Financial Crime World

The Importance of Cross-Border Data Flows

Benefits of Cross-Border Data Flows

Cross-border data flows are crucial for driving global economic growth, innovation, and security. Some of the key benefits include:

  • Fraud Prevention: Global datasets and robust data flows enable payments companies to analyze transaction data and prevent fraudulent activity, saving billions of dollars annually.
  • Innovation and Growth: Cross-border data flows facilitate global commerce, trade in services, foreign direct investment (FDI), and people flows, contributing to economic growth.
  • Improved Payment Security: Machine learning algorithms used by payments companies rely on large datasets to evaluate transactions for potential fraud, leading to substantial reductions in fraud rates.

The Role of Data Flows in Driving Global Economic Growth

Data flows play a significant role in driving global economic growth. Some key statistics include:

  • Increased GDP: A McKinsey study estimates that data flows alone raised world GDP by 3.0% from 2004 to 2014.
  • Facilitating Global Commerce: Half of global trade in services in 2017 depended on access to data flows, according to the U.S. International Trade Commission.

The Problem with Data Localization Regulation

Data localization laws can have negative consequences for payments companies and hinder the free flow of data across borders. Some key issues include:

  • Wrong Solution to Legitimate Concerns: Data localization laws impede the free flow of data across borders, hindering payments companies’ ability to operate globally.
  • Negative Consequences: These laws increase costs and cyber risks for payments companies, distort the competitive landscape, and add potential requirements to build in-country infrastructure.

Types of Data Localization

There are several types of data localization, including:

  • Local Data Mirroring: Firms must store a copy of data locally before transferring it out of the country.
  • Explicit Local Data Storage: Firms must physically locate data in the country where it originates (with some cases allowing foreign processing).
  • De Facto Local Storage and Processing: Firms store data locally due to stringent data transfer requirements, legal uncertainty, hefty fines, and arbitrary enforcement.

Conclusion

In conclusion, cross-border data flows are essential for driving global economic growth, innovation, and security. Data localization laws can have negative consequences and should be reconsidered in favor of free flow of data across borders.