FinTech Disruption in the Cross-Border Payments Landscape
‘Software is eating the world.’ Marc Andreessen
The statement holds just as true more than a decade later, and FinTechs continue redefining financial services. They are changing how people interact with money through technological implementations. And a key area of innovation has been cross-border payments.
The increasing demand for more efficient and streamlined international transfers has created a market, and where there is demand, inevitably, a solution will arise.
The crucial players in the cross-border landscape are Money Service Businesses (MSBs), entities that engage in the business of converting, sending, and receiving payments internationally. Through multi-banking approaches and the creation of APIs, they have delivered faster, cheaper, and more secure cross-border payments.
But these businesses still face enormous short-term liquidity demands because, at their core, MSBs still rely on the SWIFT network- outdated infrastructure.
Advances Under the Current Infrastructure Model
Estimated to process over $190.1 trillion in 2023 the cross-border payment industry continues to grow at a terrific rate. As the world becomes increasingly globalized, these international payments are the liquidity highway, and Fintech solutions have challenged and disrupted the bank-dominated model.
At a high-level MSBs operate aggregation and prediction models- they still run on the basic SWIFT architecture. They offer improved settlement speeds and cost reductions by leapfrogging the SWIFT system with the pre-funded model.
FinTech solutions aggregate payout partners and banking networks, allowing them to optimize capital routing. They use prediction models to ensure that there is always sufficient liquidity with the respective payout partner to settle transactions between Nation A and Nation B.
But there must always be the right amount of liquidity, and it must always be in the right place. Compounding this issue is the immense short-term liquidity demands of the industry, and MSBs walk a razor-thin tightrope.
Part and parcel of the business involves bloated accounts worldwide waiting for settlements. And this capital inefficiency has been accepted as a mandatory component of operating in the sector.
The proliferation of FinTechs has helped strengthen the landscape with more disruptive players doing business with other disruptive players helping to optimize wherever optimization is possible. But these marginal gains cannot be expected to viably support the coming decades and the inevitably accelerating liquidity demands for international settlements. However clever the solutions implemented by FinTechs, the significant fund movements still rely on instructions sent via the SWIFT messaging channel.
Clients may continue to receive faster settlements and lower costs, which is excellent news. Although this is brilliant for end users, massive capital inefficiency will remain a permanent feature in the background.
The time has come for a more meta-development and an authentic movement away from the pre-funded model.
Meta-Innovation & MoneySwitch’s Deep Liquidity Layer
MoneySwitch is a FinTech providing an infrastructural upgrade to the cross-border landscape. Through its bespoke liquidity services, MoneySwitch adds a layer that MSBs can rely on regardless of time zone, hour, or day. MoneySwitch’s services operate around the clock every single day of the year.
This liquidity, accessible when needed, provides a tool that MSBs can integrate into their business models. And when satisfied with the availability and depth of the service offered, a keystone for aggressive expansion.
The predominant cross-border transaction model fundamentally changes with the introduction of this deep liquidity layer. Instead of holding idle deposits in banks, MSBs plug into the MoneySwitch dashboard and access the required capital on a flexible basis- hence the name Just-In-Time Liquidity.
This model counters the traditional inefficiencies inherent to the SWIFT network and the current methodology for leapfrogging the system- the pre-funded model. Instead of pre-funding payout partners, MSBs connect to the MoneySwitch dashboard, obtain the necessary liquidity, and make settlements.
MoneySwitch’s deep liquidity layer harnesses the new monetary primitive blockchain technology provides. It implements the fluidity and mobility of capital enabling MSBs to compete and succeed in the modern era. And will aid them in servicing the demand of tomorrow.
MoneySwitch is a FinTech for FinTechs powering the next era of fluid global value transfer.
