Haven’t we often wondered how to invest in foreign stocks but found the process quite complicated? Well, cross border payments in India have traditionally been a tight regulated space.

The process has always been difficult; and, transaction costs have never been easy on the pockets of consumers either.

As India is growing into a larger economy, activities around cross-border remittances have increased manifold.

The RBI revised the limit for LRS (Liberalised Remittance Scheme), which led to a massive increase in outward remittances. However, it is not at par with inward remittances. India, which has one of the largest diaspora, received a huge amount of global remittances from NRIs and OCIs. It received remittances of about 87 billion dollars in 2021, as per data from the World Bank.

Gradually, the RBI is also broadening avenues through which fintechs can facilitate cross-border payments to customers. This will also enable customers to invest in foreign stocks and bring the global companies to them.

In this context, Global Fintech Fest, 2022 organised a panel discussion. The fintech founders and leaders provided their take on cross border payments. Reeju Datta, the Co-founder of Cashfree Payments talked about how the RBI is pushing fintech players to bring innovative solutions for cross-border remittances, as part of the panel.

Reeju Datta was joined by other fintech founders and industry veterans – Viram Shah, CEO and Co-founder of Vested Finance, Somnath Mukherjee, AVP – Business at Zerodha, Ronit Kar, Head of International Stocks at Groww, Prakash Venkatramani, Senior Director of Global Payments – India at Flywire and Anthony Petrilli, CEO, ViewTrade – who discussed all things global investments and cross border payments.

Role of Fintech Players 

The discussion began with Reeju bringing to the spotlight the shift in the cross-border payments system that the fintech players are fast becoming a part of. He said,

“Earlier only authorised dealers could carry out such transactions. Although it is still the same, the RBI is encouraging fintechs to partner with them. Fintechs will partner with these regulated entities and provide services that make it easy for customers to make cross-border payments.”

He highlighted the three main factors the regulator and fintechs need to look at, to bring about said ease in transacting. Ease can come from

• Lower costs which means that the cost of per transaction is reduced
• Faster movement of money to save time and allow speedy processing of transactions
• Simplified documentation process associated with such payments as international transactions have more compliances than domestic ones

Digitalisation is key for this change. If documentation becomes digital, customers can make cross-border payments with just a few clicks. The complex process of documentation has been deterring Indian customers from investing in foreign stocks or the US stock market.

Other panellists added that they have solved the system of inward remittances to a great extent. However, we need to simplify the process of outward remittances. Cost, time and effort are the three buckets that need improvement to make cross-border payments more accessible. By effort, they meant the steps that a customer has to take for transaction.

Retail Participation

With enhanced processing of remittances, a lot of retailers’ participation can come into picture. So far it has been the large ticket size and bigger institutions doing their remittances via banks or channel partners and the like.

Now, with investments and broader use cases of remittances, retail participation will enhance and support the cross-border remittance ecosystem. Therein lies business growth, in terms of overall remittances as a business for fintech players. 

To take this to the next phase, participants like banks, payment aggregators, payment gateways and platforms providing end-user support will have a big role to play along with the customers.

Anthony Petrilli from ViewTrade, representing the receiver’s end, pointed out an important issue in the discussion. He said that cross-border payments by definition means that there is a partner on the other side. Even they have the same issues and concerns as they are regulated entities as well.

They have to conform to regulations when receiving money from the bank or a broker. The fintech leaders often miss the receiver’s perspective when searching for solutions within the country. It is important to coordinate so that partners on both ends can address these concerns. The aim for both partners is to enable a seamless and cost-effective cross-border payment system. 

Current Challenges in the Landscape of Cross-Border Payments

Reeju Datta addressed the question regarding the current challenges in the landscape of cross-border payments. He pointed out a couple of them such as:

• Processing of LRS payments that customers could earlier only do through banks. This holds true for capital account transactions under the LRS, that is, investing in stocks securities etc.

Going to the bank means involvement of paper forms. Banks also usually have the SWIFT mode of transaction – a one-off transaction with a high cost. It is difficult for someone who wants to invest about Rs. 2000 if the transaction cost itself is Rs. 2000. Digitalisation is a big step towards tackling this challenge

• When the processing is slow, money takes time to reach its destination that is to reflect in the customer’s account and be available for investing. Digital processing will make it quicker.

If regulators enable the different aggregators to process these LRS capital transactions, money movement will also become faster.

Also, the KYC documentation should be made efficient.

For example, they can employ the CKYC flow, supposed to be the most advanced flow of documentation. It is a bulk/aggregate settlement with which customers can save substantially on cost – almost up to 50% less than now

• The speed of settlement is also important and while the settlement time at present is next day, Reeju said that we are pushing for same-day settlements

He said these challenges exist not only for LRS payments but also for LRS capital and current accounts.

Key Takeaways

The discussion around cross-border payments centred around building a seamless bridge for investments . Whether it is happening inward or outward, it must be in a cost-effective manner. The key takeaways from the shared thoughts and ideas of the panellists are:

• Such transactions are a process-wise journey starting from customer level to the bank to the clearance side outside the country. First, the process should be automated like ensuring the customer is genuine through proof of source of funds.

Secondly, implementation of pooling funds instead of one-on-one SWIFT transactions that incurs direct charges on the customer. At the same time, payment aggregators must follow all protocols in order to address multiple issues at once

• Process automation, cost control and enhancing the user experience needs to be done starting from fintech level as the platform, to aggregators, statement providers, banks and finally at the receiving end
• The Government of India can help in terms of regulatory developments to optimise the entire payment system and make it convenient in terms of outward or inward remittances
• The RBI is the controller for remittances and needs to give at least one clear guidance regarding cross-border payments. Similarly, guidelines should also come from SEBI (Securities and Exchange Board of India) which looks at investments and asset classes
• Financial institutions need to revamp their technology in two ways. First, by upgrading the tech stack to build a fast and smoother journey for cross-border transactions to be done in a few clicks. Second, by creating a quick and seamless KYC format
• Opportunities of outward remittances should also be a potential chance for global companies to reach out to Indian customers and investors
• The RBI allowed NRIs to do bill payments using BBPS (Bharat Bill Payment System) and the GOI is taking UPI to France. Such new initiatives open floodgates for the players who are in this line of business

Wrapping it up

Fintechs, with the support of the RBI, are already moving towards providing easy, quick and cost-effective cross border payment solutions to customers. Some challenges still exist, but in the coming years, investments will surely become seamless. This means investments by Indians both abroad or outward as well as inward remittances.

The RBI is encouraging startups to provide solutions in this space, through its regulatory sandbox and multiple cohorts. Indians are investing money in travel, education, stocks, and a lot more.

Thus, the years that follow will be very interesting for cross-border payments.