Cross-border payments are often described as a problem that has already been solved.
Faster settlement, lower fees, real-time capabilities… On the surface, the progress is undeniable. Over the past decade, infrastructure has improved significantly, driven by new payment rails, better messaging standards, and sustained regulatory focus through initiatives like the G20 roadmap for cross-border payments.
But this view is too simplistic. What has improved is the movement of money within systems. What remains unresolved is how those systems connect. A payment today can move instantly within a domestic network, such as SEPA Instant in Europe or UPI in India. Yet the moment it crosses a border, it is exposed to a different set of constraints—fragmented standards, multiple intermediaries, inconsistent compliance requirements, and unclear pricing structures.
The result is a system that performs well in parts, but not consistently as a whole. According to the World Bank, the global average cost of sending remittances still hovers around 6%, well above international targets. At the same time, delays are more often driven by compliance checks and coordination between institutions than by the underlying payment rails themselves.
So while the narrative suggests completion, the reality is more nuanced. Cross-border payments have not been fully solved. The friction has simply moved – away from speed and into structure.
Not Fully Resolved, But Speed Has Improved
For a long time, speed defined the cross-border payments challenge. That is starting to change.
Across markets, faster alternatives are no longer theoretical. They are live, scaled, and widely used. Brazil’s PIX processes payments in seconds and has been adopted by the vast majority of the population. India’s UPI handles billions of transactions each month, making instant payments the default rather than the exception. In Europe, SEPA Instant enables near real-time transfers across participating countries.
Even traditional players have had to respond. Card networks such as Visa Direct and Mastercard Send now offer near real-time cross-border capabilities. Banks are upgrading their own systems, while SWIFT has introduced enhancements like GPI to improve speed and tracking.
But speed is still uneven. It depends on the corridor, the currencies involved, the institutions in the chain, and the regulatory requirements applied along the way. A payment may move quickly at the start and the end, yet still slow down in between.
This is the shift worth paying attention to. The industry has made real advances in how quickly money can move. But as speed improves, other constraints become more visible. Coordination between systems, consistency in compliance, and clarity in pricing now play a larger role in shaping the overall experience.
According to the Bank for International Settlements, improving cross-border payments increasingly depends on how different systems interact, not just how fast each one can operate in isolation.
A System That Works in Parts, Not as a Whole
If speed has improved, fragmentation is what now defines the cross-border experience.
Domestic instant payment schemes are expanding rapidly. Card networks have built global reach. Banks continue to rely on correspondent networks. On top of that, fintechs have introduced API-driven access to local rails, creating new layers rather than replacing old ones.
Individually, many of these systems are efficient. The problem begins when they need to connect.
A payment moving from the UK to India, for example, may pass through several stages. It can start in a domestic system, move through a correspondent bank, undergo FX conversion, and then settle through a local scheme such as UPI or RTGS. At each step, data may be reformatted, compliance checks reapplied, and liquidity accessed from different pools.
None of this is broken. But it is not seamless.
According to the World Bank’s Remittance Prices Worldwide database, the global average cost of sending remittances remains around 6%, highlighting that structural inefficiencies still persist despite improvements in underlying rails.
Efforts are underway to address this. The migration to ISO 20022 aims to standardise payment messaging and improve data consistency across systems. At the same time, bilateral links between domestic schemes are being explored to reduce reliance on intermediaries.
But these are incremental steps. The deeper issue is coordination. Systems have been optimised locally, not globally. Each operates within its own regulatory, technical, and economic framework. As a result, cross-border payments are less a single process and more a chain of interconnected systems, each introducing its own dependencies. This is why progress can feel uneven.
The industry has built faster components. It has not yet built a consistently integrated system.
The Liquidity Constraint
If fragmentation explains the complexity, liquidity explains the cost.
Cross-border payments do not move in a vacuum. They rely on capital being available in the right place, at the right time, in the right currency. That requirement introduces a structural constraint that is often overlooked.
Today, much of the system still depends on prefunding.
Banks and payment providers hold balances in multiple jurisdictions through correspondent accounts, ensuring that transactions can be settled when needed. This ties up capital across currencies and markets, often sitting idle to guarantee availability. For larger institutions, this is manageable. For smaller players, it is a meaningful barrier to entry.
According to the Bank for International Settlements, cross-border payment arrangements remain heavily reliant on such prefunded accounts, which can create inefficiencies in liquidity usage and increase overall costs.
This is where the economics of cross-border payments become clearer. Fees may be falling, and processing speeds may be improving, but the cost of maintaining global liquidity remains significant. It is absorbed by banks, priced into services, or passed on indirectly through FX spreads and other charges.
Efforts to address this are emerging. Some providers are investing in more efficient liquidity management models, including netting arrangements and real-time treasury optimisation. Others are exploring alternative rails that reduce the need for prefunding in certain corridors. But these solutions are still evolving and often limited in scope.
Cross-border payments are not just a messaging or processing problem. They are a balance sheet problem. And until liquidity can be managed more efficiently across borders, this layer will continue to shape both the cost and the accessibility of the system.
Pricing: From Visible Fees to Hidden Costs
For years, the cost of sending money internationally was relatively easy to understand. A transfer fee was applied, sometimes alongside intermediary charges. Today, many providers advertise low or even zero fees, positioning themselves as cheaper alternatives.
But the costs have not disappeared. They have moved. They are becoming harder to read.
In many cases, it now sits within the foreign exchange spread. The difference between the mid-market rate and the rate offered to the customer can vary significantly, especially for smaller businesses or less liquid currency pairs. Unlike upfront fees, this margin is often harder to detect and even harder to compare.
According to the World Bank’s Remittance Prices Worldwide data, FX margins continue to account for a substantial share of total remittance costs globally, even as fees have declined. This creates a different kind of challenge.
Lower headline pricing gives the impression of efficiency, but it can reduce transparency. A payment that appears cheap at the point of initiation may deliver less value at the point of settlement, with deductions that are not always clearly explained.
For businesses, this lack of clarity matters. Margins become harder to forecast. Reconciliation becomes more complex. And comparing providers requires a level of scrutiny that many smaller firms are not equipped to apply.
In the UK and across the EU, there is increasing pressure on payment providers to disclose total costs more clearly, including FX margins.
Regulators have started to respond. In the UK and EU, regulatory changes such as the amended Cross-Border Payments Regulation (EU 2019/518) now require providers to disclose FX charges more transparently, although implementation and comparability remain uneven.
Factoring In Compliance
As payment infrastructure improves, compliance is playing a larger role in shaping cross-border experiences.
Transactions moving across jurisdictions are subject to multiple checks, including sanctions screening and anti-money laundering requirements. These controls are often applied by several institutions along the payment chain, sometimes leading to duplication and delays, particularly when transactions are flagged for review.
The Financial Action Task Force has noted that differences in how AML and counter-terrorist financing measures are implemented across jurisdictions can add complexity to cross-border payments.
There is also a broader impact. The World Bank has observed a decline in correspondent banking relationships in some regions, partly linked to compliance pressures, which can affect how payments are routed.
Technology is helping streamline parts of the process, but variation between regulatory frameworks remains a factor. As a result, compliance is becoming a more visible part of how cross-border payments function in practice.
Stablecoins and New Rails
New payment rails, including stablecoins, are often presented as a step change for cross-border payments. In certain contexts, they are.
Stablecoins such as USDC and USDT are already used in specific corridors, particularly where access to traditional banking infrastructure is limited or where speed and continuous settlement are important. In these cases, they can reduce reliance on intermediaries and enable faster transfers.
At the same time, their use remains context-dependent.
Most cross-border transactions still begin and end in fiat systems. This means on- and off-ramps are required, introducing additional steps, costs, and regulatory considerations. Treatment also varies across jurisdictions, with frameworks such as the EU’s Markets in Crypto-Assets (MiCA) regulation aiming to bring more clarity, while other regions are still developing their approach.
The Bank for International Settlements has also noted that stablecoins raise questions around governance, reserve backing, and financial stability, particularly as they scale.
As a result, their role in cross-border payments is becoming clearer. They can improve efficiency in specific use cases, particularly within digital or closed-loop environments. But they do not remove the need for the broader financial infrastructure that supports global payments.
Correspondent Banking Is Evolving
Correspondent banking is often described as a legacy model under pressure. There is some truth to that. Compliance requirements have increased, costs have risen, and a number of banks have reduced their correspondent relationships over the past decade, particularly in higher-risk regions.
Despite the growth of new payment rails, correspondent banking remains a key part of how cross-border payments are executed. It continues to provide global reach, currency coverage, and a framework of established relationships between financial institutions.
What is changing is how it operates.
There has been a gradual shift towards fewer, more concentrated relationships, combined with investment in improving efficiency and transparency. Initiatives such as SWIFT gpi have introduced better tracking and faster processing, while the transition to ISO 20022 is improving the quality of data exchanged between institutions.
At the same time, data from the Bank for International Settlements and the World Bank shows a decline in the number of correspondent banking relationships globally, reflecting a more selective approach by institutions.
This points to a model that is adjusting rather than disappearing. Correspondent banking is becoming more focused, more regulated, and more supported by technology. While alternative rails are emerging, they often complement rather than replace this layer.
From Movement to Predictability
Cross-border payments have moved forward in meaningful ways. Speed has improved across many systems. Costs, at least at the surface level, have come down. New rails and technologies are expanding what is possible. Domestic payment schemes have set new standards, and global initiatives continue to push for better outcomes.
But the system, as a whole, remains uneven. The challenge is no longer defined by how quickly money can move from one point to another. It is shaped by how systems interact, how liquidity is managed, how pricing is presented, and how compliance is applied across jurisdictions.
Each of these layers introduces its own dependencies. This is why progress can feel inconsistent. A payment may be fast in one corridor and delayed in another. Costs may appear low at initiation but vary at settlement. Processes may be streamlined in one market and more complex in the next.
What businesses increasingly look for is not just speed, but predictability. Clarity on when funds will arrive. Transparency on what they will receive. Confidence in how the process will unfold.
The next phase of cross-border payments is likely to be defined less by building new infrastructure, and more by improving how existing systems connect and communicate.
Because moving money is only part of the problem. Understanding how it moves is what ultimately defines the experience.
Originally published at finextra.com by Ozan Ozerk
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