Meeting the global B2B payments challenge
International businesses increasingly expect global access to finance in real-time. They also expect finance to be available in a way that works for them in any country and currency, without the process being hampered and delayed by the historical constraints of national boundaries.
The trials and tribulations of cross-border payments
Today, despite rapid progress in areas of payments processing on the consumer side, cross-border B2B payments remain complex, touching many intermediaries often resulting in unpredictable delays. The traditional correspondent banking network operates on a largely bilateral relationship structure that is often perceived to be clunky and unreliable, offering limited visibility on the status of a transaction.
In addition, the set-up to support clients’ business in a new corridor or currency is often cumbersome. Receiving banks can’t be certain when payments will arrive and therefore cannot give status updates to their customers/suppliers – and the amount of money involved may change as a result of exchange calculations and various fees.
In a world where, as consumers, we have access to payment opportunities that are real-time with complete visibility of our transactions, the status quo around cross border B2B payments with potentially multiple steps in the payment transaction and uncertain visibility and reach is now becoming unacceptable. It is a logical expectation of fast-scaling companies to be able to offer their services or solutions across the world. The need for new models and technological solutions capable of making this happen in a timely manner is therefore increasingly urgent. So, we are seeing a real drive for change across the B2B cross-border payments space.
Regulation, especially around Know Your Customer (KYC) and Anti-Money laundering (AML), is also helping to fuel this change.
The level of regulatory risk created by money laundering can be significant in some countries but the tightness of controls and regulatory adherence varies per country. Across most of Europe, AML controls are more established. In parts of Africa however, including North Africa in particular, the risks are a lot higher as controls may be less defined or rigorous. This means the chances of money being delayed due to AML problems are higher. It is also key, of course, that any new approach enable banks to reduce the risk of money laundering happening in the first place.
Finding a way forward
Looking at the industry holistically, we are seeing a growing number of partnerships between fintechs and financial institutions. This is key because , banks and fintechs can overcome B2B cross border payments challenges by partnering to pool resources, share ideas and work together to develop new technology.
One key area of technology that offers future potential in helping facilitate secure and transparent transactions globally is Distributed Ledger Technology (DLT), such as blockchain. The use of DLT offers businesses the possibility of increasing end to end transaction speed as well as providing them with the ability to improve the way they verify digital identity, for example. All this lays the foundation for a service with the potential to transform cross-border B2B payments.
We are now starting to see the emergence of systems that use elements of DLT to give financial institutions a simple, fast and secure way to process B2B payments globally. Today, it is possible to develop platforms that can reduce the risk and time spent on cross-border corporate transactions by facilitating transactions from the bank of origin directly to the beneficiary bank. Security is being enhanced through digital identity features that tokenise an organisation’s sensitive business information, such as banking details and account numbers, giving them a unique identifier that can be used to facilitate transactions on the network.
Looking to the future
Technology today is significantly disrupting the B2B payments arena – and it is becoming increasingly urgent that it does. Just a short time ago, only the largest multinationals were concerned about how to pay and get paid globally, which meant payment solutions were geared to the large multi-national corporations. In our current, progressively globalised business landscape, every business of every size needs to be able to make global payments quickly, efficiently and securely.
As businesses’ needs continue to grow, we’re going to see a corresponding evolution of digital solutions like distributed ledger technology in all aspects of payments from access to enablement to initiation. We also expect that the global nature of payments around the world will continue to evolve to address the need for speed, transparency and optionality.
Technology is evolving fast. Today, there is growing evidence to suggest that the future vision of all B2B cross border transactions happening in a simple and reliable way is not just a pipe dream but will ultimately become a reality.
by Alan Koenigsberg, global head of New payment flows – Visa Business Solutions