Payments Report 2022

Are payments in Sweden efficient?

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Cross-border payments must be made more efficient

Published: 15 December 2022

It is difficult to assess the effectiveness of external payments because statistics are often lacking. However, the statistics that are available show that people send large amounts of money between countries and that the cost can be high.

Remittances are a type of cross-border payment

One type of cross-border payment that has attracted international attention recently is the so-called remittance. These are transfers of money from people working abroad to relatives and friends living in their home country or in other countries. This type of payment is important for many individuals and countries, while often being both cumbersome and expensive, see Remittances – the overlooked payments.

The International Fund for Agricultural Development (IFAD) estimates that one billion people send or receive remittances annually. For the recipients of remittances, the money is often an important source of income. Estimates from the International Fund for Agricultural Development show that migrant workers send an average of SEK 2,000 each month, which can represent as much as 60 percent of the recipient’s income.

However, a relatively large proportion of what is sent goes to intermediaries. According to the World Bank, the average cost of a remittance is 6 per cent of the value sent. This means that some SEK 450 billion annually ends up with intermediaries instead of the final beneficiaries.

G20 initiative to make cross-border payments smoother

More efficient cross-border payments would facilitate international trade and financial integration, which in turn can support economic growth and global development. To this end, in November 2020, the G20 countries launched a five-year work programme to improve cross-border payments. The aim of the work programme is to address some of the problems that contribute to cross-border payments still being slow, expensive and cumbersome.

On behalf of the G20, the Financial Stability Board (FSB), in collaboration with the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI), has developed a work plan with 19 work areas that are seeking solutions to these problems. The Riksbank has an active and leading role in several of the working groups (see The Riksbank is working to improve external payments).

FACT BOX – How a cross-border payment works

For consumers, there are mainly three types of cross-border payments: card payments, bank transfers and payments via other payment service providers. Card payments are the most common form of cross-border payment and are used to purchase goods and services from other countries. Bank transfers are common for the purchase of larger items such as cars, boats and property. They are also common for payments of taxes and fees, gifts and the like. Payments via another payment service provider have traditionally been used to send money to friends and family abroad, but have become more common in other areas, such as buying goods and services online.

Card payments are often convenient, but they can be relatively expensive as there is an exchange rate charge. Bank transfers within the EU are usually convenient and cheap, and often cost about the same as a domestic payment. However, bank transfers to countries outside the EU, and especially outside Europe, can be very costly. They can also take a long time, depending on the number of actors in the chain. Payments via payment service providers were previously expensive, but now several payment service providers offer convenient and cheap payment services.

Regardless of the payment method used, a cross-border payment requires an exchange between currencies. Usually, money will also be moved between different actors. This can be done through various arrangements.

One arrangement is for the cross-currency part of the payment to be made within an institution. This happens when the payer and the recipient have an account with the same bank operating in several countries, such as Western Union. Another is the so-called correspondent banking arrangement, where banks in different countries have accounts with one another. In correspondent banking arrangements, payment messages are mainly sent over the SWIFT secure financial messaging network. A third arrangement is when the payment infrastructures of different countries or different currencies are interconnected. This may, for example, allow a payment service provider in one country to send a payment to the payment infrastructure in the other country. Such arrangements exist to a small extent, but are being developed in several regions. In Europe, for example, the TIPS platform may enable such arrangements. For a more detailed description and an overview of costs, relevant regulation and ongoing initiatives for improvements, see Cross-border payments in the spotlight and Remittances – the overlooked payments.