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Unlocking Trapped Liquidity Is Holy Grail for Cross-Border B2B Payments

global payments, cross-border payments

Taking the friction out of cross-border payments is fundamental to spurring global growth. 

For businesses that increasingly expect a B2B payment experience mirroring the convenience available in consumer transactions, unmet behavioral expectations around streamlined cross-border payments are beginning to track those already met around the ease of settlement within domestic markets. 

But while the technology may be there, making cross-border payments faster and more secure will require a visionary leap forward in 2024. 

That’s because cross-border payments inherently have more points of failure compared to their domestics. Compliance is an ever-present issue, with local anti-money laundering (AML), know your customer (KYC) policies and sanctions screenings needing to be addressed for each individual region. Lag times and the threat of fraud also create bottlenecks, and foreign exchange (FX) rates raise their own obstacles.

However, driven by a flywheel of innovation and growth in the payments ecosystem, change may be coming.

And it couldn’t be happening at a better time, as the cross-border transactions that underpin global business expansion are increasingly becoming a necessity for companies looking to grow beyond the confines of their traditional markets.

See moreWhat Global Merchants Need to Know About Boosting Cross-Border Sales

Simplifying Cross-Border Payments

As Jim Colassano, senior vice president of RTP product development at The Clearing House (TCH), told PYMNTS, “cross-border, instantaneous payments is the holy grail of payments.”

Traditionally, moving money around the world required firms to keep cash in correspondent banks where their counterparties were located, and kept support staff on their toes with various time zones, continents and even regional holidays that all frequently threw wrenches into transaction settlement workflows. 

“We’ll start to see a movement away from traditional correspondent banking,” Form3 U.S. CEO Dave Scola told PYMNTS, explaining that real-time payments schemes and distributed ledger technologies and tokens may play a role in reducing the complexities of cross-border payments. 

“There are two highly important areas for B2B payments where innovation is occurring,” Eric Foust, vice president of banking partnerships North America at Trustly, told PYMNTS. “And the first one is cross-border payments.”

Staying ahead of regulatory changes is crucial for streamlining cross border payments. The risk of fraud and financial crime are only increasing — but advanced technologies like artificial intelligence (AI) can serve as a line of defense. 

By leveraging machine learning algorithms and AI, financial institutions intermediating global payment flows can provide their users with insights into currency fluctuations, market trends and potential risks, empowering them to make informed decisions and optimize their financial strategies.

Gayathri Vasudev, global head of cross-currency payments at J.P. Morgan Payments, told PYMNTS that integrating machine learning and AI into every facet of payment processing, including tasks like automating repairs, eliminating false positives on sanctions and continuous monitoring, ensures a seamless payment flow. When coupled with using APIs to offer real-time FX rates and payment tracking, these advancements have “the potential to completely transform cross-border payments,” she explained. 

The market is already starting to act on this potential. As PYMNTS reported last month, Layer2 Financial partnered with Evita to streamline and optimize the compliance processes around B2B cross-border payments.

Read also: Three-Day Weekends Are Relaxing — Three-Plus Days for Sending Cross-Border Payments Is Anything But

Cross-Border Liquidity Bottleneck

International expansion can be particularly challenging for the small- to medium-sized businesses (SMBs) that could reap the greatest benefits from the growth. 

PYMNTS Intelligence reported earlier this year that only 23% of smaller businesses say that current cross-border payment solutions are “very or extremely satisfactory.”

Part of the reason is that the need for correspondent banking relationships, as well as the long settlement times, inherently locks up much-needed working capital. If businesses don’t have a cash cushion to work with, they are effectively shut out of international expansion. 

“This core problem is how long it takes to move money across borders … you’re being charged serious rates to move money across borders, and you also have an inability to track those payments and know they’ve arrived with certainty,” Brooks Entwistle, senior vice president of global customer success and managing director at enterprise crypto solutions company Ripple, told PYMNTS. “As these businesses grow, it comes with the need to really move value faster, and in more places.”

Echoing that sentiment, Neil Drennan, chief technology officer at Visa Cross-Border Solutions, told PYMNTS that, “the cross-border B2B market is growing massively” and that means there are more businesses than ever looking to “[move money around the world] quickly and transparently, with complete clarity around costs.”

But as 2024 continues, new innovations are being brought to bear on the problems hamstringing cross-border transactions. 

The promise of embedding payments in cross-border commerce is a multitrillion-dollar opportunity, Amit Agarwal, global co-head of payments and receivables, treasury and trade solutions at Citi, told PYMNTS. “Payments were a byproduct of the business,” he said, “but now payments are a business.”