TO KEEP IN MIND
Cross-Border Payments: B2B and Beyond
by Hugo Cuevas-Mohr
Cross-Border Payments in 2022 saw the continuation of a trend that is gathering more news and analyses and would probably have a breakthrough moment in 2023.
What has been most surprising was the relatively quiet work of the digital B2B cross-border fintechs have been doing in transforming the payments ecosystem. FXC Intelligence was keen to note 2021’s shift to B2B for money transfers . These “crosstechs” (as I like to call them), with the intuition that the market is ripe for disruption, are building the blocks of the cross-border B2B payment ecosystem.
The performance of companies like Payoneer with its B2B volumes growing 39% YoY, in emerging markets such as Latin America at 50% YoY is making other fintechs realize their potential. If P2P payments are inching closer to US $750 billion, B2B payments have been estimated to be around US $150 trillion according to Ernst & Young; on the low-end Juniper Research’s estimate is US $35 trillion . And there are all the unrealized combinations that business payments bring: B2P (salaries, commissions, work compensation) and P2B (bills, investments). Government-related payments ((pensions, social benefits, foreign aid) are also growing, as some specialized foreign exchange entities have been realizing.
In order to seize the enormous potential that doing business globally provides, I have to quote what Mark Ruddock CEO of Nuula, a business app for SMBs, said: “My call to action for Fintechs that are working in the cross-border space is that there is a huge opportunity that’s here — right now — to innovate in the sector.” The virtual panel developed by PYMNTS and hosted by Ben Ellis, Global Head of Visa B2B Connect, called this moment we are facing “the imperfect storm, where challenges and opportunities collide”.
As it was noted by Ruddock, Ellis and Michael Orme COO of Immediate, there are many “pain points” to solve. I have categorized those pain points in the areas that we need to work on, as an industry, to bring the partnerships and developments that are necessary for B2B cross-border payments. I will try to summarize these pain points; this is more complex than it seems.
Regulation: Not all States in the US require the licensing of fintechs involved in B2B payments, so every company must inquire, specify its business model, and wait for the regulator to reply back if a license is needed or not, a long and expensive proposition. In Europe, any cross-border payment –domestic payments included– require Non-Bank Financial Institutions (NBFIs) to acquire a Payment Institution license (PI). The panorama across the world is challenging: all regulatory modalities can be found, from total restriction to total freedom. Twenty to thirty years ago we were faced with the same challenges with the payment of personal transfers (remittances); there was international pressure to license and regulate the P2P industry. Will it happen again? I don’t think so; the rights of migrants and the human aspect of remittances was a big driver. What is the big driver for uniform regulation here? I think the Europeans answered it clearly: bring transparency and competitiveness in the market between banks and fintechs. Do European fintech have an advantage over their US counterparts?
Compliance: Know-your-Client (KYC) rules regarding business payments is an area that is complex. How much KYC is required from a company, its owners, and top employees, in order to pass a due diligence check that in any event will show that a “complete” examination has taken place? What is the amount of documentation needed to be exchanged for different types of payments? Which are the Regtechs that can provide a reliable KYC for business clients? How reliable are they for sanctions? Are these third-party checks good enough? What are the red flags that need to be taken into consideration? What will the anti-money laundering (AML) expectations be for NBFIs, vis-à-vis banks? How important is Artificial Intelligence and Machine Learning (AI/ML) in terms of improving cross-border money transfer compliance and fraud mitigation?
Size of the Market and Consumer Demand: What is the market size of Cross-Border B2B Payments? Is there really a consumer demand for B2B payments? Where is it coming from? How to be as strategic as possible amid the market uncertainties?
Corridors: Where are the coverage inconsistencies in the growing ecosystem? What are the corridors where crosstechs can be more successful? The ones where the volumes are high? The ones where there are more challenges to overcome and possibly have better returns? Which are the boundaries to “more risk, more reward”?
Partnerships: What partnerships are needed to be successful? Will NBFIs doing domestic business payments or foreign exchange firms be the best partners? What Banks are willing to cater to crosstechs and build a channel that is not wire-transfer based? Are card payment networks such as Mastercard or Visa the partners that you need for B2B payments? Would partnerships upsetting an inflow of P2P transfers with an outflow of B2B transfers, the best scenario?
Technology: Over the last several years, there has been a major movement towards mobile and web-based payments. Are mobile apps business-friendly? Are web-based applications the way to go? What are, beyond the payment or transfer of funds, the tech functionalities that will complement the business experience and drive customer adoption?
Products & Services (P&S): Do these P&S need to be targeted to specific types of clients, corridors, trades? Should the growing SMB payments market be the primary focus? Or will all-around crosstech B2Bs succeed? How might these P&S be differentiated from bank wire transfers, besides speed, cost, and foreign exchange margins? How might sending disbursements cross-border be handled when you mix payments for businesses and individuals?
Crypto & Blockchain Solutions: I believe, as do a number of colleagues in the industry, that the use of Crypto & Blockchain Solutions (CBSs) is a growing trend in back-office and treasury management. Is the advent of crosstechs building their rails using CBSs the way forward? Are stable coins the best solution available? How will these solutions interact with the rest of the ecosystem?
eCommerce: How are crosstechs positioning themselves in the eCommerce boom? Where do they fit and how can they compete, both facing the customers and as a back-office solution for marketplaces and importers and exporters? How do they fit into the logistics, custom and taxation part of the equation?
Credit and Conditional Payments: How can crosstechs manage supply chain financing? How does the industry solve hedging against risk for SMBs? How does managing conditional payments make it easier and more automated?
All of these questions are being faced by the growing digital B2B cross-border fintechs as investors and entrepreneurs learn and develop this next wave of solutions for the fintech community.
To learn from the leading companies and institutions disrupting cross-border payments for small and medium sized-companies, join CROSSTECH PAYMENTS 2023 at the InterContinental Miami Hotel this May 11-12. See you there.