While cross-border payments have improved for consumers, standards in the B2B market have largely remained the same. Payments are still slow, fees are hidden and tracking is largely non-existent for many firms.
In particular, SMEs are an underserved part of the market that is increasingly conducting business with suppliers and customers overseas, thanks to digitalisation and the growth of eCommerce.
Last year, a borderless payments report from Mastercard highlighted that 77% of SMEs saw above-global-average growth in online sales and more than half (51%) are doing more business overseas. Not only that, but 58% of SMEs are making more cross-border payments now than before the COVID-19 pandemic and this trend is expected to continue.
Unfortunately, B2B cross-border transactions are still complicated by differing international regulations governing and securing financial transactions. This means SMEs can expect slow processes and non-competitive rates.
This can have an adverse impact, from cashflow constraints, increased costs and even strained relationships with suppliers. While longer term, it can mean businesses have limited working capital and are less able to grow and expand.
It is paramount that cross-border payments are made simpler, cheaper, and faster. While traditional banks are working towards this, fintechs are providing alternatives now for businesses looking to grow internationally.
Industry initiatives are helping traditional banks to improve cross-border payments. The adoption of ISO 20022 standards has provided further consistency in financial business transactions, while open banking could ease the way for frictionless payments by providing the instant flow of cash from one bank account to another, bypassing card fees and lengthy settlement times.
While these initiatives are welcome, traditional finance firms are still finding it difficult to meet an increasingly digitalised global market. As well as being costly and slow, businesses struggle with a lack of transparency in their transaction reports and currency conversions, adding uncertainty to their cross-border banking operations. As a result, SMEs are now looking towards services which provide up-front pricing and a safe, secure view of all their transactions.
It is paramount that cross-border payments are made simpler, cheaper, and faster
New technology is emerging that is providing businesses with other options for making secure, speedy payments and increasing transparency of their treasury operations. This is helping to level the playing field, allowing firms to grow and compete globally.
The emergence of virtual or digital wallets is allowing businesses to make same-day payments. Digital wallets are software programs that let businesses store, send, and receive money electronically. They enable businesses to organise their funds and store multiple currencies all in the same place, ready for making rapid payments or for currency exchange.
Through an International Bank Account Number (IBAN), businesses can set up a single international account with their own multi-currency, allowing them to manage cashflows and view trading data, all in one place.
IBAN and digital wallets can also provide enhanced security through encryption, multi-factor authentication and real-time fraud detection mechanisms – securing the business’ activity and assuring international customers that their purchase is being conducted safely.
Fintech offerings are helping with the democratisation of cross-border payments as businesses no longer need multiple bank accounts in different countries to operate internationally, or to rely on traditional currency conversion methods, which can be extremely costly and time-consuming.
As the need for cross-border payments grows, so too do new fintech advancements that can help firms safely, quickly and successfully expand their business.
Laurent Descout is founder and CEO of NEO, a treasury management, payments and FX fintech company