Banks' Strategies in Global Money Transfers: An Overview
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In a comprehensive analysis of banks' investments in cross-border payments up to September 2024, several key priorities and trends have emerged.
Investment Priorities and Trends
Banks and financial institutions are focusing on digital transformation to reduce costs and innovate revenue models amidst challenges like capped interchange fees. There is a strong emphasis on adopting modern standards such as ISO 20022 to improve interoperability, fraud prevention, and efficiency in international transactions. Additionally, collaboration with fintechs is increasing, driven by the rising preference of global SMEs for fintech solutions facilitating flexible, innovative products for cross-border payments.
Methodology and Frequency of Analysis
The analysis derives from aggregated transaction and investment data, including payment volumes and market development reports covering financial volumes and investment fund growth throughout 2024. The cross-border payments landscape is continually updated with quarterly and annual comprehensive reports by authoritative bodies like the ECB, BIS, and payment industry associations, using both volume and value metrics as well as qualitative assessments of service innovation and market participation.
Top Investors and Investment Amounts
The largest investments are coming from banking groups and non-bank financial institutions (NBFIs) including pension funds and insurers who engage heavily in cross-border financial transactions through portfolio investments and derivatives for hedging currency risk. While exact amounts in cross-border payment infrastructure are not specified, there is a notable increase in funds placed in financial markets, with investment funds notably growing 30.8% year-on-year, reflecting significant capital flow into related financial infrastructure.
Company and Institution Types
The key players include traditional banks, NBFIs (e.g., pension funds, insurers), clearing and settlement entities like those operating the TARGET2 and T2S platforms, fintech firms offering multi-currency accounts and seamless cross-border services, and central banks modernizing their RTGS/payment systems.
Geographical Distribution
There is a strong contribution from European banking infrastructure with platforms like TARGET2 facilitating significant cross-border payment traffic, especially involving parties outside the European Economic Area (EEA). More than 75% of tiered business in TARGET2 came from outside the EEA, demonstrating expansion beyond European markets. Latin America is also emerging as a focus area, with fintech partnerships aimed at improving cross-border payments in Brazil and wider regions. Meanwhile, US-dollar based cross-border activity remains significant, with major roles played by non-US pension funds holding US assets and managing FX risks globally.
Case Studies
Notable examples of banks' investment in cross-border payments include Goldman Sachs, which invested in consumer finance platform GreenSky and later acquired it in 2021 to scale its consumer arm Marcus. Similarly, Visa invested in Currencycloud in 2019 and acquired it in 2021 to strengthen its Cross-Border Solutions division.
Future Outlook
The conclusion and future of bank investments suggest that the industry-leading newsletter provides more information on this topic. The data on over 3,600 investments across 19 of the world's biggest banks from 2019 to September 2024 has been analysed to explore changes in banks' investments over time. The analysis of this data reveals trends that offer more information about where banks are focusing their investment efforts. Investments in specific companies can provide insights into banks' thinking about the cross-border space and potential expansion areas. However, it's not always clear where banks' payment priorities lie due to their connection with wider business.
In summary, banks’ investments in cross-border payments in 2024 emphasize digital modernization, integration with fintech, adoption of global messaging standards, and managing complex FX and funding risks. Investment volumes have grown notably, with European payment systems showing increased activity and international reach, while expanding focus on emerging markets and fintech-enabled corridors drives geographical diversification.
- Banks and financial institutions are investing in digital transformation and adopting modern standards like ISO 20022, which are essential components of their finance strategies.
- Notable increases in funds placed in financial markets indicate a significant focus of banking groups and non-bank financial institutions (NBFIs) on cross-border financial transactions, as part of their broader finance-related investments.
