Making global local: “Microtisation” in cross-border payments

By Deepan Dagur , Head of Visa Direct, Asia Pacific, Visa

When I was attending university in England in the mid-90’s, my father would send me funds from Hong Kong to supplement my living expenses. On a working day, he would need to visit a nearby bank, fill up a telegraphic transfer form, stand in a queue to submit the form to a teller, and send me a fax telling me to expect the funds, which would arrive within the next three days.

He would have been charged USD50 as a transaction fee and, unknown to him, was probably paying up to 3% in FX margins. It’s no surprise that he chose to go through this no more than once a year!?

Fortunately, it is much easier today to send money when my children go to study abroad. From a mobile app, I can transfer funds in near real time* with a few taps, paying no more than a single-digit transaction fee, as well as a lower FX rate. My child gets notified by a text message and can opt to receive the funds via a bank account, a debit or pre-paid card, or even a digital wallet.

While I’m sure my children would make sensible decisions with a year’s worth of tuition and living expenses, the ease of cross-border payments allows me the comfort of making smaller monthly transfers. In my example alone, the result is a 12-fold increase in the number of transactions, and more than a 90% reduction in transaction size.

Project this behaviour onto the global scale, with millions of consumers and businesses, and what we see is payments experiencing a phenomenon of “microtisation”. This is a trend of rapidly rising volumes of smaller but more frequent cross-border remittances, made possible through the innovations in payments technology.

A surge in payments across borders

As the world becomes more and more interconnected, the volume of cross-border payments in Asia Pacific continues to rise sharply. The region’s cross-border payments have grown 6% annually from 2011 to 2019, accounting for an increasingly larger global share[i]. At the same time, average payment size is decreasing; 90% of cross-border payments today are under USD100,000[ii] in value.

While microtisation is largely driven by peer-to-peer (P2P) transactions, where funds are sent and received by individuals, business-to-business (B2B) payments by small and medium-sized businesses (SMBs) also contribute significantly. SMBs are the backbone of Asia Pacific economies, making up 90% of businesses and employing 50% of its workforce[iii].

The region is also home to many export-oriented economies. With eCommerce allowing SMBs to scale across borders, more of these businesses are performing frequent cross-border B2B transactions, which typically involve managing cashflow and making smaller payments to overseas suppliers.

Aside from P2P and B2B, we have also seen a material increase in business-to-consumer (B2C) payments in recent years. Accelerated growth in the creator economy, as well as influencer and gig platforms, has created a need for alternative cross-border payment solutions for businesses that need to disburse funds to customers.?

The undeniable impact of digital

In many ways, microtisation goes hand in hand with digitalisation. Across Asia, online payments have penetrated practically every aspect of consumers’ lives, and businesses big and small have had to go digital to adapt.

Retail has shifted online. In 2020, eCommerce sales in Asia reached a whopping USD2.4 trillion, with 78% taking place on mobile phones[iv]. By 2024, digital payments are expected to take up nearly two-thirds of all eCommerce transactions and almost half of all in-person transactions in the region.[v]

Consumers today enjoy the same seamless digital experiences across gaming, banking, remittances, and the sharing economy, among other services. Businesses – particularly SMBs seeking low-cost solutions – are likewise looking to technology to mitigate the frictions in B2B payments.

Modes of payment are also diversifying, especially as we see growing consumer adoption of debit cards, pre-paid cards and e-wallets. These added options bring greater convenience, but what is needed to facilitate a smooth and seamless user experience is a universal network able to handle the immense volume of transactions across all platforms and payment modes.

Making global local

Leveraging the reach and scale of Visa’s global network, Visa Direct enables cross-border payments to more than 180 markets – all from a single connection accessing multiple payment networks. This coverage includes more than 2 billion accounts in 91 markets, plus 3.5 billion card endpoints and 1.5 billion e-wallet endpoints globally. This means businesses and consumers have the freedom to send funds to recipients globally.

Considering Asia Pacific’s large unbanked population of more than 290 million[vi], enabling new endpoints like cards and digital wallets promotes the inclusion of more users and businesses in the burgeoning growth of the region’s digital economy.

Beyond the scale of infrastructure, however, user experience remains a key driver of adoption. In most markets, domestic transfers can made in near real time*, at low cost, and to an email address or mobile number as a proxy for the recipient’s bank account number. As payments undergo rapid microtisation, banks and fintechs will need to be able to offer the same speed and convenience provided by domestic payments – essentially making global local.

Whether I’m completing an eCommerce transaction, paying for a ridesharing service, or transferring funds to my child, Visa Direct provides the infrastructure to make the movement of money seamless, effortless and borderless.

*Visa requires Fast Funds enabled issuers to make funds available to their recipient cardholders within a maximum of 30 minutes of approving the transaction. Actual fund availability varies by receiving financial institution.

[i] Boosting interoperability is key to maximizing opportunities in Asia-Pacific cross-border payments. Kapronasia, October 2022. https://www.kapronasia.com/asia-payments-research-category/boosting-interoperability-is-key-to-maximizing-opportunities-in-asia-pacific-cross-border-payments.html

[ii] Borderless FX. Barclays Bank, January 2019. https://www.barclayscorporate.com/content/dam/barclayscorporate-com/documents/insights/fx/borderless-fx.pdf

[iii] Coronavirus: can Asia’s small businesses survive Covid-19? SCMP, April 2020. https://www.scmp.com/economy/global-economy/article/3081495/coronavirus-can-asias-small-businesses-survive-covid-19

[iv] How digitalisation is making South and Southeast Asia engines of growth. World Economic Forum, February 2022. https://www.weforum.org/agenda/2022/02/digitalization-south-southeast-asia/

[v] Future of Asia: The future of financial services. McKinsey & Company, October 2021. https://www.mckinsey.com/industries/financial-services/our-insights/future-of-asia-the-future-of-financial-services

[vi] Digital Banks in South-East Asia. Fitch Ratings, August 2020. https://www.fitchratings.com/research/banks/digital-banks-in-south-east-asia-19-08-2020