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Cross-border payments are expanding at a pace that exceeds global GDP growth, driven by the increasing need for businesses to trade internationally and individuals to transfer money across borders. This market is set to grow at an impressive rate of 5.6% per annum, fuelled by technological innovations and a rising demand for seamless global transactions.
As much as 15% of legacy banks’ global payments revenue, or approximately $280 billion, is expected to be displaced by the rise of digital payments and increasing competition from fintech firms like Rutland FX. By 2030, global payments are projected to surge from USD 190 trillion in 2023 to USD 290 trillion, highlighting the significance of this rapidly evolving sector.
What does a cross-border payment cost?
Cross-border payments come with costs, which can vary significantly depending on the amount of money being transferred and the method used. The Remittance Prices Worldwide (RPW) report by the World Bank regularly provides insights into these costs. According to their most recent data, the average global cost of sending $200 is 6.35%, amounting to about $12.70. This percentage gives a snapshot of what smaller, personal transfers cost, but it’s only part of the picture.
For businesses that regularly send larger amounts abroad, the costs can be even more significant. It’s common for banks to charge around 3% for cross-border payments, even for transfers as large as $50,000. In this case, a 3% fee would equate to a hefty $1,500 in costs. Banks often justify these fees by pointing to factors such as market risk and the operational expenses associated with international transactions. However, this often reflects the profit margin that banks aim to secure, leaving businesses to bear the brunt of high transaction costs for cross-border transfers.
How Rutland FX cuts the cost of cross-border payments
The payments industry is comprised of a variety of players, each targeting different segments of the market. Rutland FX, a specialist in foreign currency transactions, stands out by offering cost-effective cross-border payment solutions for businesses and individuals. Due to the significant volume of currency moving through its platform, Rutland FX secures wholesale exchange rates, enabling them to pass on substantial savings to their customers. Depending on the bank you benchmark against, as well as the currencies and volumes involved, Rutland FX can be up to 17 times cheaper for international money transfers.
In addition, Rutland FX employs automated reconciliation systems that seamlessly match incoming funds and dispatch payments. This eliminates the need for manual processing, which was once common in the industry, where operations teams relied on multiple card readers to dispatch payments, often causing delays and missed cut-off times. The introduction of automation has streamlined these procedures, increasing efficiency and accuracy.
While traditional banks often maintain their “cash cow” status without adopting the latest advancements in technology. In contrast, Rutland FX’s focus on automation and cutting-edge technology enables it to operate more efficiently, offering faster and more competitively priced services compared to traditional banks.
The question of free cross-border payments
While some fintech firms are striving to make cross-border payments free or extremely low-cost, achieving completely free transactions remains a significant challenge. Many fintech companies initially entered the market with promises of zero or minimal-cost transfers. However, as they scale and face the complexities of maintaining such services, some have introduced fees to sustain their operations.
Several factors contribute to the difficulty of offering free cross-border payments. One major challenge is compliance costs. Cross-border payment firms must adhere to local anti-money laundering (AML) and know-your-customer (KYC) regulations in every jurisdiction they operate, which significantly increases operational expenses. These costs are difficult to absorb if transactions are offered for free.
Another key factor is the cost of maintaining a secure and reliable payment platform. Fintech companies must invest heavily in software development and IT infrastructure to ensure close to 100% uptime — a critical requirement in financial services. The ongoing maintenance of these platforms, coupled with essential cybersecurity measures like two-factor authentication and fraud protection, adds substantial costs. While necessary to guard against cyber threats, these investments make it challenging to offer fee-free services.
Additionally, correspondent bank fees remain an issue. While domestic payments within the same currency are often free, cross-border payments involving currency conversion typically require intermediary banks to facilitate the transactions. These banks charge fees that add to the overall cost, making completely fee-free cross-border services difficult to achieve.
Although fintech innovations continue to drive down the cost of cross-border payments, factors such as compliance, security, platform maintenance, and correspondent bank fees mean that offering truly free transactions is not yet feasible. The current infrastructure and regulatory landscape still present significant hurdles to eliminating charges entirely.
