Why X-Border Payments Aren’t Waiting For Blockchain To Innovate

Bitcoin grabs the headlines, but as investors rush to jump on the cryptocurrency bandwagon, there are other market forces at play ready to make an impact in cross-border payments – today. It’s among one of the most pressing needs in financial services to address friction of global payments that are notoriously slow, expensive, opaque and an overall hassle – especially for small businesses.

A report released in 2016 by Covercy found that small businesses in the U.K. that average 20 cross-border transactions of $1,300 per month are forced by their banks to pay more than $1,400 a month in fees alone. Analysts described those fees as largely unnecessary, too.

Separately, research published last year by Saxo Payments found nearly half of small businesses say they are dissatisfied with the costs of cross-border payments, with 80 percent saying they would consider switching financial service providers for cheaper global payment services.

As these burdens on SMBs mount, FinTech stepped in to try to tackle the problem. With initiatives like Open Banking in the U.K. bolstering FinTech’s competitive edge, Ian Strafford-Taylor, CEO of global payments firm FairFX, says the face of small business banking is going to look different.

“The role of a traditional bank being a one-stop shop for everything financial will certainly change,” he recently told PYMNTS. “Open Banking means that FinTechs will now be able to create functionally rich platforms, but not have to worry about hugely expensive data storage. APIs mean that the customer will be able to see and transact on one platform whoever they choose to bank with. Platforms will potentially be able to offer the most suitable financial product or service for a particular business.”

These changes aren’t necessarily stuck in the hypothetical phase, however, with data sharing between banks and FinTechs already making progress even before PSD2 came into effect. Strafford-Taylor noted that all of this will alter small businesses’ ability to manage their finances, injecting a hefty dose of efficiency into the SMB FinServ market.

That includes cross-border payments, he said, which have been the recent target of FinTech innovation, and which are headed for more disruption to come.

As far as technologies that have already made their mark on cross-border payments, Strafford-Taylor says the proliferation of commercial card products is enabling small businesses to address the particular needs of various global payment situations. Purchasing cards, for instance, enable global payments to suppliers without the need to issue a purchase order, he said.

“These types of payments allow businesses to pay instantly but, at the same time, get up to 60 days to settle with the card provider, so great for cash flow,” he explained.

Virtual cards are another technology that have had an even more recent impact on global SMB payments, the executive noted.

“Virtual cards also offer a very secure and time-efficient way of making payments. These types of payments are particularly useful for cross-border payments in terms of timing and cost,” he said.

FairFX has strengthened its commercial card capabilities as of late; last December, the company announced it could now issue Mastercards across Europe – and more recently, the firm revealed that it completed the integration of CardOne after acquiring the company last August. Strafford-Taylor said the takeover will help FairFX broaden its product offering to small businesses, with the understanding that cards are only a part of the overall global banking experience.

“Traditional high street banks make it very difficult for small businesses on a number of levels,” he said. “Firstly, it can take weeks, if not months, to open an account. Secondly, the range of services they are prepared to offer small businesses can be very limited.”

So, while card products can facilitate faster cross-border B2B payments and enhanced visibility into expenses, SMBs also need more from their financial service providers. Open Banking initiatives are making this possible, but Strafford-Taylor says there is even more industry disruption on the horizon.

“Blockchain and cryptocurrencies are still in their infancy, but there have been a number of startups and big businesses trying different ways of using the technology in the payments space,” he said. “Some are using cryptocurrencies in order to send payments cross-border instantly,” he noted, citing IBM as one technology giant that has invested in blockchain technology to accelerate and streamline global payments. Mastercard, too, is diving into distributed ledger technology for the purpose of improving cross-border payments, as is American Express, which announced a blockchain-fueled global B2B payments solution last November.

Today’s bitcoin hype may be inflated, but Strafford-Taylor said he expects blockchain to have the greatest impact on this space. And while the cross-border payments and global banking market endures disruption from innovation in commercial cards and data sharing, the executive said that blockchain’s time for disruption probably isn’t too far off.

“Whilst it’s very likely that cryptocurrencies will at some point become regulated, blockchain itself will develop in the future and become mainstream in the B2B payments sector,” he said.