The regulations shaping cross-border payments

Though their increasing immediacy might make their inherently political status less visible than they once were, cross-border payments invariably involve a patchwork of sovereign stakeholders and regulations. 

From data-storage frameworks to enforcement mechanisms, cross-border payments players have a complex set of variables to solve for in order to keep things humming:

Enforcement

More than 26,000 rules apply to international payments—from disclosure protocols to remediation standards. This makes the system uniquely compliance-driven, and requires a complex web of contacts at global financial institutions as well as regulatory bureaus. 

Sanctions have most recently been the most dynamic source of enforcement concerns. As Micheal Sheehy, Chief Compliance Officer at Payoneer, told The Financial Revolutionist, the full-scale Russian invasion of Ukraine has created an ever-shifting sanctions geography, in which borders between sanctioned and unsanctioned villages change by the day according to which territory is controlled by Russia. 

“We're one of the only providers still making payments into the market and local currency, so we feel like we have an important role in keeping the economy going,” Sheehy said. 

Privacy

Complementing enforcement frameworks are data storage and protection requirements, especially privacy standards, that affect how money can be moved and recorded. In particular, this affects platforms looking to gain data insights from cross-border payments patterns for building out cash-flow projection models or lending solutions.

As with identity protocols, cross-border payments may therefore have to abide by the most conservative privacy and data-storage standards to meet the requirements of all the jurisdictions they work in.

Blockchain regulation

Finally, though still a small fraction of the total economy or of international payments flows, the blockchain remains a notable destination for VC funding. But its status as a major cross-border payments mechanism hinges both upon its technical limitations in terms of speed as well as the potential designation of cryptocurrencies as securities by regulators like the SEC.

As long as the blockchain and crypto’s regulatory status remains in flux, we should expect the use of the blockchain as a cross-border payments mechanism to remain a largely niche phenomenon.