B2B cross-border payments rebooted

Every business needs to buy goods and services from other businesses. With the globalisation of labour and supply chains as well as digitisation of commerce, these transactions have increased across national borders. This makes having an efficient and effective international B2B payment solution more important than ever.

However, just because B2B cross-border payments are important, it doesn’t necessarily mean that they work well. International funds transfers often take too long and cost too much, certainly when compared to domestic transfers. What’s more, it’s not always clear where the funds are and when they’ll arrive either.

But what if there was a better, cheaper way to send international payments as quickly and easily as a domestic bank transfer? What could this do for banks and exchange houses, but also their business customers?

Who needs a cross-border B2B payment solution?

Any business dealing with other businesses may need an international B2B payment solution. And that’s nearly all businesses, right?

Those trading via e-commerce shops or marketplaces need to make and accept international payments quickly and easily. Likewise, those wanting to pay suppliers in other countries or make intra-company payments to overseas subsidiaries need a cross-border B2B payment solution.

Whether it’s a one-off or recurring payment, full or instalment payment, being able to credit accounts around the world is a near-universal requirement for businesses. So much so B2B cross-border payments worldwide were estimated to be worth $35 trillion in 2022. That’s a 30% increase on the Covid-related low of $27 trillion in 2020.

What’s changing in the cross-border B2B payments landscape?

B2B payments lag behind B2C, particularly when it comes to innovation. In-store contactless payment with a card or mobile phone have become increasingly more common. As have all types of mobile banking, payment and money management apps. Yet B2B payments are still cumbersome, manual and often paper-based.

Businesspeople are consumers, too. In fact, small and mediums enterprises (SMEs) probably have more in common with consumers than large corporates. As a result, customer expectations are changing particularly around speed, convenience, value and choice. When e-mails can be sent across the globe almost immediately, businesses wonder why sending money the same distance still takes 3-5 days.

What’s the problem with cross-border B2B payments?

Cross-border B2B payments are often complex, time-consuming, manual and expensive. There’s also a general lack of transparency around pricing, timing and tracking.

Much of the payment process seems to be a ‘black box’, with so many factors either hidden or out of the sender’s or receiver’s control. For example, which banks are involved, which systems they use, and whether transfers cross a business day, weekend or time zone.

No wonder that daily cut-off times, unexpected delays, nasty fee surprises, failed payments, wasted time sorting out admin and exceptions are commonplace.

B2B payments are generally more complex than payments between people (P2P) or between businesses and consumers (B2C). This is partly due to the extra data that travels with the payment, such as tax info, purchase order or invoice numbers. And partly due to the multi-party nature of correspondent banking.

What is correspondent banking?

Correspondent banking allows banks to offer their customers services internationally, without having local branches. Even payment solutions that don’t involve a bank account at the customer level (e.g. remittances) rely on correspondent banking for the actual transfer of funds. As such, correspondent banking is a critical pillar of the finance industry, supporting international trade and financial inclusion.

How does correspondent banking work? Well, picture a business in the United Arab Emirates and a supplier in the UK, both of whom bank locally. They want to send payments to one another. But because their respective banks don’t use the same domestic payment network, they can’t pay each other directly. Instead, they rely on a network of international correspondent banks.

These financial institutions provide services on behalf of others – for example the UAE- and UK-based domestic banks – across national borders. Correspondent banks act as intermediaries or middlemen, offering a variety of services, such as funds or wire transfers, currency exchange and settlement. Fees for these services are usually passed on from the domestic bank to their customer with a mark-up.

What are the implications of broken B2B payments?

Being able to facilitate cross-border payments as quickly, easily and cost-effectively as domestic bank transfers brings a whole host of benefits.

Banks can compete strongly against their peers and tech-savvy new entrants by offering a superior customer experience. Plus improve payment efficiency for themselves and their business customers.

Businesses can manage their cashflow better. But also plan for the future by managing stock optimally, never missing a sale, forecasting better to anticipate potential problems, growing customers and revenues and so on.

What’s the solution for cross-border B2B payments?

Cross-border B2B payments must be as fast, simple and efficient as local bank transfers. They must be flexible, allowing single or recurring payments, plus a choice of connection methods: API, SWIFT, File Upload or customized by API.

Any B2B solution must also be cost-efficient, with no international SWIFT wire fees, so payment arrives in full without deductions. And last but not least, transfers must be safe, with advanced screening, real-time monitoring and online payment tracking.