‘Nearshoring’ Trend Puts Spotlight on Cross-Border Payment Frictions

Continental nearshoring is driving a broad shift in both global trade and friction-free B2B payments.

Or so observers hope.

Supply-chain disruptions, prolonged “zero COVID” shutdowns in China, and soaring shipping rates, alongside widespread geopolitical uncertainty caused by Russia’s invasion of Ukraine, are combining to fuel a nearshoring trend as companies look to strategically diversify their operations in the hopes of avoiding overreliance on a single market or one that is hemispheres away.

Complicating matters is the fact that emerging markets are traditionally underserved by the legacy payment rails that financial institutions rely on for cross-border settlements.

The establishment of a more efficient, transparent and cost-effective international B2B payment infrastructure will be key to the success of companies seeking supply-chain diversification, as well as provide a much-needed transformation of global B2B transaction capabilities more broadly.

A New Chapter

The Wall Street Journal (WSJ) reports that, per a statement from the Mexican government, more than 400 companies have expressed interest in moving their production from Asia to Mexico alone.

Beyond just expressing interest, though, in order to effectively and efficiently integrate new emerging markets into their supply chain operations, those organizations looking to update their geographic footprint in order to realize operational resiliency will need a fast, reliable and transparent way to pay manufacturers and vendors in their new markets.

This, as research in PYMNTS’ December edition of “The One-Stop Bill Pay Playbook,” finds nearly 1 in 3 executives say they are not fully satisfied with their organizations’ current bill payments ecosystem.

Businesses need to get paid faster to survive, particularly in times of economic uncertainty. With a predicted recession either already here, or, depending on whom you ask, just around the corner; working capital flexibility and cash flow transparency is only becoming more pressing for organizations’ finance leaders.

However, outdated cross-border payment infrastructure continues to make that a challenge. Legacy cross-border payment systems often lack transparency and can commonly take days or even weeks to process. The lack of pre-existing connections between banks in established and emerging markets also makes cross-border transactions more expensive, as each bank the B2B funds are required to travel through is likely to charge its own money-movement fee.

This means that in trying to escape the backlogs and breakdowns of far-reaching supply chains by setting up conveniently located operational facilities in key geographies, businesses may instead find themselves suffering those same backlogs and breakdowns as part of their B2B payment experience.

Achieving operational resilience will require greater connectivity, transparency and agility around the B2B payment occasion.

A Better B2B Payment Infrastructure

Businesses themselves need to invest in B2B supply chain payment transformation to help streamline their own antiquated supplier-vendor management, enhance supplier portal capabilities and payment processes, and strengthen entire supply chains through technology-enabled platforms, while banks and FinTechs must replace outdated payment rails with efficient connections between established and emerging markets.

Fast and efficient payments inherently help drive growth, but cross-border B2B payments management today often sees businesses deploying solutions that are resource intensive and frequently erratic or inconsistent.

After all, 25% of B2B payments are still made by check. Hardly a sign of modern, agile infrastructure supporting transparent, real-time transaction capabilities.

In today’s technologically advanced day and age, there is no reason for organizations to endure inconsistent payment processing experiences or to force those experiences on their business suppliers and vendors.

Per recent PYMNTS research in “The AR Transformation Solution: Easing And Accelerating Payments From Business Customers,” companies that self-report as “more highly digitized” are more likely to invest in payment innovations for 2023, with nearly three-quarters (73%) saying it is a priority for them, while more than 6 in 10 (64%) of “less digitized” companies also say investing in payment innovation is a priority for the year ahead.

Additional PYMNTS findings have shown that B2B payments as a whole are growing increasingly digital, and 9 in 10 small-and-medium-sized business (SMB) owners tell PYMNTS that all-in-one payment platforms for B2B transactions save time and are more convenient.

By offering customers access to third-party digital payment hubs, or “one-stop shops,” businesses can rewrite the script on B2B payments by offering their payors a single, agile system that is easy to access and use, and provides faster processing times, increased security, and reduced costs.

With businesses increasingly adopting, and in many cases favoring, alternative payment channels like mobile wallets, supporting multichannel rails that can help overcome critical connectivity and interoperability gaps in the global payments value chain is becoming a mission-critical component of any nearshoring strategy.

Anand Bindumadhavan, vice president of global banking at Payoneer, told PYMNTS earlier in the new year that making cross-border payments should be “as simple as sending email.”

As factories start springing up closer to home, let’s hope that one day soon they will be.