Facilitating low-cost and seamless cross-border payments for Micro, Small, and Medium Enterprises (MSMEs) is necessary to propel them towards achieving 60 per cent of the $2 trillion export target by 2030. For businesses, particularly MSMEs (which contribute 45 per cent of total exports now), reduced payment costs makes them more competitive by lowering foreign exchange costs.

India is also the highest recipient of remittances and the high cost of remittances is also a significant burden on the global Indian diaspora, who sent home about $125 billion in 2023, with transaction fees amounting to approximately $7-8 billion. It is estimated that the global average cost for sending remittances stands in excess of 6 per cent of the transaction value.

Until recently, cross-border payments were slow and cumbersome, often involving manual processes. Transaction charges for cross-border payments remained high, going up to 8 per cent including forex charges, SWIFT/wire fees, platform fees, and service fees.

However, the high cross border payment charges are not the only challenges faced by businesses and freelance professionals working with overseas clients. Exporters and freelancers frequently face delays, sometimes of up to a week for funds to settle into their accounts.

The lack of transparency, speed, high processing charges, and absence of real-time tracking lead to losses and adversely affects businesses. Additionally, traditional cross-border payment methods were limited to banking days and hours.

While conventional banking systems today have significantly improved their infrastructure, innovations such as virtual accounts, digital currencies, blockchain and artificial intelligence are also being used to reduce transaction times and costs by fintechs and payment aggregators.

New payment solutions based on Application Programming Interface (APIs) and blockchain are helping to address the pain points in this challenging process. APIs enable end-to-end payment tracking, offering visibility into the payment’s progress and information on what may be causing a delay for both the payer and the beneficiary to examine.

Cross-border payments are now therefore easier to automate, resulting in greater efficiency and transparency than ever before. Most importantly, it will also help lower the transaction charges associated with cross-border payments as the payments interface would streamline the dealings between international banks.

The UPI way

Replicating the domestic success of NPCI’s Unified Payments Interface (UPI) in cross-border payments can also serve as a critical element. One of UPI’s major advantages is the use of Virtual Payment Address (VPA), which acts as a unique identifier for payments. It helps in simplifying transactions by requiring only the linked mobile number making it an instant payment system, which completes and settles transactions in near real-time.

Collaborations like India’s UPI with Singapore’s PayNow and Thailand’s PromptPay aim to address these issues. The RBI and the UAE have also signed agreements to enhance cross-border payment efficiency, reducing transaction costs and fostering financial inclusion, benefiting businesses and expatriates.

Additionally, the exploration and testing of Central Bank Digital Currencies (CBDCs), such as India’s Digital Rupee, also hold significant potential for revolutionising cross-border payments.

India’s proposal at MC13 in Abu Dhabi in February 2024 to reduce the cost of cross border remittances has garnered support from numerous WTO members, including the European Union. By leveraging the success of UPI, promoting interoperability and interlinkages of digital payment infrastructures, and fostering international cooperation, India can lead the way in boosting the efficiency of money transfers globally.

The writer is founder and CEO, Skydo, a cross border payments platform

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