How banks and PSPs can navigate cross border payment challenges in emerging markets

By Sophie Proctor

As the world becomes more interconnected, cross-border payments have become an essential aspect of the financial services industry. However, for banks and payment service providers (PSPs) in emerging markets, the challenges of these payments can be significant. These challenges include high transaction costs, regulatory hurdles, and currency volatility. Fortunately, Verto is revolutionising the industry by providing effective solutions tailored to the unique needs of these institutions. 

High Transaction Costs: Impact and Contributing Factors

High transaction costs are one of the most significant challenges facing banks and PSPs in emerging markets. According to the World Bank, the global cost of sending remittances was around 6.5% in Q3 of 2020, with costs reaching as high as 8.5% in Sub-Saharan Africa. These high costs can be attributed to a range of factors, such as inefficient correspondent banking networks, multiple intermediaries, and a lack of transparency in the process. This percentage can put a significant dent in the overall revenue of banks and PSPs.

For banks in emerging markets, high transaction costs pose a significant challenge as they directly affect their competitiveness and profitability. The expenses associated with maintaining correspondent banking relationships, SWIFT messaging fees, and other operational costs can be particularly burdensome for banks with limited resources. Furthermore, the high fees passed on to customers may result in reduced transaction volumes and customer dissatisfaction.

Regulatory Compliance: Navigating Diverse Landscapes 

Another challenge facing banks and PSPs in emerging markets is navigating the diverse regulatory landscape. Anti-money laundering (AML) and Know Your Customer (KYC) requirements vary across jurisdictions, creating complexities in ensuring compliance for cross-border payments. A report by McKinsey highlights how regulatory changes and de-risking measures can have a severe impact on financial institutions, as seen in the Caribbean banks’ loss of access to international banking services.

For banks in emerging markets, navigating diverse regulatory environments can be resource-intensive and time-consuming. Ensuring compliance requires robust systems and trained personnel, which can be costly for banks with limited resources. Additionally, non-compliance can result in reputational damage, financial penalties, and strained relationships with correspondent banks, further exacerbating the challenges faced by these institutions.

Currency Volatility and Liquidity Constraints: Fluctuating Exchange Rates and Limited Access

Currency volatility and liquidity constraints are additional complexities of cross-border payments in emerging markets. These factors can add significant challenges to the process, as seen in the Argentine currency crisis, where the peso’s rapid devaluation caused significant challenges for banks and PSPs involved in international transactions. Additionally, limited access to foreign currency in some markets can hinder your institutions’ ability to facilitate cross-border payments seamlessly.

Banks in emerging markets are heavily impacted by currency volatility, as fluctuating exchange rates can affect their balance sheets and profitability. Managing exchange rate risks requires sophisticated financial instruments and expertise, which may be inaccessible for smaller banks. Moreover, limited access to foreign currency can result in higher transaction costs and delays, negatively impacting banks’ ability to serve their customers effectively.

Verto: Revolutionising Cross-Border Payments for CEOs and CFOs

Verto is addressing these challenges by offering a tailored solution for banks and PSPs in emerging markets. With a focus on transparency, cost reduction, and efficiency, Verto’s platform streamlines the cross-border payment process. By leveraging advanced technology, Verto reduces transaction costs, improves FX trades, and provides real-time exchange rates.

Moreover, Verto helps your institutions navigate the complex regulatory landscape by ensuring compliance with AML and KYC requirements. The platform’s secure infrastructure minimises currency volatility risks, providing access to almost 50 currencies while ensuring liquidity. By offering a comprehensive solution that addresses the unique challenges faced by banks in emerging markets, Verto can streamline financial operations for banks and PSPs looking to grow.

Cost Reduction and Enhanced Transparency

Verto’s platform reduces transaction costs by eliminating the need for multiple intermediaries and streamlining the payment process. This allows your bank to pass on the cost savings to your customers, fostering customer satisfaction and loyalty. Additionally, Verto’s total transparency and real-time exchange rates provide greater visibility for both banks and their customers, enabling better financial decision-making.

Simplified Regulatory Compliance

The Verto platform simplifies the process of adhering to AML and KYC regulations by automating compliance checks and maintaining up-to-date information on regulatory changes. This enables your bank to focus on its core operations while ensuring compliance with local and international regulations. By reducing the time and resources required for regulatory compliance, Verto can help your institution minimise the risk of reputational damage, financial penalties, and strained relationships with correspondent banks.

Mitigating Currency Volatility and Ensuring Liquidity

Verto’s platform addresses the challenges of currency volatility and liquidity constraints by providing access to almost 50 currencies and real-time exchange rates. This enables your bank to offer competitive exchange rates to your customers while minimising the impact of currency fluctuations on your balance sheet. Furthermore, Verto’s liquidity management features ensure that your bank has access to the necessary foreign currency when required, allowing you to facilitate seamless cross-border payments. Explore Verto’s FX solutions.

Next steps  

The challenges of cross-border payments can significantly impact revenue for banks and PSPs. These challenges include high transaction costs, regulatory hurdles, and currency volatility. However, with Verto’s tailored solution, these challenges can be mitigated, enabling your institution to compete in the global market. By offering a platform that streamlines cross-border payments, reduces costs, and ensures compliance, Verto empowers your bank to provide efficient and effective services to your customers. Additionally, Verto’s solution provides access to almost 50 currencies and real-time exchange rates, minimising the impact of currency fluctuations on your balance sheet and ensuring liquidity.

In conclusion, it’s time for banks and PSPs in emerging markets to take advantage of Verto’s solutions and revolutionise the way they handle cross-border payments. With Verto, your institution can thrive in the competitive world of cross-border payments while enhancing the financial experiences of your customers.

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