In 1955, BMW introduced the Isetta, a microcar with a single front door that measured 7.5 feet long and 4.5 feet wide and could only accommodate two passengers. The car was so tiny that border guards at the Berlin Wall didn’t scrutinize it the way that they did other vehicles, assuming there would be no way to smuggle anyone within it. Realizing this was the case, in 1964, West Berlin mechanic Klaus-Günter Jacobi modified his own Isetta by removing the spare tire, heating system and air filter, among other changes, creating enough space within the engine area that he was able to smuggle a friend out of East Germany.
Jacobi’s success spurred others to follow suit and eight more people were able to escape East Germany before guards caught on to the cross-border smuggling approach. Fortunately for the banking industry, cross-border payments are not only legal, but activity has significantly ramped up in recent years among small and midsized businesses (SMBs) creating a revenue generating opportunity for community financial institutions (CFIs).
The Cross-Border Boom and the SMB Opportunity for CFIs
Globalization has led to a massive increase in global cross-border payment activity, which is projected to reach $320T by 2032, up from $194T in 2024 – approximately 7% YoY. And it is no longer just major organizations driving payment activity. Technology advancements and the emergence of the digital marketplace have eliminated the geographical constraints for SMBs, making cross-border payments a routine part of doing business for these organizations.
According to research from Visa, 38% of the average SMB’s expenses are now international, whether they view themselves as an international business or not. But frustrations ranging from discrepancies between invoices and bank portals, to inefficiencies in banking platforms, volatile foreign exchange rates, inconsistent multi-day settlement times and high fees continue to make cross-border payments a pain point for SMBs.
For CFIs, this is an opportunity. Though businesses are increasingly turning to non-traditional banking providers, such as fintechs, for cross-border payments, traditional banks remain the primary provider for 64% of SMBs. If CFIs want to attract and maintain cross-border business from SMBs, they not only need to be competitive on the fee front, but they also need to demonstrate their understanding of these customers’ unique needs.
More than a quarter of SMBs are highly likely to switch providers if they don’t feel their needs are being met, according to the findings of “The Cross-Border Opportunity: What Global Sourcing by US SMBs Means for Payment Providers,” while research from Visa found that 81% of SMBs are open to trying cross-border payment solutions from non-traditional banking providers. Losing cross-border payment business to fintechs and other providers also creates the risk that SMBs will eventually move all their business to these providers. According to McKinsey, 35% to 50% of SMBs have already turned to fintechs or other non-traditional players for international transactions.
How CFIs are Staying Competitive in the Cross-Border Payments Space
To meet the needs of SMBs and remain an attractive option, CFIs need to be able to provide faster settlement, currency support beyond US dollars, and localized payment capabilities tailored to the unique needs of SMBs. They also need to be able to demonstrate their understanding of their customers' needs – all of which needs to be incorporated into digital platforms.
SMBs also want multicurrency wallets, especially when paired with payment cards. Actively meeting SMBs’ cross-border currency needs can help CFIs expand the revenue they generate from these customers and can also help deepen ties with them, minimizing the risk of losing these customers to competitors.
According to Visa’s research, some of the biggest things SMBs are looking for on this front include: knowledge that payments will arrive on time; upfront and competitive fees; automated options that don’t require manual intervention; and risk controls that don’t slow things up. Research from Visa found that 32% of SMBs complain about high fees and a lack of transparency regarding FX costs; 31% worry about security concerns; one in three struggle with manual reconciliation; 30% complain about the lack of visibility across systems; and 29% have experienced approval delays.
Since many SMBs will look for alternatives without first checking with their CFI, it is important to make sure these customers are aware of the services your organization can provide. Customer-facing staff, such as tellers, should know to discuss such services, as these are not the types of services that customers typically associate with CFIs or that they will ask about.
Of course, it is important to recognize that cross-border payments carry unique risks, particularly compliance with the Bank Secrecy Act (BSA), Anti-Money Laundering (AML) regulations, and Know Your Customer (KYC) requirements. Heightened regulatory oversight of cross-border transactions necessitates strong compliance and regulatory oversight, particularly regarding foreign exchange volatility.
How to Identify Potential Cross-Border Payments Customers
Cross-border payment needs aren't always visible at the relationship level. A combination of direct outreach and transaction-level analysis can surface which customers are already engaged in international activity and which ones might benefit from a conversation. Starting points include:
- Survey SMB customers to understand their cross-border payment needs and pain points.
- Analyze outgoing ACH and wire data to detect international payment activity.
- Review payments sent to fintechs and FX platforms as indicators of unmet demand.
- Identify fees paid to merchant processors that may signal cross-border transactions.
- Assess local industries' reliance on imports or exports, such as agriculture, healthcare, legal, and accounting services.
CFIs should consider linking these findings to specific existing and prospective SMB customers who are most likely to benefit from cross-border payment solutions.
In an increasingly global economy, cross-border payments represent not only a significant revenue opportunity for CFIs, but also a powerful way to deepen and differentiate relationships with SMB customers. By proactively offering secure, transparent, and competitively priced international payment capabilities, CFIs can position themselves as strategic partners in their customers’ growth, supporting everything from supplier payments and payroll to international sales and expansion plans.
Cross-border payments have historically been treated as a specialty service; something larger banks handle and smaller institutions refer out. The data suggests that framing is worth revisiting. For CFIs with meaningful SMB relationships, the opportunity may already exist within their own customer base. The question worth asking is whether those customers know their CFI can help.
