India is a hotbed for FinTech innovation, with venture capitalists of the industry becoming some of the most active on the market today. This year, the popular trend for VCs in India on the B2B side has been alternative lending, while mobile payments and virtual wallets have also earned their share of excitement in recent months.
Much of this attention can be attributed to the fact that innovators are identifying key gaps in the financial services and technology space, for both businesses and consumers. While startups are beginning to address those gaps, analysts say there are more holes to fill.
B2B payments company Payoneer recently zeroed in on one of those holes: cross-border B2B payments. Last month, the firm published a new paper, "Unveiling the True Cost of Cross-Border B2B Payments: How Freelancers & Businesses in India Can Reduce Payment Fees," to delve into where India is placed in the international B2B payments space and what points of friction are holding the industry behind.
Analysis conducted by Let's Talk Payments (LTP) revealed a drastic need for more transparent, efficient B2B payment options from companies in India. Like consumers, businesses in the country are drawn to online and mobile channels, rather than traditional banks, to meet their demands.
So far, what's offered has failed to satisfy companies doing business internationally.
"Compared to other developed markets, India is largely underpenetrated with a huge potential for growth in the cross-border B2B transaction market," LTP said in its announcement of the paper. "But often, B2B merchants face problems while receiving payments from across the border."
How It's Done
At present, LTP found, one of the biggest challenges facing B2B companies is that sales are often made based on credit; a survey revealed more than 39 percent of the sales made by the businesses surveyed are made on credit for foreign buyers.
It could be one of the reasons why India is now suffering from its own late B2B payments problem. According to LTP and Payoneer, about 14.5 percent of India's B2B invoices are more than 90 days past due — that's more than the regional average for Asia, at 11.1 percent.
"Late payments of invoices incur financial and administrative costs and can negatively affect cash flow and business growth," the paper concluded. "Merchants in India receive payments on foreign B2B invoices around 63 days after invoicing on average. The average payment duration for the region starts at 61 days for foreign ones."
"The unpaid invoices is one of the greatest concerns for Indian respondents when it comes to managing receivables and collections," researchers continued.
Analysts identified other challenges in international B2B payments faced by Indian companies. SMEs in the nation are particularly susceptible to cash flow problems considering the amount of time required for international transactions to clear. The data and payment messages connected to a transaction can often be lost, too, in international transactions, while complex payment procedures and an insufficient traditional banking system are also commonly cited struggles.
SMEs are, of course, burdened by these issues as they struggle with managing cash flow. But freelancers, Payoneer said, are another type of business that suffers more than the rest when international B2B payments are slow, inefficient and tied to technical complexities and shortcomings.
"For freelance marketplaces in India, local fund transfer is one of the most preferred options by freelancers as it does not charge any landing fee," the paper stated.
According to LTP, these challenges make for an intriguing market, especially for FinTech developers. Last year alone, B2B payments in India were worth an estimated $20 billion. And with companies and freelancers depending on the traditional banking system, as well as international cards, to send or receive payments overseas, LTP and Payoneer concluded that these options aren't pulling through.
"India is considered to be one of the fastest-growing nations in B2B payments," the company noted, "and provides enormous opportunities for B2B players, both domestic and international."