2020 was a pivotal year in modern history. The way people live has been dramatically disrupted, leading to changes not only in short term behaviours, but also in long-term market conditions. Although this has resulted in an unpredictable and uncertain environment, it has also expedited much-needed innovation.
The cross-border payments landscape has been particularly impacted by the pandemic, not least for emerging and frontier markets. There are some clear trends that will shape international money transfers and flows in 2021 and beyond.
1. Boost to trade flows from the UK into emerging markets.
Brexit will mean that the UK will seek new global trading relationships as it exits the agreements under which it traded as part of the EU. This new regulatory landscape will create impetus to boost trade with emerging markets in the Global South, therefore increasing business-to-business (B2B) cross-border payments.
2. Rapid rise in cross-border e-commerce to be a major engine for growth in cross-border payments.
COVID-19 has turbo-charged the growth of e-commerce, with more and more consumers buying online as standard. Globalised supply chains mean that e-commerce is becoming an ever more important engine of cross-border payment volume growth. In order to support the best possible customer experience and drive down costs, frictionless cross-currency transfers are required. We expect to see higher volumes of transactions between Western nations and emerging markets, coupled with further innovation from payment and settlement providers to address this new market need.
3. Digitisation of remittances will continue as the world moves away from cash.
As the pandemic has disrupted everyday routines, and driven consumers away from cash, the rate of digitisation in remittance being sent to markets has increased sharply. Adoption of mobile wallets on the receive side in emerging markets has not been uniform, and cash continues to play a key role in some parts of the world, but with more than 3.5 billion smartphone users globally
, the proportion of digital-to-digital remittance transactions will continue to increase rapidly.
4. However, the economic fallout of the pandemic will mean remittance volumes will continue to drop overall.
The pandemic has limited migration and led to global economic weakness and in 2021, we will continue to see the impact on overall global remittance volumes. The increased competition this implies could lead to continued consolidation in the fintech remittance marketplace. Hopefully in the second half of the year, we will see economies turn a corner and remittance volumes begin to recover, with those who have survived the market upheaval well placed to capitalize.
5. International development organisations (IDOs) will innovate to reach beneficiaries
Within the context of a challenging global economic landscape turndown, charities and non-governmental organisations (NGOs) will increasingly look for the most efficient way to channel payments into emerging markets hit by the pandemic, for example using mobile wallets to pay those in remote areas. These payments will be used to address important emerging use cases, such as remuneration for health care workers involved in vital vaccination programmes.
2021 will be the year cross-border payments become easier
All these trends drive towards an increased demand for efficiencies in cross-border payments and remittances. It will be an exciting time for innovation that facilitates money flows between Western and frontier markets. As such, we expect to see increased demand for solutions that facilitate cost effective B2B payments and remittances into emerging markets.