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The Payment Megatrends: Borderless Payment

By Markus Eichinger

Borderless – this is how we like to think about our world when we dream of traveling, roaming with the finger on the map. However, in reality there are all kinds of borders and restrictions; not only for people, but also for money transfer.

In this part of our Payment Megatrends series (see an overview of all articles at the bottom of this page), learn more about how thanks to technology the payment borders are becoming increasingly permeable – and why borderless payment solutions have a huge potential.

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A mobile world

Global travel is a blast. Since 1950, travel has increased by a factor of 50. Just looking at recent years, tourism grew by nearly 120% in past two decades.

Source: Statista

But it’s not only global travel, it is also global workforce migration that drives the demand for cashless cross-border money transfer. According to the “Global Estimate on Migrant Workers” of the International Labor Organization, globally more than 150 million people are migrant workers – that is 4.4% of all working population worldwide.

These people increasingly demand for cheap, quick and reliable ways to transfer parts of their salary to relatives or the family at home.

This is where migrant workers live – nearly half of them in North America and in the western part of Europe (Source: Vita International: „150 million migrants in the global workforce”)

This is where migrant workers live – nearly half of them in North America and in the western part of Europe (Source: Vita International: „150 million migrants in the global workforce”)

Expanding mobility drives international money transfer volume

This is why international money transfer is a huge and highly dynamic market. International peer-to-peer (P2P) money transfer is a growing business and also correlates with the distribution of international workforce and labor migration: Most money is sent to countries abroad from the US (25,993 mn US$ in 2017), followed by the United Arab Emirates and Great Britain.

The total amount of international P2P payments accrued to US$ 74,740 mn in 2017 and is estimated to reach US$ 178,472 mn in 2022 – that’s a CAGR of 19% - in payments, this is undoubtedly one of the most interesting business opportunities.

Source: Statista

That growth is not only fueled by the growing demand in numbers of people – they also send higher average amounts of money. Studies expect an increase of the average transaction size of international P2P transactions from US$ 412.04 in 2017 to reach US$ 938.95 in 2022.

Source: Statista

International money remittance: from shabby to chic

While sending money internationally has long-time had a bit of a ”sub-prime“ touch, innovative FinTechs such as Transferwise are now entering the market with mobile-based products. And rightfully so, because there’s a huge potential for them to grow.

I also appreciate a lot that the terms and conditions are becoming fairer for the consumer: From complex fee structures and hard to validate exchange-rates, business models are now evolving to a transparent fee structure and exchange rates that are based on official central bank rates.

Transferwise offers a very competitive transfer rate by actually crowdsourcing the money people want to transmit (Source: Transferwise)

Transferwise offers a very competitive transfer rate by actually crowdsourcing the money people want to transmit (Source: Transferwise)

Travel smart – and save high foreign exchange fees

In the field of global travel, I also expect many new services to come up within the next years. All and foremost traveler’s cards that are made for the international use and that support multiple currencies – such as the FairFX Currency Cards.

There’s a lot to save for the international traveler, as foreign exchange fees still range between 1% and 2% for issuer-based currency conversion. When it comes to Dynamic Currency Conversion (DCC), the added cost base is even higher for the consumer – up to 5% in mark-up, depending on the local acquirers and merchant agreements.

Borderless payment – the lifeline for global trade

But it’s not only international travel that is pushing the demand for cross-border money transfer. Global trade is even more impressive. As an example, the China-based Alibaba Group, a pioneer of global trade services, increased its revenues from international trade with a CAGR of 24% between 2010 and 2017 – while domestic trade grew with a CAGR of 5% in the same period of time.

It’s not only the big players who are active in international or even global trade. More and more often, smaller players are selling internationally as well.

A recent study by Statista shows that more than 85% of the respondent merchants agree or strongly agree that international trade will play an increased role in the future.

Furthermore, more than 75% agree that offering local currencies significantly reduces the abort rate of checkouts.

Regarding payment instruments for international ecommerce, global schemes such as cards or PayPal are clearly leading – invoices or direct debits range behind.

Source: Statista

Conclusion: This is why Borderless Payment is a megatrend

Especially for smaller ecommerce players, cross-border payment acceptance and multi-currency pricing are still big challenges. As a result, I expect a significant uptake in services and applications around international money transfer and foreign exchange services especially for this group of customers.

This is why providing intelligent borderless payment solutions is a huge growth market for established players in the finance business as well as for new market entrants from the FinTech world. Needless to say there is a strong dependency to the other megatrends such as cashless society or financial inclusion, which by the way are the topics of other issues of this series (see the overview below).

These are the other articles of the Payment Megatrends series:

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