International payments, especially in the B2B space, can be incredibly cumbersome. Legacy systems are handling an increasing number of payments and remittance transfers, but are often overburdened. Consumer and business expectations have changed, and these systems are failing to deliver. There’s an urgent need for smoother transactions across borders. Total cross-border payments amount to more than $127 trillion worldwide. Are older systems, including ones that most banks depend on even today, capable of handling the massive demand?

Trends in the International Payments Market

The global cross-border payment landscape is driving trends that could fundamentally alter competitive dynamics:

• Changing guidelines on regulations and sanctions
• Growing pressure from new technologies like DLT and card-related innovations
• Advancing international commerce in retail and corporate segments
• Evolving customer demands

Additionally, new firms in the cross-border market are putting pressure on incumbents. It is important to note how cryptocurrency is slowly gaining traction and how it’s rapidly transcending geographical and currency-limited boundaries.

With shifting economic trends, migration, and the rise of international commerce, the size of the cross-border payments market is growing. Despite banks currently dominating cross-border payments with a significant market share, their transfers still lack transparency, have high fees, and encounter delays. Due to such long-standing inefficiencies, customers are actively exploring alternatives. Fortunately, Bill.com, a leader in financial process automation, or players like Ripple, a FinTech blockchain startup, are ready to solve for these challenges. Finablr is also a company to watch, as they are reshaping the B2B cross-border payments space. They have developed an agile and scalable B2B and payments technology, with licensing and distribution capabilities for payments and foreign exchange markets.

Challenges in International Payments

Some key challenges when it comes to paying and receiving international payments include:

• Current cross-border payment methods involving incumbent banks are inefficient and expensive. This has led to an increased demand for faster processing, improved costs, and enhanced customer visibility – this is posing a significant threat to legacy systems, especially with several banks now experimenting with blockchain.
• Payments sent from one country to another are often very expensive, slower, and less transparent than domestic payments. Why? Compared to domestic payments, cross-border transactions are more complex, riskier, and can only be processed when adhering to additional rules. According to a CPMI report, “the difference [between cross-border and domestic wire-transfers] can often feel disproportionate.”
• Payments can be halted at any point in the payment chain. This can lead to frustrating customer experience and delays for the sender and the beneficiary. These delays are often caused by sanctions, fraud and AML checking, or incomplete payment information. Additionally, when these checks are made, they go through multiple layers of communication, making the entire process tedious. Clearly, there is a lack of standardization and digitization while sharing this information. Cases can vary where payments could be held for just a few hours, or in more complex situations, for several weeks.
• Several banks do not have an automated method in place to safely share relevant data in a permissioned manner for corporate transactions. Suppose a business in the US is sending a payment to a business in Italy.  The Italian bank could potentially need more information about the sender before they can process the payment. As a result of this, whoever is managing the request in the US bank will need to find the necessary information before they proceed to legal for a go-ahead. This illustrates that when the framework for sharing information isn’t automated, it often results in the need for manual processing, leading to greater rates of inefficiency on both ends of the transaction.
• Regulations can create complexities when information is shared across borders, as there could be different interpretations of what banks can and cannot do. However, without access to customer data, even the best technology solutions will be unable to help. The General Data Protection Regulation (GDPR) was introduced in May of 2018. The significance? Processing EU citizens’ personal data by organizations has been affected, which has had implications on how and what information can be shared.

To better understand international payments platforms, we conducted a practical experiment led by comparative analysis between two large players: Bill.com, an emerging leader in B2B international payments space, and a large international bank that many businesses traditionally use to send money abroad. During the study, we explored the effectiveness of these platforms objectively and independently.

Methodology

• First, we processed transactions of $1000 each from US-India, US-Singapore, and US-Italy, using two prominent international payments platforms: (a) Bill.com and (b) a large international bank.
• We looked at the transactions made via both platforms and considered speed, simplicity, tracking, costs, how they synced with accounting software, etc. We tracked the process of each country’s payment flow on both platforms.
• We considered the following parameters: Time taken to set up an account, number of days for the transfer to be processed, fee(s) charged by the platform for the transfer, the actual amount received in the payee account (in local currency, as against the original $1000 amount transferred), the FX rate applied by the beneficiary bank to convert dollars to local currency, and the mid-market rate.
• We conducted a comparative analysis to determine which platform offered greater advantages to both the person sending and the person receiving the payment.

I. US-Singapore Payment Flow Comparison

Observations

When we transferred $1000 from the US to Singapore, it was observed that it took Bill.com a day longer to process than the transfer done by the bank.

However, while the bank charges in both cases were zero, we noticed that Bill.com charged zero fees for the transfer, while the bank charged a fee of $35 on top of the $1000 to be transferred for its service. Additionally, the bank also charged a higher FX Margin on the conversion (approximately 20 pip). We can see that the total amount received is also slightly larger as compared with the amount received after the transfer through the bank.

Ultimately, Bill.com turned out to be the better solution for the international transfer in this instance.

II. US-India Payment Flow Comparison

Observations

In this instance, while the bank charge for the Bill.com wire transfer was zero, an additional fee of $5 was applied by the bank. We noted that as with the previous transfer, Bill.com didn’t charge any fee for the transfer, while the large bank charged $45, on top of the $1000 that was transferred. The total transaction of the bank transfer was $1050, whereas Bill.com was just $1000 – a difference of $50.

At first glance, it appears that Bill.com's exchange rate is slightly higher as compared to banks. However, it should be noted that overall, in our transaction, we saved more on the payment thanks to no wire transfer fees charged by Bill.com. Once again, the transfer made through Bill.com proved to be the superior option.

III. US-Italy Payment Flow Comparison

Observations

In this case, a wire transfer of $1000 was sent from the US to Italy. Again, Bill.com didn’t charge any fee for the transfer, while the large bank charged $35. Here, the amount received in the local currency against the $1000 sent was higher in the case of Bill.com and a little lower in the case of the bank transfer.

Once again, Bill.com emerged as the clear winner, with zero transfer fees, along with a notably lower margin of 2.12% compared to the bank’s margin of 6.01%.

Further Analysis

In the case of the US-India wire transfer, and a host of countries where Bill.com supports payments in local currencies, the bank charge transfers are reduced to zero. Furthermore, with respect to India – where the large bank conducted a standard SWIFT transfer to process our remittance – there was an additional bank charge of $5 that we had not previously anticipated. We found that Bill.com was more transparent about hidden fees.