B2B buyers demand secure integrated payment solutions. Will cross-border businesses adopt new methods or find a balance with the conventional ones?
The need for secure and fast B2B cross-border payments has changed the course of digital economic development. With economic activities across borders leaping ahead with globalization, we require efficient and secure financial services management.
Even when businesses take a breather, trading continues. With a huge boost in the number of companies sprouting worldwide, the frequency of imports and exports has also escalated. This calls for continuous and connected payment solutions to avoid any hiccups.
One of the major challenges of cross-border payments is slow settlement – the material goods shipped from Hong Kong arrived faster in Singapore than the payment for the goods!
Today, with the widespread domestic adoption of FinTech, we can confidently define our domestic payments as secure, seamless, and fast.
Customers, merchants, and enterprises expect similar efficiency from international payments. Digital transformation has propelled shifts in financial services, and international growth has been steady but slow.
This has been highlighted as a major gap within frequent conversations surrounding digital development, especially traditional cross-border payment methods.
Additionally, to understand how tech has enabled changes in the financial systems, it is crucial to have a brief glimpse at the process involved in traditional international payments.
Simplifying Traditional B2B Cross-Border Payments
Cross-border payments are monetary transactions between a buyer and seller located across two different countries. They generally involve low-value payments across the B2B landscape.
The advantage here is the low currency conversion and transaction fees, given that the money is transacted internally.
The primary step of seamless cross-border transactions is highlighting three significant points – amount, currency, and method. Both parties should come to terms with these three factors to avoid miscommunication.
Next, regulations compliance is necessary, especially Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements. Verifying the receiver’s identity in line with other relevant compliances can help you comply with the legal regulations.
Third, a reliable payment provider will help avoid any financial fraud. To select the appropriate one for a secure transaction, we factor in the currency exchange rates, the platform’s workability in the country, and overall intermediary fees.
Fourth, focus on accuracy. It is necessary to outline the correct payment details before making final transactions including the recipient’s name, your name, SWIFT or IBAN.
After gathering all the payment details and checking whether the details are correct, the next step is initiating the payment. Once you have submitted the request, the provider will process it through proper banking channels and convert it into the required currency.
Several payment providers allow you to track and monitor the payment, ensuring transparency regarding the status of your request. And when the status is visibly successful, you can notify the recipient party by sending them the confirmed receipt.
We have a simple understanding of how B2B cross-border payments work in our hands. And with the escalating economy and evolving market, cross-border payments need to keep up. This has led to challenges that must be addressed to make them accessible and convenient for end users.
Do We Need to Move Away from the Traditional Methods?
Across the functioning of traditional B2B cross-border payment platforms, one of the major concerns would be its effectiveness and flow. The absence of one leads to a waste of resources and substandard user experience.
Imagine the international payments network as a random patchwork, instead of a unified system. It is cluttered and disorganized.
The greater the number of banks involved, the longer the transaction and the higher the collective processing fee. This is because different banks have different formats, regulatory protocols, and compliance requirements they follow.
Due to such complicated threads between different banking services, a structure is required. The market for cross-border payments is set to increase to $250 trillion in 2027.
Any hitch could result in an unsatisfactory customer experience, especially when it does not meet the requirements on the ground.
To navigate these concerns during business transactions, an uninterrupted, reliable, and convenient payment means is necessary.
In B2B, clients are the drivers of growth and revenue. Client satisfaction, trust, and long-term loyalty are paramount.
However, with glitches and obstacles in the payment systems, their experience can become underwhelming just as easily. This is the disadvantage of bilateral networks.
Bilateral networks work as a patchwork that lacks secure and organizational connectivity. The greater the number of banks involved, the more challenging transparency and timely transaction settlement become.
As illustrated above, the use of bilateral networks in cross-border payments is complex.
Multiple payment gateways between different banks across varied locations can introduce delays and inconsistencies. It is not cost-effective as the processing fees by each bank accumulate.
These issues are the reason why integrating emerging technologies such as blockchain with Visa is needed to transform cross-border payments. And instill a multilateral networking system.
Visa adopted blockchain technology into its services to improve the payment system.
The head of Crypto at Visa asserts that Visa aims to bridge the gap between cross-border business payments and modern tech.
“There is no requirement to do away with traditional cross-border payment methods but to understand how the innovations interact with the conventional ones”, says Cuy Sheffield.
Let us take an example from the current landscape of B2B cross-border payments – real-time payments.
Instant real-time payments are the changing face of cross-border payments. With escalating B2B marketplaces, research illustrates that instant payments can transform cross-border payments.
Payments are completed within seconds with direct proof of credit – a future step in banking.
With global commerce shaping the modern economy, the challenges of traditional banking systems have become detrimental. Delays, high hidden fees, and issues with currency conversion – the three apocalyptic horses of traditional wire transfer across borders.
How do we propel the international trade and address these challenges? By adopting real-time cross-border payments.
Real-time payment systems operate around the clock, ensuring international transactions are completed within seconds rather than hours or days.
This payment method has been adopted in the UK and the United States since 2008 and 2017, respectively.
Real-time B2B payments allow efficient financial transactions between two individuals, an individual, and a business, and two organizations, allowing them to witness the transaction stage in real-time.
This has enabled flexibility and transparency in the process, whereas previously, traditional cross-border bank transfers faced challenges in monitoring the origination of the payment to their completion.
The functioning of real-time payments boosts convenience.
There are negligible to no transaction fees included in this payment process, making it affordable and cheaper for regular activities. With lower transaction costs, businesses can diverge the savings into making their products and services cheaper and appealing to the general audience.
This can relatively elevate their profitability across the market, offering them the opportunity to build international partnerships and upgrade their solutions.
Additionally, via instant payments, we get instant notifications regarding the payment status, erasing our worries in regard to any financial fraud that might be involved.
The use of real-time payment methods is increasing as users give precedence to minimal effort.
When payments are initiated directly from the payee’s bank to the creditor, most of the complexities in the middle are erased. The transaction time automatically becomes faster as this can be done reliably using mobile numbers or email addresses.
Real-time payments for B2B cross-border payments could gradually lead to standardization in global payment systems, fitting the unique requirements worldwide.
So, unarguably, to harness the maximum potential of new fintech innovations, it is paramount to study how traditional payment systems are improved to align with emerging tech. They must function together as a unified system.
Another example is the Visa B2B Connect, developed by Visa in 2019, which leverages multilateral networking for streamlined financial transactions across international borders.
Multilateral networking is straightforward. It enables transparency and facilitates trust between the payer and the receiver. There are no significant hitches due to the limited number of corresponding banks involved, i.e., by shortening payment chains.
It has helped transform the face of cross-border payments.
The goal was to negate the friction and execute security, transparency, and consistency of transactions. And multilateral networks allow us this convenience.
Visa B2B Connect utilizes a unique identity tokenization feature that changes crucial customer payment details, such as the account number, into a unique identifier to improve security.
This has changed how information moves between businesses across borders – fast, secure, and seamless. In its support, the general manager at IBM Blockchain assures us that Visa B2B Connect, with the help of blockchain architecture, has been a great step towards transforming cross-border payments.
Visa’s objective was to become the bridge between cross-border and local payment networks. To connect the two seamlessly, Visa partnered with Swift in 2023 to elevate the transparency and speed of B2B cross-border transactions.
With Swift GPI’s tracking capabilities, not only has the visibility of the transactions increased and become faster. In the traditional bilateral network, participating banks were different patchworks thus Swift GPI, in collaboration with Visa B2B Connect, has transformed it into a comprehensible structure.
This partnership promises clear and accurate data, especially for corporate clients, setting a benchmark for cross-border payments.
Visa studied client demands to give them what they want – reduced friction on payment rails.
While this is a step ahead, it is not the end of the race.
With the world witnessing transformations every breath, there is an urgent need for digital payment solutions. This especially includes the ones that address expanding supply chains, international asset management and investment flows, a rise in trade and e-commerce, and increased migrant remittances.
And we have witnessed drastic changes as cross-border payments aim to keep up with the other financial domains. Financial institutions have adopted blockchain and cryptocurrencies into their operations to enhance their customer experiences.
For example, launching the Visa Tokenized Asset Platform (VTAP) will help institutions issue stablecoins and facilitate the smooth integration of blockchain into their traditional operations.
Propelling the use of stablecoins across the industry, especially by other industry giants such as PayPal and Stripe.
Stablecoins, unlike traditional cryptocurrencies, offer price stability.
Hence, they are gradually becoming significant for large-value cross-border B2B payments. It has instilled connectivity across socioeconomic barriers, kickstarting a shift towards a cashless economy.
The primary requirement in the B2B cross-border payments landscape is seamless and secure day-to-day transactions.
The developing use of digital currencies can make promises by helping businesses tap into markets even with limited digital infrastructure and without the complexity of blockchain technology.
Every fintech innovation can be considered an experiment. Without implementing improvements, we would not understand where different banking solutions lack or emerge victorious.
With digital services evolving at an increasingly fast pace, the need for instant digital payments has risen – for enterprises as well as small businesses.
So, outlining the market preferences is paramount.
While there are yet to be concrete solutions that may permanently introduce stability for international transactions, we have specific tools that map the future direction of cross-border payments.
B2B cross-border payments have already undergone significant innovations that may change the face of digital payments in the near future. And that is the underlying hope.