BIS study finds fintechs cut cross-border payment costs

The cost differences between wire transfers and other payment methods are particularly sharp across borders, according to new BIS cross-border payment costs research. A Bank for International Settlements working paper found foreign-exchange markups of about 2% to 4.7% in its small sample of retail bank wires, before wire fees, while median fintech costs for a $10,000 transfer from the US to developed-market currency groups were about $40 to $60.

The paper, published on October 19 as Working Paper 1385, compares traditional bank transfers, fintech money transfer operators and stablecoin-based transfers. It concludes that fintech operators substantially reduce costs relative to retail bank wires, but does not identify a universally cheapest method: outcomes depend on the transfer route, amount, liquidity and access to fiat currency.

Why are fintech cross-border payments cheaper?

The authors, Wenxin Du, Catherine Huang and David Scharfstein, assembled comparable all-in cost measures from intraday fintech prices, World Bank remittance data, bank-wire transactions and crypto-market data. Their approach separates FX markups from stated charges, including exchange trading fees, blockchain charges and costs of withdrawing fiat currency.

Traditional cross-border bank transfers operate through correspondent banking and the SWIFT messaging network. The researchers' limited bank sample showed FX markups of roughly 2% to 4.7%, including for highly liquid currencies, with explicit wire fees excluded from that range.

Fintech money transfer operators recorded lower costs, which fell as a share of the payment as transfer values rose. The $40 to $60 median for a $10,000 US-origin transfer is equivalent to about 0.4% to 0.6% of the amount sent. That figure applies to the study's developed-market currency-group scenario, and the paper said some destinations remained much more expensive.

An earlier version of the research describes non-bank transfer operators as establishing local settlement accounts with local banks, allowing them to bypass parts of the correspondent-banking chain. Their cost advantage can be strongest in high-volume routes where flows can be matched internally and local banking access is available.

Why do stablecoin transfers still involve costs?

Stablecoins can move value on a blockchain, but users typically must first convert fiat currency into a stablecoin and then convert it back to fiat for the recipient. Those entry and exit steps require crypto exchanges or other intermediaries, whose trading, conversion and withdrawal charges can add materially to the total cost, the paper said.

Recipients may also wait for conversion and bank processing before money is available in their accounts. Liquidity between US dollar stablecoins and non-US currencies was generally thin, according to the authors.

The study found favourable stablecoin FX pricing in some transfers from developed markets to emerging-market economies. It attributed that benefit to distortions linked to capital controls rather than blockchain technology, and said limited market depth and volatile prices restricted scale. The authors said stablecoin competitiveness also depends on market liquidity, dependable fiat access, regulatory compliance and trust in intermediaries.

The publication is a working paper, and the BIS says the views expressed are those of the authors rather than necessarily those of the institution or its member central banks.

This story draws on original reporting from Finextra Research.