Addressing the barriers to global finance

Digital financial services portray the illusion that we can pay, lend or transact anywhere. And a lot has been made possible in recent years. But when digging a little deeper it seems many of these markets are in fact very much fragmented — with poor consumer outcomes as a result. How are new players and services ensuring digital finance remains truly global? Making sure that, regardless of where we are, we maintain a sufficient level of choice and guidance.

It has never been easier to be a global citizen.

Sending money to a relative in your home-country, investing in a company on the other side of the world, engaging in cross-border transactions, planning for your retirement as an expat or changing currencies while on holidays. Everyday financial activities made possible thanks to interconnected and global financial frameworks (with a little help from the internet).

Since the 1970s regulatory convergence and financial globalization allowed steady removal by national governments of restrictions on the mobility of capital and on financial integration.

Despite efforts to make markets global, we are still too often limited by national or regional freedom. Where hidden (and higher) fees, exclusionary policies, and unclear rules are not uncommon.

The IMF reported that the global financial system still faces a host of transitional challenges borne out by regional vulnerabilities and policy regimes. Nowhere is this more clear than in financial services.

As consumers massively shifted their entire financial lives online, they expect from their financial providers to be able to access digital finance worldwide, without any surprises.

Even if that means slightly adapting our way of engaging with cross-border finance.

Even in a globalizing world, consumption and financial services remain a local reality.

Around the world, around the world

National borders are a thing from the past, Covid-restrictions set aside. It is much easier today to temporarily work (from) abroad, migrate to a new country, or visit new cities.

But even in a globalizing world, consumption and financial services remain a local reality. The way we handle our money, our spending behavior or decide who to bank with, seem to differ when we are abroad or at home.

Depending on where we physically are, our culture and our nationality, and the financial needs, we tend to act differently.

Take going on holidays and our subconscious reasons behind altering our financial behavior. We rapidly spend more because nominal (face) value of money affects how we perceive its real value, or fail at mental accounting because we are likely to justify our spending based on present circumstances rather than sticking to a strict budget.

As a result, a survey found that three quarters of Americans surveyed admitted falling into debt of more than $1,100 after returning from a holiday.

Even the illusion of a trip makes our financial behavior tilt. A holiday feeling or season is already enough to overspend — a study found that 86% of millennials spent more money during the holiday season than they planned to.

Similar challenges are met by foreign workers, be they expats or migrant workers.

Some aspects of personal finances become more complex after moving abroad — dealing with multiple currencies, ensuring cross-border pension planning or maintaining several bank accounts.

For migrant workers relying on remittances — the part of the migrant’s income sent back to their family living in the origin country — the high cost of transferring funds causes migrants to alter their financial behavior by using informal and riskier channels instead.

But our behavioral biases aren’t the only thing holding us from being global financial citizens. As some financial providers, and policies, are further complicating things.

Though financial providers deploy cross-border services, it isn’t always clear what you sign up for.

Don’t stop me now

Consumers purchasing credit, banking, investment, insurance and other financial products online, are essentially doing so from domestic providers. Only 7% of Europeans purchased financial products and services in another EU Member State.

Various reasons can explain why that is.

• IBAN discrimination — when a company or bank insists you need a local IBAN to pay and considers an IBAN from another European country invalid — is still commonplace throughout the Union, causing administrative hassle and financial worries for consumers.
• Maintaining foreign bank accounts — other than in the country you currently live in — is still subject to agreements between countries, suddenly leaving consumers deprived from their accounts because of Brexit, or of FATCA-laws.
• Fee transparency is not standard as many cross-border payment or transaction fees are unknown to most consumers, excluding them from participating or causing them to run large costs for those who can bear them.
• Lack of innovation — such as for example cross-border investment platforms, fast payment solutions or seamless money transfers — reduces choice and convenience for most users.

Even with financial providers deploying cross-border services, it isn’t always clear what you sign up for.

Luckily, and thanks to consumer dissatisfaction, new players and services are battling against the status quo — offering greater choice, fairer pricing and services tailored to our nomad needs.

As people move and consume beyond their national borders, innovative financial solutions have evolved to cater for those needs.

Whenever, wherever

A fresh wave of operators, services and fintechs have started to play a role in enhancing the cross-border sale of financial services and products in particular.

The rise in remote employment has made it possible for expats to earn in multiple currencies. But also the steady growth of the global middle class allows new groups of people to stall and spend their savings. As a result, neobanks now allow for internationals to have access to bank accounts overseas, or for remote and bankless areas such as Africa to empower local citizens.

Global remittances in need of change, finally welcomed its digital boost — partly thanks to the pandemic. Telecom providers participated in an initiative of blockchain-based remittances, while collaboration between private and public financial institutions piloted a cross-border payments project.

Connected markets and people means easier access to goods and investments worldwide. To smoothen the process, specialised fintechs introduced online wallets and borderless accounts.

Last but not least, because living in a foreign country is not always easy, and expats often struggle with local tax and retirement planning, fintechs are reshaping the retirement planning process by introducing robo-advising tools, online insights and tips into retirement finances or targeting self-starters and SMEs to plan their financial future.

As travel and work becomes remote, and people move and consume beyond their national borders, innovative financial solutions have evolved to cater for those needs. Bringing down local obstacles and policies, and allowing consumers to get a fair deal because of increased competition.

Necessary policies and services must assist users in their nomad financial lives.

World, hold on

So how easy is it to make use of global digital finance? Well, it isn’t as smooth as we would want to.

Governments have come a long way in promoting (regional) integrated financial markets, where access to and delivery of financial services can flow freely.

Europe’s plans to strive for transparent and accessible EU capital markets and increase participation of retail investors in these markets, are positive steps forward. National regulators have also taken notice of drifts on some lack of transparency, exclusionary conditions or excessive costs.

On the business front, digitalisation, tech-driven innovation and the rise of new financial actors offer great opportunities to cross-border selling of financial services and products. For these players to operate successfully in a global-markets environment is their ability to efficiently serve itinerant consumers demanding ease, speed and choice.

But there is more to just promoting efficient services.

Global digital finance has also arguably contributed to challenges and risks we face today. If products and services are offered globally, it is important they adhere to minimum standards that can vary from one country to another.

In designing the necessary policies, national obstacles must be taken down where relevant, while financial players must find ways to assist users in their financial lives as expats, migrant workers, digital nomads or holiday-goers.

So that we can choose if and how we wish to pay, lend and transact whenever, and wherever.