Traditionally, the cross-border payments market has been dominated by the banking industry, with little room for new entrants, let alone competitors. Big banks were the only option for customers despite various pain points that made moving money internationally a tedious, convoluted process. These challenges hit SMEs hardest. A lack of transparency, long settlement periods, and high costs made international transactions a slow and expensive process. This caused considerable cash flow issues for small businesses that already didn’t have the resources to absorb these setbacks.

However, in recent years the market has experienced a boom in the emergence of solutions tailored to address these pain points. There’s been innovation in payments tech, new legislation, and finally, new fintech entrants who are all ready to rail against the status quo. These three areas are leading to a shift in conventional thinking and are opening the sector up to new ideas and a boost in solutions for businesses that operate internationally, especially benefitting SMEs who can now start to enjoy some much-needed flexibility.

Advancements in payments technology, such as APIs

Cross-border payments are at the forefront of innovation in the fintech sector at the moment. It’s a sector that has experienced significant disruption in recent years with the exploration of technology such as blockchain and cryptocurrency. Technological developments within international payments have been the engine room of the industry’s reformation. For the provider, cutting-edge technology limits systemic issues and provides the smoothest possible platform and UX to provide to the customer. For the end user, improved functionality is just the beginning. Greater technology allows for greater transparency which, in turn, is one of the key strengths of modern payments solutions.

The increasing role of APIs in global payments has been a massive development. When it comes to viewing, sending and tracking payments, enhanced API connectivity provides businesses with a whole new level of visibility and reliability.

Customer trust growth through legislation

The strict legislation that payment service providers are now subject to which has led to increased trust from customers. Protecting funds is a key part of today’s global payments, and two (becoming three) directives, in particular, have helped instil faith in fintechs’ ability to do that: PSD1, PSD2, PSD3. The aim of PSD1, implemented in 2007, was to expand the market and ensure better regulation of electronic payments within the European Union. Further to this, PSD2, which was implemented in 2018, was intended to strengthen the security of electronic payments and open the banking application programming interfaces (APIs) to third-party payment service providers. This allowed the payments sector to see real competition and innovation. PSD3 promises to improve upon the earlier two directives, focusing on creating high-quality standards and infrastructure that will strengthen open banking and offer the right balance of regulatory and commercial opportunities. PSD3 is a way to drive home the aims of PSD1 and PSD2, with the ultimate goal to support European businesses to enjoy faster, safer, and more cost-effective payments.

In Europe, Payment Service Providers (PSPs) are subject to very strict legislation that give them an advantage on three fronts. First, all payments institutions are required to segregate client funds, keeping them separated from other funds held by the company and ensuring that only the client can access their specific funds. Second, each PSP must safeguard funds intended for the execution of payment transactions by depositing client funds in joint client accounts held at EEA credit institutions. A third way PSPs are held to a strict standard of trust is that – as opposed to a bank regulated as a credit union – they are not allowed to carry out any banking services, like credit, deposits, wealth management or any service that may expose them to market risks. At a time of such market turbulence, this extra aspect of protection from market risk is well sought-after.

New entrants fixing yesterday’s problems

Because of this freedom to explore and expand flexibility, there are several new fintech entrants every day. They’re entities that are wholly separate from the banking sector and who directly solve the issues of long-wait times and high transaction costs that have plagued the landscape. Today’s payments industry is geared towards fixing those problems, protecting customer funds, and ensuring quality of execution.

This is especially crucial for SMEs, who – with more limited budgets and scope than the big banks or financial institutions – can better leverage their offerings through the flexible, secure, and efficient network of networks that is now developing. They don’t have to depend on rigid infrastructure or bear the cost of employing a massive financial institution to make the payments part of their business work. The freedom for choice in the payments ecosystem has never been higher.

Choosing the right partner

Today’s payments sector players and their customers are enjoying the flexible, bespoke services to be had when there’s a bedrock of trust, tried and true legislation, and the freedom for innovation in place, but choosing the right partner has never been more important. The wide availability of specialists allows companies to take control of their money and avoid systemic risk, but for them to truly flourish and scale as well, they need a specialist on their side that properly understands how to navigate a challenging market. In a time where physical borders, procedures and business uncertainties are growing, companies need the right partner to ensure that they’re able to succeed.

Pierre-Antoine Dusoulier is CEO at iBanFirst