As the scale of cross-border transactions continues to grow, Mastercard is betting on its recent acquisitions of international payments provider HomeSend and global payments company TransFast to help it gain a lead in the space.

The overall value of cross-border payments is expected to jump to $250 trillion in 2027 from $150 trillion in 2017, according to estimates from the Bank of England. The recent acquisitions and overall focus on cross-border payments may help Mastercard hold onto a good portion of that business.

Bank Automation News spoke with Stephen Grainger, head of cross-border services at Mastercard, to better understand the firm’s ambitions and plans to capitalize on the growth in cross-border activity.

“You look at what’s happened over the last 10 years, what’s really grown is the number of smaller value tickets,” Grainger told BAN, referring to the significant growth in cross-border activity due to smaller transactions. Mastercard believes reducing the high fees associated with such transactions is key to figuring out the puzzle, he said.

Bank Automation News: How do the recent acquisitions fit into Mastercard’s strategy for cross-border payments? 

Stephen Grainger: Our journey on this path starts with HomeSend. It was a joint venture and we invested in it about seven years ago and we completed the acquisition of our minority stake holder in HomeSend in late September.

TransFast was all about providing us with the capabilities so that we could build a franchise for how we wanted to deliver the cross-border services proposition to our customers. So, we sort of required these two things and we’ve had an organic stream of work going on in the background as well to build certain capabilities. Both of these assets are critical enablers for us to be able to offer and bring to market cross-border services. And that’s our value construct to our core customer groups, which are predominantly banks, digital partners and other fintechs.

BAN: Within cross-border services, where have you seen the growth come from? Smaller- or larger-value transactions?  

SG: Over the last 10 years, what’s really grown is the number of smaller value tickets.

So, we have focused in that lower value payments area because we think that’s where there’s a burning platform, right? If there is a problem to go fix, it is how to handle, how to process at scale, lower value payments, that for the most part in other business models would be defined as nuisance payments. Because the business models they’re flowing through, like correspondent banking, aren’t really cut out for low-value payments.

If Boeing wants to go and pay Rolls-Royce for a whole series of engines, you know, that correspondent banking mechanism works brilliantly. But if you’re trying to send … money to your family in Kenya, the experience is just awful because it gets pushed through a mechanism that’s not fit for purpose. So, what gets delivered and the values that get extracted along the way are completely disproportionate to the values that are being transferred in the first place.

What do people need? They need predictability and they need certainty. That’s what underpins our core payment offering and that’s how we go to market.

BAN: What’s the trickiest thing to solve for when it comes to cross border payments?  

SG: If you want to use costs as a proxy for complexity, then it is in that financial crime compliance space.

How do you effectively build a compliance regime that is comprehensive? We’re doing it and it’s expensive. But that is the cost of doing it. That’s a cost of operating.

I think what’s particularly interesting about this area — whether it’s know-your-customer anti-money laundering, sanction screening or financial crime compliance — is that when you think about this business in other contexts like price, it tends to be a race to the bottom. Who can do this most cheaply? But when it comes to compliance, it is normally a race to the top. Who’s got the most conservative policy and who’s screening the greatest number of items on a particular payment transaction? That’s where the real complexity comes as a single friction and inefficiency point.

BAN: What sort of role are techniques like machine learning and artificial intelligence applications likely to play in reducing some of that complexity? 

SG: I think it’s starting to play much more of a compelling role.

One of the things that’s important to remember is when it comes to AML, and when it comes to sanction screening, is every firm has to define their own policy and the risk appetite. They’ve got to then have the controls in place that deliver against that policy. So, when it comes to thinking about the application of new technologies, the technology has to be deployed in a way that’s going to meet the risk appetite of the organization. But we’re starting to see some really compelling applications of [artificial intelligence], in sanction screening in particular.

And they are going to be the real future, I think, that underpin the way we’re going to transform how we operate in the space.

BAN: How do you think newer ways to move money like central bank digital currencies (CBDCs) and privately issued stablecoins will fit into the cross-border payments ecosystem?  

SG: I think the real challenge in this space when we talk about stablecoins and CBDCs going forward is going to be that intersection point between the real world and the decentralized finance (DeFi) world. How do you make sure that you create a level playing field in that space? It’s certainly not an easy one to figure out what will the answer look like.

Will there be one stable coin that rules them? Maybe not. Will there be one CBDC that rules them all? Who knows?

But in the trade environment today, to go to a much more analog view of the world, dollars are that system. 60% of the world’s payments by value are all moved in dollars. There are still these friction points that exist and new frictions will arise. We can’t just create a new shiny world where you can operate one way and the old world where everybody is encumbered by regulation and the challenges of the of the operating environment that we exist in today. We need to make the whole story better for everybody who wants to operate in that space.