August 12, 2019
Have you used a postcard recently to communicate with your relatives? Probably not. However, similar archaic practices are still being used in B2B cross-border payments businesses. A recent survey by the Association for Financial Professionals revealed that over half of all B2B payments (51%) are still made through paper checks. Conventionally, B2B payments technologies have been moving at a snail’s pace, and conventional systems are riddled with inefficiencies and high costs.
Moreover, the complexities increase exponentially if cross-border payments are considered. Consider this: The global cross-border payment volume reached $127 trillion, according to the McKinsey 2018 Global Payments report. It is noteworthy that the global cross-border transactions are concentrated in B2B payments segment that stood at $124 trillion.
According to the report, cross-border consumer-to-business (C2B) payments are growing at nearly 20% due to rising global consumption and increasing expenditures in areas like tourism, e-commerce, digital content, and others. We have highlighted this trend in our analysis of China-based FinTech players like WeChat, and Ant Financial, which are facilitating payment solutions to a rapidly expanding Chinese tourist customer base. On the other hand, if we look at B2B cross-border payments, the B2B accounts payable by SMEs stands at approximately $7 trillion and marketplace payouts at approximately $8 trillion, which presents a huge opportunity for payment technology and solution providers.
Traditionally, most cross-border payments are made through Swift, an organization that was started in 1973 that counts 11,000 financial institutions as members. However, Swift’s legacy system has inefficiencies. Here is a fact: The connectivity between financial institutions remains the roadblock as few banks are connected directly to each other, and a higher number of involved financial institutions leads to higher charges. In conventional systems, tracking the transfer’s progress and predicting the cost, including what foreign exchange rate one would get, remains a challenge. Innovators are tapping into this problem area as an opportunity, and an increasing number of cross-border payment solution providers focused on integrations and simplification is an indicator of the changing dynamics of this industry.
If we move towards convergence and simplifications in the cross-border payment infrastructures built on new technologies, especially Blockchain, it will benefit both the small and large businesses. New solutions like SWIFT’s gpi, Mastercard’s B2B Hub, and RippleNet are some of the examples of new-age cross border financial infrastructure. Global payments players like Finablr are managing end-to-end payments value chain by leveraging on their modern proprietary technology to capture specific niche propositions in the market, such as blockchain-based cross-border digital gifting and by powering P2P wallet payments for leading players, such as Google and WeChat. Another example of growing interest in this segment is Visa’s entry in the market with the launch of its blockchain-powered cross-border payments service, Visa B2B Connect, which enables direct inter-banking transactions between businesses and beneficiaries.
Some of the financial institutions, as well as FinTech players, accept that they can’t solve all the problems alone and decide to build a digital stack outside of their existing system. On the brighter side, the partnership with third-party payments companies like Finablr, Adyen, Bill.com, and others, can be a viable solution.
Where both large and small businesses are looking for globally scalable solutions from B2B payments providers, market presence and currency capabilities are extremely important factors of consideration. Such B2B payments providers promise to provide efficiencies for B2B engagements across various industries. These players are facilitating a much-needed real-time view of payments, integration with existing ERP and accounting systems while reducing credit and fraud risks. Here is a quick look at the differentiating solutions offered by some of these B2B payments technology innovators:
[Illustrative] not an exhaustive list of players
AribaPay by Ariba offers a cloud-based B2B payment solution that combines electronic payments with remittance data. It utilizes a “track & trace” element to provide a real-time view of the status of a payment. It facilitates full integration of ordering, billing, and settlement processes between buyers and sellers.
Bill.com offers a platform with apps that enable businesses to get paid quickly online, pay their bills, and manage budgets & cash flow. Its API is recognized for its ability to integrated Bill.com’s services with banks and financial institutions’ own websites, systems, and applications.
Transpay entered the market with its robust, industrial-grade, back-end, and front-end technologies along with their proprietary cross-border payments network, which allowed it to pioneer instant, direct-to-bank or cash pick-up payouts.
The New York-based Payoneer is known for sending and receiving international B2B payments. It serves millions of small businesses, marketplaces, and enterprises from 200 countries, including big names such as Airbnb, Amazon, Google, and Upwork.
Adyen offers an omnichannel platform that provides businesses a single solution to accept payments anywhere in the world. Some of their clients include leading players such as Uber and Booking.com
Finablr offers global payments and foreign exchange platform with the differentiated ability to source, process, and distribute payments across channels seamlessly, providing end-to-end payment capabilities to leading new economy players such as Google and WeChat.
Most of the leading B2B payment technology solution providers attract businesses by promising a proactive approach to leveraging payment automation – this can help reduce fraud and contribute to streamlining settlements and reconciliation while improving customer experience. The cost efficiencies in terms of transfer fees, locked-in exchange rates, global reach, faster channels, and simpler integration capabilities are the key benefits sought from these solution providers. The fundamental requirement for businesses remains the ability to optimize their time-to-market while reducing the effort and associated costs, and here, the partnership with B2B payment technology providers such as Finablr, Bill.com, Payoneer, and others might prove a wise idea.
Partnerships and strategic investments are the preferred approaches to achieve growth in this segment. We believe the B2B payments technology market would witness market consolidation in the medium-term due to increasing regulations, technology requirements, demand for white label solutions, and the pursuit of scale by industry players. Companies that have a global presence, the ability to offer innovative modular solutions, and the capability to scale their B2B business, would have an edge in this growing market in the times to come.