The cross-border payments market is expected to boom in 2025. Data compiled by Statista shows that in 2023, the total value of cross-border payments was $190.1 trillion. That is predicted to hit $290.2 trillion by 2030, with the bulk of that growth coming from expanding consumer-initiated cross-border payments.
A cross-border payment occurs when the payer and payee are in two different countries and divided into two distinct categories. Wholesale payments are higher-valued transactions, usually between financial institutions, large corporations, or government entities, while retail transactions are much smaller transactions occurring between consumers and smaller businesses.
As we look to significant growth in this area over the next few years, PitchBook released a deep dive into the cross-border payments market and the current state of funding for this sector.
Technology Increasing Efficiency
PitchBook points to the inefficiencies in traditional cross-border financial transactions and the fact that payment systems globally are not necessarily interoperable. Cross-border payments have long relied on “correspondent banking,” which can sometimes involve multiple intermediary banks to facilitate the transfer, a process that can be slow and expensive. Numerous other issues exist, such as a lack of transparency, exchange rate fluctuations, security concerns, and accessibility in underdeveloped regions.
This is where innovation in the cross-border payments market comes in to streamline the process. More financial institutions are now linked together, and ISO 20022 has created a standard for payment transfers. Blockchain technology also allows for ways to bypass correspondent banking. Blockchain networks facilitate real-time cross-border payments for reduced costs and increased transparency. Additionally, fintech companies have developed innovative solutions to help facilitate faster and less expensive cross-border payments and simplify transactions involving multiple currencies.
As technology is allowing for a more efficient process, it is no surprise that the value of the cross-border payments market is expected to continue to climb as transactions become more seamless. According to PitchBook, much of the growth in cross-border payments to date has been driven by B2B transactions due to “increased global trade, international business expansion, advancements in payments infrastructure, and greater digital adoption.” Greater financial inclusion and the growth of e-commerce have driven much of the growth on the consumer side.
The Current Deal Environment
PitchBook data shows that as of Q2, cross-border payment companies raised $318.4 million in venture capital through June 30, 2024. That number accounts for 2.3% of the $13.8 billion in H1 2024 VC deal value for the fintech sector overall. They note that venture capital deal value for cross-border payment companies has been declining since 2021, but that mirrors investment in the overall fintech sector. However, PitchBook does predict a rebound in H2 2024.
Regarding deal count, 26 startups raised VC funding as of Q2, with 61.5% B2B models and 38.5% B2C models. Of these companies, 11.5% were venture growth companies, 42.3% were late-stage, 23.1% were early-stage, and 23.1% were pre-seed/seed companies. European-based companies also capture the bulk of deal value in this area, securing 55.2% of the total VC deal value for cross-border payments companies. Asian and North American startups rounded out the top three.
There is no doubt that the companies that are fueling the massive innovation in the technologies that are driving innovation and increased efficiency in cross-border payments will continue to catch the attention of VC investors moving forward. We are in a world that is only increasingly global and interconnected, and these companies are shaping how we will do international business for years to come. This is a very interesting sector to watch, particularly as new technologies such as AI and blockchain continue to change the face of the cross-border payments market.