Finding The Right Fit For Cross-Border B2B Payments

The expansion of traditionally consumer-focused FinTechs widening their solution scope to include B2B payments tools exemplifies just how massive the opportunity is for service providers to tackle friction.

Around the world, B2B transfers are expected to reach a $218 trillion valuation in the next three years alone. And with the ability for even the smallest of businesses to step into an international market, and to both source and procure from business partners around the world, the expansion of cross-border B2B transaction volume is only slated to accelerate.

The magnitude of the market is attractive even to B2C FinTechs, though the industry has quickly understood that B2B problems cannot be addressed with tools and technologies designed for consumer. And indeed, some businesses in need of cross-border payment solutions have been forced to revert to those B2C solutions, with lackluster results.

SatoshiPay, a FinTech based in London and Berlin, launched in 2014 with the intention of solving micro consumer payments friction. But with recent investment by Börsenmedien, Neofin, Blue Star Capital and others, the company is expanding into the B2B realm to address cross-border corporate payments hurdles.

“For global businesses, national borders are less and less relevant,” SatoshiPay CEO Meinhard Benn recently told PYMNTS.

However, he noted, global payments friction runs rampant. Businesses operating across different time zones, for instance, add a layer of complexity, while global infrastructure cannot currently support the demand for fast, transparent global B2B payments.

A Square Peg in a Round Hole

Currently, Benn explained, businesses face the major hurdle of wielding domestic payment networks for cross-border transaction needs.

“Many of these businesses use traditional payment networks based on legacy infrastructure that are not meeting the requirements of globalization, such as speedy execution, guaranteed arrival and transparent competitive fees,” he said.

Local payment infrastructures are often designed with the consumer in mind — and certainly have not historically been built for cross-border B2B transactions. With little other option, service providers have been forced to work with existing infrastructure — a bit like forcing a square peg into a round hole.

There are other ways, Benn said, that businesses have been attempting to force consumer services and products for their cross-border corporate payment needs.

“In the past, businesses came up with creative ways to overcome existing limitations,” he said. “For example, some freelance marketplaces, survey websites and affiliate marketing businesses are paying out funds using gift cards or store credits in order to avoid pricey cross-border fees and slow settlement times, which sometimes don’t support certain local currencies or bank account payouts.”

A Borderless Blockchain

SatoshiPay is part of a growing community of innovators looking to wield existing infrastructure in a powerful way — and contribute to the establish of new infrastructure — in order to address global B2B payments demand.

Through collaborating with blockchain foundation Stellar, SatoshiPay is embracing distributed ledger technology to both work with and circumvent existing networks.

“Blockchain technology is built on top of the internet, and therefore borderless by default,” said Benn of the technology’s applicability in cross-border B2B transfers. “Blockchains focused on interoperable payments, such as Stellar and Ripple, provide bridges to traditional payment infrastructures and on-demand liquidity.”

With plans to launch pilot tests in January, SatoshiPay B2B is developing two different models to facilitate the movement of funds across borders between two businesses using blockchain. The first is to facilitate near-instant payouts to beneficiaries local bank accounts via the company’s existing blockchain-to-bank link, which uses the Stellar network.

The second will deploy stable tokens pegged to fiat currency, and will allow a recipient to “off-ramp” tokens into the traditional financial market for near-instant settlement, said Benn, adding that “existing off-ramps include blockchain-enabled bank accounts, mobile airtime and data top-ups, mobile money, utility bill payments, or goods and vouchers purchases,” and the company also sees potential in debit cards connected to blockchain tokens.

The Faster Payment Demand

In addition to blockchain’s ability to flex in harmony with existing infrastructure, Benn said the tool is also key to facilitating faster and real-time transactions.

It’s another feature that has traditionally been explored in the context of consumer payments, yet according to Benn, corporates are expressing heightened demand for speed.

“For businesses, real-time payments enable flexibility, improve cash flow management and thereby give a competitive advantage,” he said.

Faster payments can facilitate faster operations throughout the supply chain at large, added Benn, allowing companies to more quickly complete the purchase-to-delivery process. Blockchain can also support split payments, allowing funds to be distributed to the appropriate supply chain partners “without delay.”

Speed also promotes stronger liquidity, particularly for small and medium-sized businesses (SMBs), and can be critical to SMBs in markets with high underbanked populations.

“The need for instant payments already exists,” said Benn, adding that the current banking infrastructure often fails to meet the need for faster cross-border transacting, particularly among businesses. And for companies looking to grab onto any opportunity they can to go global, a lack of adequate global payment infrastructure can be detrimental.

“Establishing subsidiaries away from a business’s home market is a challenging task,” Benn noted, “especially when inefficient cross-border payment infrastructure slows down growth.”