This year saw the emergence of an important new demographic for financial services – the global citizen.
This fast-growing segment does not consider borders in terms of lifestyle, access or travel and is spending more than ever on goods and services outside of their home countries – on education for their children, medical care for themselves and their family members, real estate, luxury items and other offerings that bring diversity and culture to their life experience.
We’ll see this demographic continue to grow in 2017 and beyond and flex their spending power in new ways.
This will have a significant on the service providers and channels used to process international payments. These cross-border transactions are typically complex and fraught with challenges for both the payor and payee – especially when dealing with important life events.
Businesses looking to appeal to this segment must take steps to reduce the friction in today’s cross-border payment process and find ways to make them more convenient, transparent and cost effective.
Digital channels dominate
As international payments become more common, consumers are seeking out the most convenient, cost efficient and transparent channels available.
We are already seeing these transactions moving to web channels vs. traditional agent or bank-based alternatives due to the significant advantages of online options; e.g., convenient access to fast, cost-efficient and transparent payments, and the ability to pay in local currencies via familiar options such as bank transfers, online banking, and credit and debit cards.
Payment speed and convenience aren’t the only drivers for global citizens. Their top priority is ensuring the payment gets to the institution on the other end.
The certainty of funds is also critical to the receiving institution – assurance that the amount owed is the amount received, along with the data that goes with it to reconcile their own ledgers.
In 2017, international payment service providers that depend on physical agent-based models will see increasing pressure to move even more of their business to digital, and do it quickly.
Security takes on even greater relevance
Not surprisingly, payment security will also increase in importance in 2017.
Both payors and payees are looking for protection against fraud and assurances of compliance with any international regulations. And with governments’ increased focus on cutting-off financing sources to potential terrorists, any entity processing large, cross-border payments will need to have secure systems in place to verify sources and recipients; ensure strict compliance with anti-money-laundering laws and provide detailed transaction reporting.
This year also saw an increase in more local forms of fraud – bad actors trying to take advantage of international students and patients by offering supposed discounts on their tuition or fees, and threatening them with fictitious penalties for immigration taxes and other types of fraudulent fines.
This type of activity will lead many institutions to protect their customers by clearly designating preferred payment channels and providers and investing in efforts to educate their customers to conduct their transactions solely through those channels.
Payor expectations rise
With consumers around the world making large sum payments from different time zones, the number and frequency of payment-related questions and inquiries will rise – at all hours and in a variety of languages.
Schools, hospitals, tax agencies and others are not necessarily equipped to be in that business. Any entity accepting large, cross-border payments in any volume will need to be able to provide ancillary support services related to those payments – in-house or via qualified third parties. 24×7 customer support will become a minimum requirement.
The opportunity in cross-border payments continues to grow
The international education market is estimated to be $53B worldwide in 2016-2017. Over one million international students studied at US colleges and universities alone in the 2015-2016 academic year. And another 600,000 studied in Europe and Australia.
Medical care is another prime spending area for this segment. Industry groups estimate as much as $40 billion per year is spent each year by patients traveling outside of their home countries for care. And it is growing at 15-25% per year.
Foreign real estate investments are not new, but they are increasing with new wealth being created in Asia and other emerging regions Over $100B in U.S. real estate is owned by foreigners. And interestingly, about 1/3rd of those same people send their kids to the US for school.