India's tryst with cross border payments
A primer on cross border payments
With India's growing exports, wide acceptance of digital payments and an ever growing network of countries that we do business with -- cross border payments is one of the most interesting spaces in fintech to watch for.
While B2B foreign remittances have always existed, a new age entrepreneur is not going to line up at a large private sector bank's branch to transfer foreign currency outside of India, they'd probably use a reliable platform with a superior user experience. These remittances are often of high value & low frequency. On other side, students studying abroad would be eagerly awaiting their pocket expenses to be remitted every month (or even every week) along with tuition fees. These P2P transactions will only increase with superior technology and clearly laid out foreign remittance rules even though govt is actively trying to disincentivise the movement of money outside India by putting 20% TCS (tax collected at source).
Movement of money happens via laid out protocols (example NEFT, RTGS, IMPS etc). These protocols are easy to adhere and follow when you're transferring within your country but can quickly become complex when you want to move money outside of your country. The most acceptable protocol is SWIFT (though there is nothing swift about it) which involves multiple banking institutions and can also attract regulatory attention to prevent money laundering from either countries.
Cross border payments can be an excruciating experience for individuals and companies due to lack of transparency around forex conversion charges, hidden charges & condition, maintaining regulatory overheads and fluctuating forex prices which can deeply impact the bottomline. On other side, the companies who are solving for these challenges see a great opportunity due to the sheer market size & high barriers to entry once you've built your secret sauce using technology & integrations.
While RBI has been supportive to these startups, we are yet to witness the ''UPI'' moment with the cross border payments & we are quite well positioned to do so. In fact, Mr. Shaktikanta Das (RBI Governor) recently said “I strongly believe cross-border payments can be made more efficient through adoption of CBDCs and this is an area which should receive close attention.”
Would be exciting to see if CDBC can help in democratising cross border payments.
If you'd like to understand the 101 of what goes behind the scenes, I highly recommend watching this video from a16z.
Some notable companies operating in this domain
Zolve (US Bank account for Indian students and OCIs)
BookMyForex (P2P payments, acquired by MakeMyTrip)
Cashfree Payments (part of RBI's 2nd cohort)
Fairexpay.com (part of RBI's 2nd cohort)
PayNearby (part of RBI's 2nd cohort)
Open Financial Technologies (part of RBI's 2nd cohort)
WSFx Global PayNium
Additional reading links below
RBI Press Release - https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=54057
A report by PwC on evolving landscape for cross border payments - https://www.pwc.in/assets/pdfs/consulting/financial-services/fintech/point-of-view/pov-downloads/the-evolving-landscape-of-cross-border-payments.pdf
a16z global payments - https://a16z.com/global-payments/