Fintech-banking partnerships can shape the future of cross-border payments

Steve Naudé, Head of Wise Platform

Businesses are more interconnected than ever. In today’s global economy, international payments have taken on new significance in enabling cross-border trade and investment. Despite this, businesses continue to be plagued by expensive fees and unpredictable timings when carrying out cross-border transactions – these inefficiencies stem from an opaque and outdated system.

The current process is simply not sustainable nor economical. It prevents micro, small and medium businesses (MSMBs), which already operate on razor thin margins, from tapping into their full growth potential and accessing new markets. A 2021 Wise report found that 56% of MSMBs are put off from going international due to the frustrations with existing international banking processes.  

It is no wonder that there has been a boom of fintechs and specialised digital providers that offer cheaper and faster payment experiences, and are increasingly becoming the platform of choice.

Yet, banks still capture a lion’s share of cross-border payments, reaching between 80-90% for B2B SMEs since 2019. Platform switching can be a chore for many customers, who hold entrenched habits and deep trust in incumbents, as well as lack resources or knowledge to trial new ways of managing money.

What if competition isn’t the way forward, but symbiotic partnerships? The benefits are certainly compelling. According to Cornerstone Advisors, nine in 10 financial institutions consider fintech partnerships to be important to their business, up from 49% in 2019, and nearly two-thirds of banks and credit unions have entered into at least one fintech partnership over the past three years. 

Fintech-banking partnerships: a win-win situation

There are significant opportunities to be unlocked from combining the agility and technology of fintechs with the reach and infrastructure of established banks. These partnerships can serve as a catalyst for global growth – with each new integration, more people and businesses get access to faster, better and transparent international payments.

Such integrations are often achieved using cross-border payment APIs (Application Programming Interfaces) which are embedded into a bank’s existing infrastructure. They help businesses, banks, platforms and financial institutions scale their capabilities quicker, streamline their payment processes and ultimately grow revenues  – removing many of the frustrations and costs associated with building out new functionality in-house. 

At Wise, we have made our APIs open to all our partners, where they can leverage our full technological spectrum according to their specific needs. We know that the right APIs from a fintech partner allows banks to access not only essential payment rails that facilitate the instant transfer of funds, but also a multitude of features from treasury liquidity management to seamless front-end experiences. The customer base for both parties has great potential to increase significantly due to the improved user experiences offered. Much of this collaborative innovation is already happening in Asia, driven by demand from tech-savvy customers that need digital solutions, fast payments and transparent pricing.

Allowing small businesses to reach their fullest potential

It is important to understand the impact of introducing cross-border payment APIs – a deceptively simple but enormously powerful solution – for banks, and in turn, their small business customers.

Partnerships, in essence, pave the way for a more dynamic, customer-driven landscape through open APIs. It can lead to new tools or efficient ways of working, and helps further establish a global network through which financial players can steer the fast and instant movement of funds. 

With crucial operational challenges out of the way, small business customers can focus on their core competencies and growth. Better, faster and transparent cross-border payments allow them to grow internationally through increased market access, reduced overall costs and financial inclusion.

  • Greater market access: As more businesses are going global and conducting operations from international markets, efficient payment rails enable them to reach customers, suppliers and talent across continents without being weighed down by convoluted payment procedures. 
  • Reduced costs and efficiency: Businesses, in particular MSMBs, stand to benefit substantial cost savings from real-time exchange rates, lower fees and transparent pricing models, without worrying about hidden costs that can erode their bottom line.
  • Financial inclusion: A significant portion of the population in emerging markets remains underserved by traditional banking systems. Partnerships can help bridge this gap and bring digital financial solutions to the underbanked and unbanked, allowing individuals and businesses to participate in the global economy.

The blueprint for successful partnerships

The success of a fintech-banking partnership hinges heavily on a mutual understanding of goals and seamless tech integration. It is not uncommon to see partnerships fail as both parties move too quickly without first identifying potential red flags and friction.

Both parties must see eye-to-eye on risk management and commit to a collaborative approach. At the increasingly fast-paced rate of financial innovation, there has been – rightfully – increased regulatory attention on compliance framework in fintech-banking partnerships, which can make partnerships appear riskier than they are and overshadow benefits. However, this worry can be alleviated if banks choose fintech partners who have demonstrated strong compliance expertise, and have experience managing regulations across different markets.

It is also crucial to form the foundation for an adaptable tech stack that can serve the needs and interoperability between both partners. In choosing which solutions to adopt, banks should look at plug-and-play solutions that require minimal integration effort, and fintechs should focus on offering adaptable solutions that can be layered with the bank’s existing capabilities.

As the global economy becomes increasingly interconnected, it is clear that fintech companies should no longer be seen as simply disruptors or competitors when it comes to international payments. Rather, they are integral partners who will play a major role in transforming international payments for good. Strategic partnerships between traditional banks and fintech players will redefine cross-border trade, and empower people and businesses to take part in a global marketplace.