Clear Junction CEO Dima Kats sat down with our reporter George Iddenden to discuss how challenges to the cross-border payments sector are becoming bolder with the increase in geopolitical tensions and, contrary to some within the payments space, how he believes the regulatory frameworks offer enough security.
What are some of the major trends we are seeing in the cross-border payments space at the moment?
The majority of the trends we are seeing at the moment aren’t new, despite the world being a very different place to what it was five years ago.
The pace of cross-border payments growth is still increasing, albeit slower than in the past. I believe we’re headed towards a strengthening in the person-to-person (P2P) transfers as opposed to B2B transfers.
I expect to see a decline in the growth of the expansion of B2B payments as more and more businesses move onshore, this is happening quite frequently across the US and China for example.
Alongside these trends, we’re seeing a lot more people looking to send money home from abroad. There has been an uptick in this given the number of Ukrainian citizens moving to the West as they flee the conflict.
This only helps to contribute to the increase in growth in the P2P space.
In your opinion, what are some of the greater challenges and inefficiencies the industry faces?
I don’t think that there are any absolutely new challenges, the majority remain the same but they have become bolder and more challenging.
For example, on the regulation side, there has always been risk. However, because of the increase in the pressure of the sanctions regime globally, regulatory difficulties aren’t going anywhere.
On the contrary, they are becoming more significant; banks and payment service providers now have less of an appetite to facilitate cross-border payments.
This means the risk of a regulatory compliance breach is becoming greater, with recent developments in the Middle East not making the situation any simpler.
We’ve seen the trend over the last couple of years whereby the number of correspondent accounts – which are what banks use to make payments outside of their geography – are reducing. In short, it’s not getting any easier to move money across the globe.
What regulatory changes do you think are needed to facilitate smoother, more secure cross-border payments over the coming years?
I mentioned the regulatory pressure becoming greater, I actually think that the pressure is very reasonable. I’m not complaining, I think that’s the way our society needs to protect itself.
I think the reaction of the industry to this increase in the regulatory pressure is reasonable. That is the price we pay for further geopolitical polarisation in the world.
Unfortunately, this price ultimately must be paid by consumers or businesses — that’s the nature of this world.
How will blockchain technology affect cross-border payments and will it help to solve any issues?
There are some businesses that have decided to use the blockchain based payments as one of the ways to make things more work more efficiently.
That being said, the same challenges remain there too and I don’t think there is a way to remove those challenges altogether.
I do believe that the introduction of stablecoins will help with the efficiency of cross-border transactions, and I think we are a lot closer to that at the moment than to the launch of central bank digital currencies (CBDCs).
Alongside this I think that stablecoins can remove some of the dependency on corresponding accounts, so provided we have clear regulatory frameworks, they may be the solution for institutions who involved in cross-border payments.
What needs to happen to continue the growth of cross-border payment technology?
If we can increase the inclusivity in this market to more geographies and more companies operating overseas, that will only make doing business simpler.
But I’m sceptical about any easy solutions here, I don’t believe they exist.
It’s not just about moving the money, it’s about moving money in a compliant way. It’s a need of our society that has to protect itself and to protect the consumers.
For cross-border payments, the regulatory compliance is much more complex and sophisticated for a reason and I fully understand why.
Is the regulatory framework keeping up with the growth of cross-border payments technology?
Maybe some of the industry members will disagree with me here, but I do think that the regulatory frameworks are pretty much in line.
They can’t develop faster than the technology and they can’t develop faster than the industry and they are trying to catch up but I believe at least here in the UK, that the regulators and the policymakers do a good job in catching up with the technological progress especially when compared with their peers abroad.
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