Individual consumers can transfer money easily and at low cost through apps like Venmo and Zelle, but cross-border payments—especially those between businesses—are far more complex.

Cross-border payments still commonly rely on the correspondent banking system, where funds are routed through a network of correspondent banks, incurring delays and layered fees. Critics point out that this model lacks transparency. Compared with person-to-person (P2P) payments, corporate payments often require more complex "know your customer" (KYC) processes and the exchange of more documentation.

"New entrants typically offer lower fees, faster transaction speeds, and higher levels of automation through application programming interfaces (APIs)," said Nick Maynard, principal analyst at Juniper Research.

Historically, banks have dominated the cross-border payments market. For individual consumers and small and medium-sized businesses (SMBs)—entities that typically transfer smaller amounts of money—the pain points center on high costs, transaction times that can take days, and the inability to track payment progress in real time. According to World Bank data, the global average cost of sending $200 was 6.5% in the fourth quarter of 2020.

"Traditional cross-border remittance methods have various delays and fees," said Erika Baumann, senior analyst at Aite Group. "You may not know upfront what those fees are, and if the recipient receives less due to correspondent bank deductions, you have to send another supplemental transaction."

Baumann noted that the large banks with the deepest correspondent banking relationships in cross-border payments include JPMorgan, Citibank, BNY Mellon, and Bank of America. Analysts interviewed by Payments Dive did not disclose specific transaction volumes but mentioned well-known fintech companies active in cross-border payments, including Wise (formerly TransferWise), Ripple Labs, Rapyd, Banking Circle, dLocal, and Payoneer.

In recent years, fintech companies have tried to make cross-border corporate payments cheaper and faster. They have done so mainly in two ways: by building cross-border payment channels that do not rely on traditional banking networks, or by providing technology solutions that help customers access traditional banking networks more easily. While banks still dominate the global remittance market for large corporations, fintech companies are steadily gaining market share in serving customers with smaller transfers, especially SMBs.

However, the cross-border payments market is not a simple "banks versus fintech" binary. Instead, the market is evolving toward a "coopetition" model, with banks and fintech companies both seeking to serve customers beyond their core client bases. Moreover, the need for "interoperability" between banking and non-banking networks is driving closer collaboration between the two sides.

Overview of the cross-border corporate payments market

According to Juniper Research forecasts, global business-to-business (B2B) cross-border transaction volumes will approach 14 billion in 2021. The research firm says that by 2022, the total value of B2B cross-border payments will reach $35 trillion. Other institutions—including consulting firm EY—have higher estimates, suggesting that global cross-border payment flows will be worth $156 trillion by 2022. Of that, EY estimates $150 trillion will be B2B transactions and expects total cross-border payment flows to grow at 5% annually.

Most large banks rely on the Society for Worldwide Interbank Financial Telecommunication (SWIFT) cross-border payment network to process international payments. SWIFT is a global member-owned cooperative with more than 11,000 member banks. Since 2017, SWIFT has gradually rolled out the Global Payments Innovation (SWIFT gpi) initiative to improve the speed and transparency of cross-border transactions, enabling faster settlement (often within a day, or even minutes). Customers using SWIFT gpi can also track payment progress in real time. A SWIFT spokesperson told Payments Dive that more than 75% of SWIFT payments now go through SWIFT gpi.

Analysts believe banks dominate cross-border payments for large corporations because these companies transfer enormous sums of money, and because banks often provide added value through other business relationships with large enterprises.

Hugo Cuevas-Mohr, president and CEO of Mohr World Consulting, estimates that in the cross-border corporate payments market, the share fintech companies can compete for represents about 25% to 30% of total transaction volume. One reason banks dominate the market is their ability to offer ancillary services.

"Know your customer is critical for any financial institution moving money, and knowing a business is more complex," said Cuevas-Mohr. "You need more information and you keep paper records."

While SWIFT gpi helps address obstacles in cross-border payments, it has not completely eliminated all friction points, especially when dealing with banks that are not connected to the SWIFT gpi system.

"Not every bank in every region or country will adopt SWIFT gpi, so to some extent you still have to rely on the correspondent banking model," Baumann said.

Fintech companies that have built their own cross-border payment networks

Two well-known fintech companies that have built their own cross-border payment systems are Wise, an 11-year-old company headquartered in London, and Ripple, a 9-year-old company based in San Francisco that works with banks and payment service providers.

Wise's corporate cross-border payment system operates similarly to its personal international remittance service. The company has a network of local accounts around the world; recipients receive funds from Wise's local accounts, so money does not actually cross borders. This makes transfers cheaper and faster than traditional foreign exchange methods, with delivery times ranging from 30% instant to up to two days. Wise also works with banking clients to provide foreign exchange services.

Alastair Thompson, head of global business development and partnerships at Wise, said Wise processes $72 billion annually, of which 20% to 25% is corporate payments. A significant portion of the company's corporate clients have fewer than 50 employees, and Wise is developing technology to serve mid-sized corporate clients with up to 250 employees. Through partnerships with technology companies such as accounting platform Xero and corporate expense management platform Emburse, Wise has expanded its reach among mid-sized companies. However, Wise's per-transaction limit is $1 million, so it cannot yet serve large corporations transferring large sums, nor can it offer forward contracts (locking in exchange rates for buying or selling currency at a future date).

"At the very top end of the corporate scale, we are not yet involved for multiple reasons," Thompson said. "Our sweet spot is single payments ranging from tens of thousands to hundreds of thousands of dollars." He added that single payments above $1 million are typically made through SWIFT. Wise claims it saves customers $1 billion in transaction fees annually compared with traditional bank cross-border payment methods.

Meanwhile, Ripple works with banks and corporate clients to provide blockchain-based cross-border payment solutions.

"The current cross-border payment infrastructure is built on systems developed in the pre-internet era," said Pat Thelen, vice president and managing director at Ripple. "As a result, remittance costs are disproportionately high relative to the size of small payments, and they often disproportionately affect the most vulnerable."

Thelen told Payments Dive that Ripple's payment network, RippleNet, uses blockchain technology to enable instant transfers while offering transparent fees, real-time payment status, and certainty. RippleNet also offers an on-demand liquidity service that uses the digital asset XRP as a bridge between two currencies. Not all Ripple customers use the on-demand liquidity service: some use RippleNet's messaging and settlement layer, with liquidity providers on the network supporting cross-border transfers.

According to the company, RippleNet allows users to send cross-border payments within 3 seconds, with sender costs below 1%. American Express is a notable U.S. customer, but 90% of Ripple's cross-border customers are outside the United States, including Santander Bank, Japan's SBI Group, and Siam Commercial Bank, Thelen said. Ripple has "hundreds of customers" in total and processed nearly 3 million transactions through RippleNet in 2020, up nearly fivefold from the prior year, Thelen said.

Thelen said that while activity on Ripple's cross-border payment network comes more from individual consumers, the company is capturing growing demand from SMBs, including cross-border supplier payment scenarios.

In December of last year, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Ripple, alleging it conducted a $1.3 billion unregistered securities offering by issuing XRP, a digital currency associated with the company. Ripple is contesting those allegations in court.

Network service providers: fintech companies that help banks and businesses access traditional cross-border payment methods

Other fintech companies—including Payoneer and Rapyd—do not build parallel cross-border payment networks. Instead, they help businesses and financial companies access the traditional bank-dominated cross-border payment channels more easily.

Payoneer announced in February that it planned to go public through a merger with a special purpose acquisition company (SPAC). The company said all of its payment volume is corporate payments. According to a recent SEC filing, the company processed more than $44 billion in payment volume last year. Charles Rosenblatt, the company's chief strategy officer, said "more than 80%" of Payoneer's payment volume is cross-border transactions.

"We don't feel the need to use alternative channels outside of banks," Rosenblatt said. "We use SWIFT to move money in different scenarios, so what we need to provide is a better user interface, user experience, and compliance framework."

Payoneer and its peers differentiate themselves by offering customers a more customized, user-friendly interface. "Bank functionality was not designed for high-volume batch payments," Rosenblatt said. "For our customers, we create a more convenient experience than using a bank, and we have more features and capabilities than most banks."

Brendan Miller, global head of product marketing at Rapyd, said the company uses bank transfers but, through its proprietary API, developers can customize the user experience. Rapyd's API allows customers to access functions such as payments, checkout, collections, payouts, compliance, and card issuing.

The future of bank-fintech coopetition

Citibank processes $4 trillion to $5 trillion in payments daily, most of which are business-to-business payments (without breaking out the cross-border share). The bank continues to invest in improving the cross-border payment customer experience while enhancing transparency and speed. This includes routing payments to non-bank channels (such as digital wallets); building tools to improve communication with customers about cross-border payments; and leveraging advances in industry messaging infrastructure, including SWIFT gpi.

"SWIFT gpi is like putting a FedEx tracking chip on payments, so you always know where the funds are," said Manish Kohli, global head of payments and receivables at Citibank. "While SWIFT gpi itself does not speed up payments, greater transparency and payment data help banks like Citibank route cross-border transfers better, sometimes significantly reducing transfer times."

The bank has also built client-side tools that can be used for cross-border transactions, including Citi Payment Insights, which provides visual tracker status updates, and Citi Service Insights, which allows customers to communicate with the bank about payment issues and track the status of inquiries.

Regarding fintech companies, Citibank said it does not view them as competitors because many non-bank payment service providers are themselves Citibank customers. "We work with these payment companies," Kohli said. "Some we invest in, and some we use as components of our solutions." He cited PayPal's partnership with Citibank, which allows Citibank's institutional clients to make payments to customers' PayPal digital wallets through Citibank's cross-border payment platform.

Large banks are also using emerging technologies, including blockchain, to improve the cross-border transfer process. For example, in April, JPMorgan announced it was using blockchain to improve fund transfers between global financial institutions, including payments originating from Taiwan banks to receiving banks in other markets.

As banks invest in technology to meet customer needs, some industry observers believe that bank-led innovation in cross-border payments is at least partly driven by pressure from fintech companies.

"I think they are very worried about fintech companies," said Vinay Prabhakar, vice president at Volante Technologies, a cross-border payment technology company that works with banks and fintechs. "Fintechs have agility, technical capability, and no legacy baggage, which allows them to move faster."

As banks and non-bank institutions continue to innovate, competition may ultimately give way to coopetition, with bank and non-bank payment methods becoming increasingly interconnected. For example, in 2019, a Ripple executive said its products and SWIFT "can be highly complementary." Additionally, Wise said in an April filing that one of its corporate payment goals is "to receive funds via SWIFT as a Wise for Banks partner."

A challenge many non-bank closed-loop payment networks face is the lack of interoperability with existing cross-border payment channels such as SWIFT.

"Some payment service providers operating in closed-loop systems have seen limitations in their reach, and some non-bank payment service providers are actually connecting to traditional banking networks to build that reach," said Isabel Schmidt, product head of direct clearing and asset account services at BNY Mellon.

Schmidt said BNY Mellon is among the top five U.S. banks in cross-border payments. She declined to provide specific ranking data but said the vast majority of the hundreds of thousands of transactions the bank processes daily are cross-border.

Schmidt believes what may come next is a move toward a more integrated cross-border payment ecosystem, connecting various banking and non-bank participants, each targeting specific customer segments.

"I think all players will focus on or try to find their niche, clarifying where their differentiation lies and where they can create value," she said. "In the coming years, the overall payments landscape will actually become more complex before it becomes much simpler."