The landscape of cross currency payments is taking on a whole new look — creating challenges for corporate financial managers and the need for new banking solutions.
The volume of cross-border payments, particularly transactions in the $500 to $500,000 range, keep escalating for a variety of reasons. Global trade continues to recover, spurred on by new trading routes and alliances. Borderless e-commerce is on the upswing, along with cross-border business-to-consumer payments, due to workforce mobility and the fact that more companies are using foreign contractors and outsourcing overseas. In addition, new global business models — like those of web-centered businesses Airbnb and Booking.com — are contributing to the growing volume of these payments.
One illustration of this growth can be seen with the tremendous rise of borderless e-commerce. PayPal estimates that online shoppers spend over $300 billion a year across borders, up from $105 billion in 20131.
At the same time, the FX volatility associated with these payments has continued to grow, due to economic and political uncertainties, central bank interventions, ambiguity in Europe and the long-term strengthening of the U.S. dollar. Many of the “safe haven” currencies deemed as major currencies generally associated with less volatility have continued to fluctuate significantly, with some losing over 30%2 of their value over the last two years, as can be seen with EUR and CAD versus USD with exotics fluctuating much wider.