CROSS-BORDER payments are becoming a key battleground for customer loyalty among financial institutions in Latin America and the Caribbean (LAC), as small and medium-size enterprises (SMEs) increasingly shift their international transactions to providers that offer faster, more transparent and predictable payment experiences, data from a recent study has shown.

The research, conducted by Mastercard in partnership with cross-border payments intelligence firm FXC Intelligence, found that international payments are becoming the first point of fragmentation in banking relationships.

The entities stressed that while many SMEs continue to rely on their primary banks for domestic services such as lending, payroll and collections, they are also increasingly re-routing cross-border payment flows to competing banks and fintechs that can deliver greater reliability and operational efficiency.

The shift in presenting a significant commercial opportunity finds banks and payment companies now generating approximately US$23 billion annually from servicing SME cross-border payments in the LAC, underscoring the market’s growing strategic importance.

According to Walter Pimenta, executive vice-president for commercial and new payment flows at Mastercard LAC, cross-border payments have evolved beyond a transactional service to become a defining moment in the customer relationship.

“This new research sends a clear signal to banks and providers. When SMEs cannot rely on predictability and visibility, they begin to reallocate payment flows. When that shift starts, it can extend beyond payments into the broader banking relationship,” he said.

For Daniel Webber, CEO of FXC Intelligence, businesses are becoming less willing to tolerate inefficient payment experiences and, as such, “Cross-border payments are where many SME banking relationships start to fragment.

“When payments are slow, opaque or difficult to resolve, businesses do not wait for the system to improve. They start moving flows to providers that give them more certainty,” he said.

As commercial implications become more significant, Mastercard estimates also reveal that every one percentage-point shift in regional cross-border payment flows represents approximately US$230 million in annual revenue moving between banks and fintech companies.

The report noting SMEs among the region’s principal drivers of economic growth, employment and tradealso said that they are becoming increasingly dependent on efficient cross-border payments as they expand into international markets and integrate more deeply into global supply chains.

With cross-border trade expected to continue growing, the study said financial institutions face mounting pressure to modernise their payment infrastructure. Their top priorities include: improving payment tracking, increasing settlement predictability, reducing manual intervention, and providing greater transparency around fees and final payment amounts —- all of which are deemed critical factors in retaining SME customers.

The findings of the White Paper study, in calling on banks to reduce the triggers that cause SMEs to split flows across providers, urged the institutions to instead focus on improving payment visibility, strengthen payment validation, and expand local payout capabilities while delivering more predictable execution.

Mastercard global research has found payment tracking (43 per cent) and fraud detection (42 per cent) as the value-added services firms want most.

“The cross-border payments experience is now a principality risk and a relationship defense priority. Improve predictability, payment visibility, exception rates, and landed-amount clarity and banks can reduce leakage before it spreads into the wider relationship. Those that get this right will be better placed to defend wallet share and deepen SME relationships over time,” the report said.