Cross-border business-to-business (B2B) payments have always been troublesome for businesses involved in foreign trade. Core issues around timing, certainty, cost and visibility mean there should be a healthy market for alternatives to using your bank’s vanilla international payment service, but none have captured significant share of the market. Recently a plethora of new initiatives and solutions have come to market, either based on enhancements and repurposing of existing networks such as SWIFT’s Global Payment Innovation (GPI) and Visa B2B Connect, or the creation of entirely new networks based on emerging technology (Ripple, R3). Moving a corporate away from the their existing process and technology requires not only fixing their specific payment problems, but also managing a potentially significant change to business processes, banking arrangements and internal system integration to bank channels. Such costs could wipe out the business case for making marginal foreign exchange or bank fee gains. If the corporate is multi-banked, the costs of changing can be significant and can impact their adoption or utility of a new service. So how does a corporate choose? What factors are in play?
- Visibility and Tracking: Knowing where a payment is is an important factor for a corporate. In fact, in a recent EuroFinance survey, 75% of corporate treasurers in organisations with a turnover of less than $1b wanted real-time tracking of cross-border payments, compared to 40% who wanted real-time payment capability. When you are multi-banked, having a single view across banks is key. If visibility is the most important factor, all of the banks and institutions in the corporates payment’s journey (paying, receiving, and the hops in between) need to be on the same network.
- Costs and Fees: This isn’t always about a straight forward reduction in payment unit cost. Not knowing how much your payment will ultimately cost you or your beneficiary can have significant impacts on reconciliation, cash flow etc. Transparency of fees is an important factor, but unlikely to be the lead reason to adopt a new payment method.
- Speed and Certainty: There is often an assumption that the ability to transact payments cross-border in real-time (or near real-time) is the holy grail for corporates. Where a cleared payment will unlock the delivery of goods and services this is certainly the case, however for a lot of B2B payment flows, goods and services are delivered or shipped on invoice, and the delivery of the payment can be scheduled many days in advance. In the cross-border space knowing when and if a payment will hit an account with a degree of certainty can be more important than outright speed.
- Integration: The amount of integration required to get the payment data output by an ERP into a format acceptable to a bank or other payment system is often underestimated. Multiply this by multiple ERPs and by the number of banks, and the costs of change may outweigh the benefits of corporates adopting or using new services.
Ultimately, no one organisation will rule the B2B cross border space, simply because there is no one single type of corporate, or no one single type of B2B transaction. Getting a corporate to choose one of the many routes requires fixing the visibility, fee transparency, certainty, and speed of payment challenges to the degree each one of those parameters matters to the corporate. The potential risk of moving transactions away from the bank to an alternative non-bank network may influence more conservative corporates to look at bank offered solutions. The cost of change to internal processes and technical integrations between systems will also be a significant factor in adoption, but is often not considered. With 20+ years of experience, Richard has been involved in some of the most impactful innovations the payments industry has experienced. His specialties include Bacs, FPS, SEPA, Swift-based payments and access to payment systems.
With 25+ years of experience, Richard Ransom has been involved in some of the most impactful innovations the payments industry has experienced. His specialties include ACH, real-time Payments, Open Banking, SWIFT, and emerging business payment methods and schemes.