As we've become more globalized, the demand from businesses and individuals for faster, easier, and cheaper cross-border payments has increased. This year, total cross-border remittances will amount to more than $22 trillion worldwide and are set to exceed $25 trillion within just two years.
With such vast sums involved, McKinsey estimates that each transaction yields an average of $20 for the bank which is a large profit margin. Now, the industry is facing pressure to become cheaper and more efficient. What's driving this demand, and what's in store for the future of cross border payments?
Individual consumers are a significant growth market for cross-border payments. In the developed world and among the growing global middle classes, e-commerce is also a huge growth factor.
However, as discussed at length migrants from developing countries face some of the biggest hurdles in sending money back to family in their homeland, many of whom may be among the world's 1.7 billion unbanked. This explains why, looking at the historical timeline of money transfer firms, Western Union has maintained a market stronghold for more than 150 years now. Throughout that time, the company has remained the go-to means for anyone to send or receive cash, regardless of their banking status. The catch is that it comes with fees, which could stretch to over eight percent in some cases.
High speed vs. low cost
Even for those with a bank account, improvements in cost and speed of remittance have been small. Interbank network SWIFT rolled out its Global Payments Initiative (GPI) in 2017, aiming to create a fast and frictionless cross-border payment service.
By the end of 2018, the service had been adopted by 270 banks worldwide, making it possible to send international payments within 1-2 days, whereas previously it would have taken 4-5 days. However, many emerging economies such as Mexico and Turkey are not yet operating at SWIFT standards and miss out on its benefits.
Because the banks are failing to live up to demand, PayPal remains a popular choice, although again, it's a costly service with fees over 4% for international payments.
Competing firms such as TransferWise and Payoneer offer slightly more cost-effective alternatives to PayPal but still have only slightly pushed down fees leveled off since around 2016. One key challenge to lowering costs for these companies is that they're still dependent on the banks which still charge them high fees.
Crypto is now the front runner in cross border payments
The emergence of distributed ledger technologies and blockchain is proving to be a game-changer for global payments.
Blockchain enables people to send and receive cryptocurrencies, securely, cheaply, and near-instantly, from anywhere in the world. Although Bitcoin was the first cryptocurrency, there are now several blockchain projects starting to shake up the global payments industry.
The oldest and most prominent of these is Ripple Labs. The company has developed a product called RippleNet, a global ledger of private blockchains which are used as payment gateways. Any financial institution or payment provider can join the RippleNet, and once they do so, they can interact with other members, exchanging payments quickly and cost-effectively.
RippleNet can process payments in either fiat or cryptocurrencies, using its own cryptocurrency, called XRP, to maintain liquidity across the network. RippleLabs counts over 200 institutions as its partners, including American Express, Santander, and Standard Chartered. This explains why XRP is currently the #3 cryptocurrency in the world.
While Ripple is firmly focused on the existing financial infrastructure, other contenders have emerged with similar but subtly different targets. The Stellar network for example is an open-source, distributed payments infrastructure, but unlike the RippleNet, anyone can join the network.
Stellar boasts an impressive advisory team, which includes Patrick Collison (CEO of payment services company Stripe), Matt Mullenweg (founder of Wordpress) and Naval Ravikant (founder of AngelList.)
OmiseGO for example are also working on payment processing, however, they are focusing on improving financial inclusion in the developing world. It's an independently operated extension of Asian venture-backed payment company Omise. OmiseGO operates in a similar way to Ripple but is fully decentralized and available to individual users through its open wallet.
OmiseGO has the leverage of the existing relationships established by Omise, which include serving as a payment processor for Chinese giant Alipay. The project has also secured high-profile partnerships for payment processing with McDonald's and the Thai government.
It's true that the financial sector has made steps towards increasing the speed and lowering the cost of cross-border payments in recent years. However, demand is outstripping the pace of development. If blockchain and cryptocurrencies fulfill their initial promise, these technologies could ultimately replace the existing financial infrastructure with faster and cheaper cross-border payments, challenging the banking sector in a way it hasn't been challenged since the internet was invented.
- Marie Kondo's 2014 book, The Life-changing Magic of Tidying Up, has sold over 9 million copies.
- The Japanese organizer's success has turned into a popular Netflix show, Tidying Up With Marie Kondo.
- De-cluttering your home has an emotional resonance, says Kondo.
One way to limit clutter is by being mindful of your spending.
- Overbuyers are people who love to buy — they stockpile things as a result. These are individuals who are prone to run out of space in trying to store their stuff and they may even lose track of what — and how much of what — they have.
- One way overbuyers can limit their waste, both money and space wise, is by storing items at the store, and then buy them when they really need them.
- Underbuyers tend to go to extraordinary lengths to not buy things. They save money and do fewer errands, however, they often make do with shabby personal items. They may also, when they finally decide to go out to buy a product, go without entirely because the item may no longer be available.
It's almost time for spring cleaning.
- The "ex-factor test" is imagining wearing an outfit and determining whether you'd feel good in it if you saw your ex on the street.
- Another tip is to place stray accessories in a box and determine whether they are handy in your everyday life. If not, especially after a long period of time, get rid of the items.
- If there's something you can do in less than a minute that will make your life easier in the long run, do it immediately. "You're getting rid of the scum on the surface of life," says Rubin about doing so.
The famed author headed to the pond thanks to Indian philosophy.
- The famed author was heavily influenced by Indian literature, informing his decision to self-exile on Walden Pond.
- He was introduced to these texts by his good friend's father, William Emerson.
- Yoga philosophy was in America a century before any physical practices were introduced.