The European Union (EU) is introducing measures to reduce cross-border payment fees, which have emerged as a top pain point in the Eurozone when moving funds between a euro area Member State and a non-euro Member State. The effort is part of the European Commission’s broader cross-border payment regulations, first proposed in March 2018, to make cross-border payments within the EU more affordable for consumers and businesses.
It’s also one of several initiatives in the private and public sectors to tackle the costs of cross-border transactions, one of the largest challenges for B2B payments — particularly when small and medium-sized businesses (SMBs) move money across borders. This month’s Smarter Payments Tracker, a PYMNTS and InstaReM collaboration, highlights a flurry of activity in the financial services space targeting a range of friction points in cross-border B2B payments, from fees to a lack of transparency and traceability.
Recent research revealed that the majority of U.S. SMBs are feeling confident about their international operations, with nearly two-thirds experiencing strong global growth. However, cross-border transactions can slow down that expansion, with a lack of visibility into transactions emerging as one of the largest issues.
That lack of transparency means the fees associated with a cross-border transaction can hit a business by surprise. In addition, as a previous interview with former INTL FCStone VP of Global Payments Greg Leven revealed, corporate treasurers may often rely on the receiving bank to handle currency conversions, further limiting visibility into foreign exchange rates and conversion costs for both the sender and receiver of a B2B transaction.
Among the biggest issues with a lack of transparency is the inability for either sender or receiver to track the progress of funds as they move through the traditional correspondent banking system. A research report from EuroFinance revealed that 75 percent of corporate treasurers with annual turnover below $1 billion said they want real-time tracking of cross-order transactions — only 40 percent said they want real-time payments.
The drawbacks to some of these hurdles are obvious: Higher fees are a pain for anyone, business or consumer. However, the lack of visibility, control and speed in cross-border transactions can have unique knock-on impacts in the B2B space. A B2B vendor may not release goods until funds are received, for example, while the unexpected fees associated with a global transaction may limit an SMBs’ ability to continue growing abroad.
PYMNTS’ own research, highlighted in The B2B Payments Tipping Point Playbook, found that one-third of surveyed companies are gearing up to roll out real-time payment capabilities, and nearly the same said they are planning to adopt automated accounts payable technologies (with 60 percent already in the process of doing so).
As businesses begin to embrace payment innovations that will disrupt their B2B payment processes, the industry is accelerating the development of tools that aim to address the particular pain points of global transactions. One of the most notable is SWIFT‘s gpi initiative, while Visa B2B Connect is another recent effort from the payments and technology market to collaborate with banks and businesses, and address cross-border payment hurdles.
Last month, Thailand’s Siam Commercial Bank and PTT Exploration and Production (PTTEP) announced their collaboration on a blockchain-powered, cross-border B2B payments solution that aims to accelerate global transactions for corporate customers. April also saw Visa partnering with FIS to connect the firm with the suite of Visa B2B Connect solutions via API, with an eye on speed and security of cross-border B2B payments.
This month’s Smarter Payments Tracker also highlights the recently announced collaboration between Ixaris and Banking Circle on cross-border corporate travel payments, which sees Ixaris adopting Banking Circle’s Virtual IBAN solution to enable businesses to send and receive payments, regardless of if they have a bank account in a certain jurisdiction.
Considering the sheer value and volume of cross-border B2B payments (valued at $127 billion in 2017, more than twice the value of consumer-to-business cross-border payments), the potential financial and operational impact of addressing global payments friction — including costs, transparency and speed — can be huge.
Download the PYMNTS Smarter Payments Tracker here.