Corporate payments are still not a guaranteed use case for cryptocurrencies. While some analysts say crypto is a viable technology to address the friction of cross-border transactions in particular — pointing to the lack of transparency and speed in the traditional correspondent banking system — a lack of acceptance on the receiver's end means a technology like bitcoin probably won't be the B2B payment rail of choice anytime soon.
Wirex, which providers consumers with an account to store both fiat and cryptocurrency, recently stepped into the corporate finance space with the launch of its business account. Co-Founder Dmitry Lazarichev explained to PYMNTS why the company remains confident in cryptocurrency's potential for corporate payments.
One of the most promising use cases, he said, is in the friction companies experience moving money within the organization itself — that is, making payments to subsidiaries or business units, particularly when those entities exist across borders.
“Subsidiaries based in different countries, with different bank accounts, are obliged to send funds to each other using existing payment rails,” Lazarichev said in a recent interview, adding that traditional global payments tools take several days to complete. “In this technology-centered age, this is rightly seen as an unacceptable state of affairs for businesses who simply want to manage their day-to-day cash needs.”
Moving funds between subsidiaries, paying employees in different locations and other internal company payment needs become just as complicated as making an external global payment, he said.
Cross-Border Payments Friction
The challenges of global payments are well known, particularly as analysts warn of the impact of a decline in correspondent banking relationships around the world.
Last year, the World Bank Group's Internal finance Corporation released new data that revealed 27 percent of top banks have reduced the number of correspondent banking relationships they have, resulting in a cutback in services that has a profound impact on corporate payments and trade. Analysts pointed to a rise in regulatory pressure as one of the factors pushing banks to reduce exposure to and participation in the correspondent banking space.
Yet many experts doubt that cryptocurrency can be the solution to these points of friction, especially when it comes to the B2B use case.
While Lazarichev pointed to the three to five days it takes for funds to move via traditional banking rails operated by SWIFT and SEPA, these players have introduced initiatives, like SWIFT gpi, to accelerate transaction speeds and boost transparency.
Yet the pain points continue. American Express research pointed to corporate treasurers' ongoing need for transparency, efficiency and broader global coverage in their cross-border payments needs, with larger enterprises struggling to see value in smaller FinTechs that are unable to meet their sophisticated global payment needs.
Mixing Crypto With Fiat
American Express recently launched an initiative with crypto company Ripple in a strategy becoming increasingly popular: mixing traditional financial services with blockchain and cryptocurrency. That's the strategy for Wirex, too, explained Lazarichev.
“The future of payments is digital. Businesses have struggled for too long with the legacy infrastructure of traditional banking platforms, which carry high transaction costs and delays for businesses when moving funds," he said. While companies need digitization and innovation, though, new solutions must “reflect the fact that the overwhelming majority of transactions are still made using fiat money” — an industry truth that guided Wirex's development of its solution that supports both fiat and cryptocurrency.
By onboarding subsidiaries and employees on the Wirex platform, explained Lazarichev, a business can bypass the friction of traditional cross-border payment processes without having to migrate entirely to crypto.
Despite businesses' reliance on fiat, Lazarichev added that corporates have been eager to adopt crypto-friendly solutions, though the current crypto landscape is not yet conducive to addressing B2B payment needs. As a result, he said, business users have been forced to deploy crypto payment technologies designed for consumers.
While adoption remains minimal compared to traditional rails and fiat — Lazarichev acknowledged that “decentralized digital currency won't be institutionalized overnight” — use of crypto for global corporate payments could eventually make its way into other areas of business finance needs beyond intercompany transactions, including cross-border B2B payments, currency-specific invoice financing, global payroll, and corporate card solutions that can support both digital and fiat currency. Lazarichev said Wirex will be examining these opportunities moving forward as it works to strengthen its position with business customers.
Not everyone is convinced that crypto will be the answer to the many pain points of these areas of business finance and payments, however — or that crypto will be the answer to pain points in any use case, business or consumer.
But companies like Wirex are putting their money on the technology's potential. According to Lazarichev, adoption will rely on behavioral change as much as technology adoption, making integration and support for fiat currency and traditional rails — including SWIFT and SEPA — a necessity for solutions like Wirex's, he said.
“Mainstream adoption of crypto technologies is already well under way,” added Lazarichev. “We are seeing significant demand from businesses around the world who are aware of these use cases of cryptocurrencies and the value they bring, but have so far been unable to take advantage due to lack of a viable payment solution.”