SMBs Choose Their Cross-Border Payment Priorities

The pain points of cross-border B2B payments are well known: a lack of transparency, sluggish speeds and hidden costs — not to mention foreign exchange risks plaguing businesses of all sizes that operate on a global scale.

As national payment networks drive toward speed, transparency and efficiency, moving money from one jurisdiction to the next still remains a headache. At the same time, these improvements in local payment infrastructure have led to higher expectations for end users on both the sending and receiving end of global B2B transactions.

Marius Bausys, founder and CEO of cross-border B2B payment FinTech ArcaPay, recently told PYMNTS how addressing one of the many shortcomings of international money movement can actually ease friction in a variety of ways. In a recent conversation, he explored the evolution of the industry as service providers chase a laundry list of pain points.

Speed Over Transparency

With the traditional correspondent banking system, not only can it take several days for funds to move from point A to point B, but that money actually bounces between a variety of financial institutions (FIs). For businesses, there is rarely visibility into where funds are at any given point. This lack of transparency has become a focus for innovators in the global payments arena, leading to services like SWIFT’s GPI to allow for the tracking of money as it moves across borders.

But Bausys noted that addressing a different pain point can pull double-duty and mitigate friction on multiple fronts. “If the speed is good enough, the client doesn’t really care that much where the funds are, as long as they know that they are delivered promptly,” he said, adding that concerns about the location of funds only arise when something goes wrong, like a delay in delivery.

Not every bank can loop into systems and services that provide funds tracking capabilities, he noted. Rather, by facilitating faster or even real-time payments across borders, there is no time during which a client needs to be concerned about the location of money.

Local Development

While faster payments infrastructure is alive and well throughout Europe, the U.K. and other jurisdictions, in places like the U.S., real-time payments are far from ubiquitous. That can throw a wrench in many FinTechs’ plans to move money from one location to the next by looping into local payment networks.

As a result, for now, transparency remains an important factor in fulfilling businesses’ cross-border payment needs. Yet, according to Bausys, this remains a major hurdle for businesses and their financial service providers.

“When it gets to the point that sending cash via FedEx will be faster and offer more visibility than making another kind of transfer, that’s when clients get frustrated,” he explained. “No one really expected that the electronic journey of money will or should take longer than the physical.”

The global payments ecosystem still has a long way to go to facilitate transparency, as well as to support the kind of speed necessary for business clients to no longer need such robust payment tracking services. Overcoming this challenge will largely rely on local innovation efforts.

Small Business, Big Expectations

While these pain points can be felt by companies of all sizes, Bausys said that small and medium-sized businesses (SMBs) can be hit with just as much friction, if not more, when attempting to send or receive B2B funds across borders. SMBs are just like larger corporates in terms of what they demand from their financial service providers, he noted. While transaction sizes may be smaller, they can often be even more demanding than large enterprises.

“For smaller businesses, in many cases, everything has to be perfect because they are always fighting for survival,” stated Bausys. “The smaller the business, the more likely that the owners are involved. And when the owner is involved, they always feel very passionate about their business, as they put their heart into it.”

At the same time, however, smaller firms can be left out from offering more sophisticated cross-border payment needs. In addition to requiring faster movement of funds, small businesses are increasingly interested in FX hedging products and services – but are rarely offered these tools to the extent that they are provided to larger players, Bausys noted.

With a lack of product availability often comes a lack of awareness as to how important hedging strategies can be for a small business operating on a global scale. As such, Bausys said there is a need for the industry to educate small businesses about this opportunity.

Ignoring the risk, he noted, means giving up a chance to retain control over a company’s global payment strategy. “A lot of businesses don’t realize that by not hedging, they are also making a decision — by not doing anything, that’s a decision,” he said. “Large businesses are well aware of it, and they are taking advantage of all the possible instruments available to them to mitigate their currency risk. However, small businesses feel left out.”