Improvements in currency transactions and cross-border payments are at the heart of the digital financial system。Over the past few years, the emergence of new fintech companies and digital payment platforms has made progress in addressing long-standing financial pain points.。

The development of technological mechanisms has enabled banks to move more traditional services online, while fintech innovators have provided consumers with more borderless products.。Advances allow us to improve the way users conduct transactions, while further democratizing specific economic services and products, and allowing banks and remittance operators to adjust future strategies based on key consumer trends and financial indicators。

However, now, the competition between enterprises is more intense than ever。Institutional players need to be repositioned to better understand how potential risks and challenges beyond cybersecurity issues can help the financial system evolve in the coming years.。

Risks and challenges of cross-border payments

The rapid growth of digital payments and, perhaps more importantly, cross-border payments has led to a flood of new entrants seeking to redefine how consumers transact.。

In the short term, however, with the launch of dozens of new money service providers, there may be a lack of identification of potential long-term risks and how recent challenges to the global monetary system pose a threat to individuals, banks and financial institutions.。

As financial digital infrastructure continues to evolve and become more complex, identifying key issues and understanding possible solutions may help to clarify the direction of these financial service providers。

Compliance and standardization

Managing compliance and standardization across multiple jurisdictions remains a near-term challenge for many financial businesses。More importantly, as these businesses experience cross-border transactions and increased demand for advanced products, the challenge of understanding compliance is becoming more prevalent in the value chain.。

There is also a need for a strategic deployment of a compliance and standardisation framework, which will allow multiple financial jurisdictions to be considered, but develop a long-term vision for the development of regulatory regulations within the industry.。Not only is this a daunting task in itself, but it requires a significant number of key data points to fully understand how to improve compliance and standardization of these practices。

Currently, policies regulating cross-border and digital payments are self-regulated by regional laws and overseen by financial providers.。However, as the demand for these services continues to grow, a fragmented understanding poses greater security risks to users, businesses, and key stakeholders.。

Accountability

Developments in accountability do not take into account advances in these digital payment tools and platforms。Consumers and organisations are in a grey area of vulnerability where third-party service providers such as fintech companies cannot adequately protect stakeholders.。

Other loopholes in the regulatory framework governing the use of technology within the financial ecosystem will only create further challenges for stakeholders, as they cannot accurately determine who is responsible for the risk of loss, damage or any potential threat.。

The requirement will allow policymakers to act more aggressively on these existing vulnerabilities and further ensure that those most at risk can rely on regulation to hold service providers accountable for any type of discrepancy.。

Defective Customer Due Diligence (KYC)

Intergovernmental initiatives, such as those highlighted by the Financial Action Task Force (FATF), provide clear guidelines for users and financial service providers on the protection of critical data。

However, in recent years, the development of digital financial services has far outpaced the effective deployment of such guidelines.。Growing concerns about customer due diligence (CDD) flaws have increased consumer risk and posed a greater threat to the domestic banking system。

The framework developed by the FATF in 2019 expressed concerns about cross-border payments and wire transfers using insufficient CDD infrastructure.。Both banks and financial service providers need to develop CDD infrastructure and encourage responsible use of these services by deploying cybersecurity networks, the FATF said.。However, these standards are often just recommendations on a larger scale, as regulators and legislators need to apply their effective application and implementation of FATF standards equally.。

Credit fraud

It is clear that the increase in credit-related fraud occurring on cross-border payment platforms。As these systems typically operate in multiple jurisdictions, channels for service providers to share and assess the creditworthiness of cross-border transactions remain limited.。

This in itself creates further legal and regulatory loopholes for all relevant stakeholders。Institutional participants need to develop a working mechanism that allows them to assess and track the credit status of these transactions, especially in the context of rising cybersecurity risks。

The current lack of clear guidelines on how third-party participants can proactively develop work plans has hampered the forward-looking development of fintech and further pushed consumers and businesses using these systems into the risk of malicious fraud.。

Transparency and complexity

In the past, cross-border transactions faced complex challenges such as security issues and exchange rate fluctuations.。In recent years, however, these barriers have been addressed by viable solutions, but there is still a high degree of complexity that challenges not only the way the industry develops, but also the technology used to power these systems。

The ability to reduce complexity comes at the cost of security, which will only cause further problems in the short term。In addition, reducing the complexity of sending and receiving cross-border payments should be an industry-wide priority, rather than financial service providers seeking to address these issues individually.。

This ultimately depends on the ability of cross-border payment companies to provide users with accessible and transparent services, minimizing risk while ensuring the security, reliability and efficiency of transactions。Increased transaction transparency can help users determine the ability to deliver their funds, which can help win long-term customer loyalty for businesses。

Efficiency

A MasterCard report shows that more than a third of small businesses have started using international suppliers following the outbreak.。The rise of e-commerce and the ability to send and receive transactions more seamlessly has enabled many SMEs to expand their customer base。

As financial services become more borderless and third-party businesses have viable solutions to secure digital wire transfers and cross-border transactions, it is expected to increase further in the coming year.。

However, due to the lack of digital infrastructure in some countries, the efficiency of this application is still low.。To meet international standards, these service providers need to equip their local regions with the necessary digital infrastructure to improve efficiency.。

As many service providers offer more online services and democratize financial transactions, it seems that the challenge of efficiency will continue to be the work of many service providers in the coming years.。This means that many stakeholders will lose representation, increasing competition in local markets and raising safety concerns when regulation is not in place.。

transaction cost

The cost of cross-border transactions has declined over the past few years as more international players enter the market。

According to the World Bank, international payment platforms have the lowest transaction costs, about 5% of total transactions..39%。However, banks have higher fees, with the average transfer cost accounting for 6.3%。

Although the average cost of these transactions has declined in recent years, it is still somewhat out of range for many consumers and businesses looking to benefit from foreign transactions.。

Merchants who cannot afford these costs often pass them on to consumers, increasing their service and product fees。Over time, users receiving foreign income or international wire transfers will lose more valuable income due to high transaction costs。

Fees and higher costs of these transactions seem more reasonable when the total amount of transactions is large。However, for users who send and receive smaller amounts, these costs may still be a financial burden in the long run。

Conclusion

The rapid growth of cross-border payments has enabled consumers and merchants to operate in close proximity to each other, even though they are located in different geographic locations.。

However, there are still risks and challenges that require business attention to ensure the safety of users and the long-term economic benefits of using these services.。

For financial service providers and third-party agents, developing solutions that are not marginalized within a specific geographic region helps ensure that forward-looking improvements across the digital finance industry are implemented, rather than dealing with these ideas individually.。