Tackling The Moving Target Of Cross-Border B2B Payments Friction

Although cross-border B2B payments have progressed into an area of financial services in which both traditional and FinTech players are innovating, moving money across borders between businesses is a feat with no shortage of friction points.

There are the traditional hurdles that any transaction faces, including the cost of facilitating that payment, and the speed with which that transaction completes. But when transactions occur across borders, new friction points emerge, particularly around the areas of interoperability, transparency and compliance.

What’s more, the global nature of cross-border B2B payments means there is no clear strategy to successfully tackling those challenges.

“I see the biggest challenges in cross-border B2B payments as speed, cost, transparency and regulation,” reflected John Hakim, CEO of currency exchange and global payments firm MoolahGo, in a recent interview with PYMNTS. “However, not all challenges rank equally depending on the region or country.”

Understanding that each market faces varying degrees of pain points in facilitating cross-border corporate payments is essential to service providers’ ability to find success in new solutions and services they design. But, as Hakim noted, it’s only one piece of the puzzle to achieving speed, security, compliance and efficiency.

Cost Versus Speed

Cross-border B2B payment service providers today must multitask. Acknowledging each markets’ unique needs means understanding the need for a single solution to tackle all points of friction across the globe — rather than pick-and-choose which friction points to address first.

In Singapore, where MoolahGo is based, Hakim said current infrastructure and practice means payments typically occur in real-time, or at least within a day or two. Yet transparency and cost remain a major hurdle in that market. In others, it’s speed that presents the biggest obstacle.

On the whole, Hakim noted that he considers the cost challenge to be perhaps the shortest hurdle for this space as FinTechs move in, placing pressure on traditional incumbents to lower their own prices. However, “huge and constantly increasing regulatory costs” add their own weight to service providers’ fee structures.

When it comes to speed, according to Hakim, “whether funds arrive in the next 10 seconds or the next 10 minutes or hours makes little difference” to many businesses sending and receiving funds across borders. While corporates have displayed “mixed” demand for faster payments, though, the global payments ecosystem continues to focus on real-time capabilities.

Two major challenges exist in ensuring global payments speed, he said. One is national infrastructure. In Singapore, for example, faster payments today are increasingly the status quo. In the U.S., though, a lack of faster payments ubiquity presents an often insurmountable hurdle in facilitating a faster, or even real-time payment.

The second major challenge is compliance, a point of friction that may ultimately prove unbeatable.

“Personally, I’m unsure of the feasibility of real-time cross-border payments given all the compliance activities that are required to be completed before a cross-border payment transaction can be executed,” he said.

The Interoperability Challenge — And Opportunity

As service providers strategize over which friction points to tackle and how, there are many challenges that remain, to a point, out of their control.

For instance, a lack of interoperability and connectivity between national payment networks creates silos that can trip up a cross-border transaction. Opening up those national payment networks on a global scale could expose them to vulnerabilities, said Hakim, threatening to destabilize domestic payment systems.

Further, while initiatives like SWIFT gpi are helping to address the challenges of speed and transparency in global B2B payments through collaboration and technological integration, such efforts still rely on ubiquity of bank participation.

But there are signs the ecosystem is evolving and opening up to the opportunity of secure integrations that could simultaneously tackle many of cross-border B2B payments’ biggest friction points, like speed, cost and compliance.

“I do see mindset changes in some countries to allow new non-bank players to tap into the national payment networks,” said Hakim, pointing to Singapore’s central bank’s own initiative to open up the nation’s real-time payment network, FAST, into other networks like the U.K.’s Faster Payments. “When this happens, cross-border payments would become even faster, enabling users to make payments instantaneously for their transactions without having to separately access their banks’ systems.”

As new payment networks continue to emerge, and new FinTechs step into the market to challenge incumbents, Hakim said he believes the global payments ecosystem will cultivate a business model of interoperability and cooperation between traditional and emerging payment systems and technologies. As national payment networks will begin to integrate with each other, new FinTechs will similarly integrate with traditional banks, resulting in a web of traditional inter-banking business models and API-driven collaborations with non-bank players.

It’s a complex web of competition and collaboration, but as interoperability continues to rise, service providers may unlock doors to further tackle the multitude of global B2B payments friction points.

“As banks open up, allowing non-bank players like us to connect, and, in turn, we allow banks to connect with us with our own APIs, we’re creating this huge ecosystem of interoperability amongst legacy and new systems to fulfill cross-border B2B payments,” he said. “In the future, I see cross-border payment transactions being fulfilled by a network of interconnected systems — and the members are not just traditional banks, but may include [non-bank] market participants.”