located.


In many emerging markets, the infrastructure problem is further exacerbated by the fact that alternative payment methods – which refer to payments made using something other than a credit or debit card like cash, coupons, bank transfers, loyalty cards, installment products, etc. – still represent as much as two-thirds of all payments, and are clearly preferred by consumers in these markets.


Digital payments platforms that bridge this interoperability and infrastructure gap amongst markets are critical in helping businesses reach a wider audience and seamlessly operate internationally.


By offering a greater variety of local payment methods, including alternative payment methods, payments providers can open up opportunities for merchants and consumers and accelerate the expansion of global cross-border trade.



The consumer credit conundrum

Coupled with historic payment ecosystems another issue faced by many cross-border merchants is a reliance on traditional methods of credit scoring which have proven ineffective for many consumers in emerging markets.


Understandably, many merchants from mature markets are hesitant to lower their risk threshold by relying on non-traditional payment verification models – creating an environment where it is incredibly difficult for businesses and customers to connect with each other.


Fortunately, another consequence of the rise in smartphones is that it brings with it a corresponding rise in data about a customer’s spending and earning habits. As the volume of data increases, new techniques are being introduced to build credit profiles and more accurately understand an individual’s credit rating. AI and machine learning are being incorporated into credit models, enabling underwriting which uses thousands of variables changing in real time.


The development of these new techniques will unlock credit and financial services for the underserved in these high-growth markets. According to some research, these advancements will aid the financial reach of over 1.6 billion new retail customers in emerging markets and will increase the volume of loans for individuals and business owners by $2.1 trillion.


At PayU, we are actively investing in consumer credit solutions as a way to both bridge the gap in financial inclusion while also enabling more seamless cross-border payments and trade.



Looking toward the future

As fintech collectively harnesses the technology necessary for global financial inclusion, the attractiveness of high growth markets will only increase. Making frictionless cross-border payments a reality is just the beginning.


At the heart of this evolution is the focus on local market knowledge, local presence, evolving consumer preferences and ever-expanding merchant ambitions. This can further accelerate the growth of cross-border trade and ultimately change the lives of millions.


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