Reframing Compliance As A Strategic Advantage In Cross-Border Payments
Srinivas Vadhri, VP of Sales & Business Development at EXL
In today's global economy, many businesses are more international than they think; they may partner with a software/tech company in another market, hire a talented employee or gig worker in another country or solicit a customer on a different continent. All of these use cases involve money moving from a payer (buyer) on the demand side to a payee (seller) on the supply side. McKinsey says cross-border payment flows were around $150 trillion in 2022.
In my 20-plus years in fintech and the payments industry, I've noticed that as global demand for moving money increases, so do regulatory and compliance risks. The surge in cross-border transactions has brought both immense opportunity and increased regulatory scrutiny. Behind every seamless international payment lies a complex web of compliance rules, risk assessments and jurisdictional constraints.
For business leaders, this hidden infrastructure isn't something you should talk about just on a department level; it should be a boardroom conversation. This is because the penalties for not handling it right are high, and it can lead to serious reputation and brand risks. Considering this, companies should view compliance as a long-term strategic differentiator and a competitive advantage.
When funds flow across borders, companies face wide-ranging regulatory mandates: anti-money laundering (AML), know your customer/know your business (KYC/KYB), sanctions lists and data privacy regulations like the EU's General Data Protection Regulation and the California Consumer Privacy Act. A transaction between New York and Nairobi or Berlin and Bengaluru may look simple on the surface, but under the hood, it touches multiple jurisdictions, each with its own rules.
As mentioned above, failure to comply isn't just risky—it's often expensive. Regulatory fines have surged globally, and enforcement actions now target not only traditional banks but also payment processors, fintechs and marketplaces. In a world where your reputation is currency, no business wants to make headlines for the wrong reasons.
Fintech companies have upended the traditional payment space with faster transactions, transparent fees and user-friendly interfaces. If you're a business that wants to scale fast, your natural allies may be fintechs like Wise, Stripe, Airwallex and Nium, as they're already enabling small businesses and freelancers. Note: Certain fintechs that exclusively focus on regulatory technologies are called 'regtech.'
But with speed and scale come challenges. Many fintechs operate with lean compliance teams, numerous partnerships (creating counterparty risks), ongoing technology investments and fast-changing product lines. They often rely on local banking partners or banking-as-a-service platforms to meet licensing and regulatory requirements. This can lead to inconsistent oversight, especially as transaction volumes scale or customer bases diversify into high-risk regions.
The core challenge: Fintechs are building for growth while regulators are enforcing oversight on risks and controls.
Most banks, by contrast, are built for regulatory resilience. Decades of experience with compliance frameworks, regulator relationships and enterprise-grade risk systems make them natural stewards of cross-border financial integrity.
However, banks often struggle with agility. Legacy infrastructure, long onboarding times and fragmented digital experiences have left them vulnerable to more nimble, customer-centric fintech challengers. Where banks see structure, fintechs see rigidity. And where fintechs see speed, banks see exposure due to a lack of controls. That's why the next wave of global financial infrastructure will likely be powered by strategic collaboration between fintech and banks, using artificial intelligence and machine learning tools.
Using AI/ML, modern regtech tools can automate KYB/KYC, document verification, risk scoring and behavioral monitoring—functions that previously required large teams and manual reviews. From what I've observed, fintechs lead in AI/ML adoption (with regtech), offering services such as instant ID verification, real-time transaction monitoring and predictive risk modeling. Banks leverage AI/ML for applications like risk management, fraud prevention and customer service.
Successful cross-border payment solutions will combine fintech innovation with bank-grade compliance and oversight. When cross-border payments are involved, compliance can lead to growth when it's handled correctly.
Here are a few steps to get to the final state.
One of the first things that businesses involved in cross-border payments must do is shift from 'compliance as a cost' to 'compliance as a moat." Ensure your chief financial officer, chief revenue officer and chief technology officer are aligned on regulatory agility and innovation.
Should you build or partner? This is an important step as part of your short-term, medium-term and long-term strategy.
Option A: Build A Hybrid Stack Internally
If you're a large, digitally mature enterprise with the ability to invest in tech, talent and bank licensing, your best option may be to build a stack. Partner with a reputable regtech tools provider that's adept at offering AI- and ML-based modeling tools suitable for global workflows. Invite select tool providers for a deep dive into functionality for a cross-functional team. Don't hesitate to hire a consultant for an objective view.
Option B: Partner With Pre-Integrated Fintech/Bank/AI Ecosystems
If you need speed, scalability and domain expertise without building from scratch, look for fintechs that have multiple active bank partnerships globally. I recommend partners that follow a risk-based onboarding approach, which involves a lower level of due diligence for lower-risk clients than for high-risk clients.
Other factors to consider include compliance strength (licenses), tech and platform capabilities (AI and ML), risk transparency (explainable ML models, audit logs) and, more importantly, geographic reach.
Create a joint governance structure with a review of key performance indicators and success metrics, and include conversations around AI and ML tools.
As part of your go-to-market plan, highlight the choices you've made: adherence to compliance from the ground up and partnering with leading fintechs and banks that have embraced an AI/ML tech stack. You can build trust by communicating a forward-thinking mindset for your product strategy.
In cross-border payments, the line between compliance and growth is fading. Compliance is growth when handled right. Regtech-enabled fintechs offer agility and customer focus; banks provide regulatory strength and trust. The winners will be those who combine both, powered by AI/ML innovation.
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