The Intensifying Impact of Tariffs on Cross-Border Payments
The rapid pace of innovation in cross-border payments continues unabated, with frequent announcements of new technologies and strategic partnerships. However, despite this ongoing evolution, the adoption of these innovations by commercial users remains sluggish and inconsistent. As trade tariffs compel global businesses to restructure their supply chains, financial institutions now have an opportunity to provide tailored guidance and solutions that address the rapidly changing needs in cross-border payments.
Examining Tariff Impacts
According to a recent report titled “Tech Meets Tariffs: Cross Border Payments in 2025,” published by Javelin Strategy & Research, Hugh Thomas, the Lead Commercial Payments Analyst at Javelin, delves into the effects of tariffs across various industries. The report explores strategies for financial institutions to mitigate potential declines in cross-border revenue and highlights opportunities for new approaches.
Navigating Tariff-Driven Changes
Many cross-border payments service providers may find themselves serving customers who are contemplating relocating their supplier base to domestic partners as a way to avoid tariffs. For instance, a U.S.-based company with an established Canadian partner might now consider whether it is feasible to absorb a 10% cost increase or switch to a domestically based supplier.
The impact of tariffs varies significantly across industries. In the U.S. oil and gas sector, approximately 30% of inputs originate from Canada. Since the supply chain is designed for Canadian crude, altering it would be challenging, particularly with Argentina not being a viable alternative supplier at this moment.
Conversely, the grocery industry mainly imports its produce from Mexico, making it easier to switch to domestic suppliers or explore new product lines without significant barriers.
Another factor is the inventory levels maintained by different industries. The top 10% of the construction sector depends on cross-border sources for inputs, carrying roughly 130 days’ worth of inventory. These businesses can likely manage through short-term tariffs if they are temporary and can be negotiated.
According to Thomas: “In cases where tariffs persist, financial providers should consider the industries they serve and prepare strategies to support them during these disruptions.”
Adapting to Tariff Changes
If U.S. companies continue to shift towards domestic suppliers due to sustained tariffs, financial institutions may face reduced cross-border payment revenues. However, there are several strategic approaches they can adopt.
One method involves offering escrow solutions where initial payments from new suppliers are contingent on delivery of goods, particularly for large-scale purchases. Another is moving customers to commercial cards, which helps avoid Know Your Supplier (KYS) expenses and potentially generates additional rebate revenue through card providers.
Additionally, making cross-border transactions more efficient can be a significant step forward. Historically, these payments have faced issues such as high fees, slow settlement times, fraud, currency conversions, and regulatory hurdles.
Recent developments include systems and solutions aimed at simplifying, accelerating, and streamlining cross-border payments. These range from programs managed by credit card networks to projects spearheaded by consortia of central banks.
Some believe that integrating real-time payment systems globally could provide the most effective solution for cross-border transactions.
Digital assets like cryptocurrencies and stablecoins are also seen as ideal for cross-border payments due to their decentralized nature and blockchain security features.
Despite the availability of these solutions, widespread implementation remains slow. Thomas notes: “Adopting new technologies is moving at a glacial pace because managing business payments—whether domestic or cross-border—is primarily focused on daily operations, leaving little time for significant changes.”
Drivers and Opportunities
Financial services providers must offer solutions that deliver immediate benefits without requiring extensive customization from customers. The key is to identify practical use cases where cross-border payments can add value.
By recognizing the evolving needs of their commercial clients in light of supply chain changes, financial institutions can position themselves well for a potential industry transformation. Thomas suggests: “Crisis moments like these have the potential to catalyze significant change if they prompt businesses and processes to be reevaluated.”