The cross-border payments landscape is undergoing a major shift, and traditional banks are feeling the heat.
With digital solutions gaining ground, you may wonder whether the legacy ways of handling international transfers are still up to the task.
In this article, we’ll take a closer look at traditional bank cross-border payments, how they’re falling short, and why the digital route might be a better choice for both consumers and businesses alike.
We’ll also explore how digital cross-border payment solutions are stepping up to meet the needs of the modern world, and how they compare to the traditional system.
What Are Traditional Cross-Border Payments?
Put simply, cross-border payments are financial transactions in which money is transferred between two parties that are in different countries.
This may come in the form of:
- Remittances: These refer to the direct transfer of money between individuals, typically across borders.
- Business/e-commerce payments, which include paying international suppliers and receiving customer payments across borders, often in multiple currencies.
Traditionally, cross-border payments have been handled by banks using the correspondent banking network. Banks that don’t have a direct relationship with one another use this method, by means of intermediary banks to help transfer funds internationally.
The way it works is seemingly simple.
Let’s say Bank A in the U.S. wants to send money to Bank B in Spain but doesn’t have an account with them. So, both banks use a correspondent (go-between) bank to help facilitate the transfer.
Interestingly, in this context, the term “cross-border payments” might be a bit misleading. The transferred funds aren’t technically “paid”. Rather, what happens is that accounts in one country are debited, and corresponding accounts in another country are credited.
While the correspondent system sounds pretty straightforward, it’s unfortunately not without its complexities.
For popular currencies like the U.S. dollar and Euro, fewer intermediaries are generally needed—making transfers faster and cheaper.
But for less commonly traded currencies, more intermediaries must often get involved, with each link in the chain adding more delays and fees to the process.
Changing Tides in Cross-Border Payments
As the world rapidly (and fully) transitions into the digital age, we are seeing two major trends reshaping how the financial sector provides services.
New Demands for More and Faster
Whether it’s buying a coffee at a local bar or making an international transfer, people today expect transactions to be quick, affordable, and easy.
According to the Federal Reserve, the demand for real-time payments is surging as consumers and businesses expect immediate access to their funds. In fact, in 2023, 86% of businesses and 74% of consumers used faster or instant payments.
In short, consumers want and expect things now, especially as mobile-first solutions become the norm.
With smartphones becoming the go-to tool for everything, financial institutions must be able to provide seamless, user-friendly experiences for all transactions—not just domestic ones, but also across borders.
Emerging Markets
Developing nations are increasingly vital to the global economy. However, citizens in these countries still face significant roadblocks in accessing the financial services they need to sustain their livelihoods and businesses.
With over two billion unbanked adults worldwide, financial inclusion remains a challenge—many still don’t have access to basic banking options.
But the landscape is changing as new technologies step in to bridge this gap. These innovations are helping to reach underserved populations, fueling growth in both retail and consumer adoption of financial services.
This shift toward digital cross-border solutions is especially crucial as remittances to low- and middle-income countries now surpass other financial flows. High fees—averaging 6.35% per international transaction—still pose a major hurdle, underscoring the urgent need for more affordable cross-border payment options.
Why Traditional Banks Are Struggling
Despite the demands and challenges—and even opportunities—that the above trends present, many traditional banks offering cross-border payment services continue business as usual, with no updates in sight.
But why?
- Reliance on correspondent banking: The correspondent banking network has been in place for over a century and provides a familiar structure for banks to facilitate international transactions. For many institutions, it’s simply easier to stick with a long-established system than to overhaul their systems.
- Outdated infrastructure: Despite the growth of digital payment solutions, many traditional banks still lack the modern technology or partnerships needed to move away from correspondent banking.
- Limited innovation: Traditional banks are known for being notoriously slow to adopt emerging technologies, especially in digital banking. In fact, in 2023 75% of banks struggled to implement digital solutions due to legacy infrastructure.
- Reticence to invest: Making the switch from correspondent banking to newer technologies involves costs, both in terms of financial investment and training staff. Many traditional banks consider it more cost-effective to maintain their current systems.
As it stands, many banks remain stuck in their old ways, unable to offer the speed and convenience the world is now used to.
This creates a major point of friction, particularly for people who need to send funds quickly. On top of high fees, recipients often have to wait several days for the money to clear, which feels like an eternity in an era of instant transfers.
Moreover, immigrant communities and underserved populations face additional challenges with traditional banks’ cumbersome processes—leaving them at a disadvantage in today’s digital, connected world where cross-border payments should be easier and more inclusive.
The Digital Cross-Border Payments Response
As banks fail to evolve their services at the same pace as demand, the traditional approach to making cross-border payments is quickly becoming obsolete.
Enter the game-changing alternative: International B2B digital payment solutions.
Industry leaders like UniTeller are revolutionizing how consumers and businesses move their money around the world—offering speed and security, at a fraction of the cost compared to traditional banks.
With real-time transfers, transparent and affordable pricing, and top-tier security, digital is quickly becoming the only viable option for cross-border payments.
As the global B2B payments market grows into the hundreds of trillions of dollars, the demand for faster, more efficient options is sure to only intensify.
UniTeller’s Digital Solutions for Cross-Border Payments
If your business is still relying on traditional bank methods for cross-border payments, it may be time to take a different course of action.
Put simply, banks can’t keep up with the growing demand for fast, affordable, and secure transactions—and slow transfers, high fees, and outdated processes are very likely holding your business back.
In other words? As the world moves towards digital payments, sticking with traditional methods could pose a serious risk to your ability to stay competitive.
The good news is that, with platforms like UniTeller and uLinkbusiness, you can execute transactions in real-time, at a fraction of the cost, and with much stronger security.
The future of cross-border payments is here, and it’s digital. Learn about our suite of cross-border payment solutions today!
