B2B Cross-Border Payments Are Speeding Up

Cross-border payments still present challenges, but the landscape is changing rapidly. 

Swift recently announced that its gpi service can integrate with domestic real-time systems to facilitate rapid cross-border transactions. A trial of the service included one test in which it delivered a payment from Singapore’s FAST scheme through 17 banks and seven countries within 13 seconds.

Cross-border B2B transactions generated about $125 billion in revenue in 2018, leading more FIs and FinTechs to seek to update their infrastructures and better serve the needs of this sizable and growing sector. The latest Faster Payments Tracker examines developments in real-time payments with an emphasis on B2B cross-border transactions.

What About FedNow? 

FedNow, the Federal Reserve’s planned real-time payment system is not due to arrive until 2024, and it takes time for companies to realize new offerings. This is even true for those adopting the Real-Time Payments (RTP) rail from The Clearing House (TCH).

Some faster payments players fear that the Federal Reserve’s decision to develop its own real-time payments system could slow instant payments’ ubiquity in the U.S. The FedNow system is due to launch by 2024, and TCH has expressed concern that FIs would cease adoption of its RTP system until they learned more details about the Fed’s offering. That fear has not been realized, however, as TCH reports that FIs continue to join RTP.

A recently released survey found that more than half (56 percent) of payment professionals believe their companies will need at least one year to implement real-time payments. Fewer than one-quarter (22 percent) stated they will participate in real-time payments within the next year.

“The announcement of FedNow is an affirmation of the future of real-time payments, but it was the success of Zelle that helped demonstrate consumer demand. Consumers not only said payment speed was important to them, but when you gave them a fast and easy payment capability, they jumped at the opportunity to use it,” said Tim Ruhe, vice president of industry development at Fiserv.

Of course, there is no Zelle or Venmo of B2B payments (yet).

Real-Time Challenges

Despite a desire for innovation, 42 percent of FIs cited struggles to improve legacy systems as the greatest challenge facing payments today, although last year, 36 percent said their companies need to update legacy infrastructure.

Delays are due to low adoption of accounts payable (AP) automation and straight-through processing (STP) of payments. More than one-quarter (26 percent) of FIs have not implemented either solution, while only 23 percent have achieved full automation and STP.

While it’s hard to talk about cross-border transactions without mentioning real-time payment challenges, in the above study, few payment professionals expressed concerns about challenges with cross-border transactions (11 percent), potential for FinTech regulations (7 percent) and data regulations like GDPR or PSD2 (6 percent). Cybersecurity was top of mind.

The cross-border business payments market is significant, as Medici research finds that international AP by small and medium-sized businesses (SMBs) currently hold approximately $7 trillion, and marketplace payouts amount to about $8 trillion.

Traditionally, most cross-border payments are made through Swift. However, the connectivity between financial institutions remains the roadblock, as few banks are connected directly to each other and a higher number of involved FIs leads to higher charges.

Cross-Border Solutions

New solutions are emerging, however. SWIFT’s gpi, Mastercard’s B2B Hub, Visa B2B Connect and RippleNet are some of the examples of newer cross-border financial infrastructures. Cross-border payments can be streamlined and sped up by leveraging modern tools like distributed ledger technology (DLT), which can complete transactions within minutes.

Spain-based CaixaBank is one financial institution investing in some of the newer payment infrastructures and rails available today. Earlier this year, it was one of six financial institutions in the country to sign up for gpi. The bank also recently implemented Europe’s TARGET Instant Payment Settlement (TIPS), while embracing regulations and trends like General Data Protection Regulation (GDPR) and open banking.

Beatriz Kissler, general manager of CaixaBank-owned GDS Cusa, recently told PYMNTS in an interview that for the financial institution itself, these new services support cross-border payment optimization, making it easier to assign payments to correspondent banks that make the most sense and promote the greatest efficiency.

Quick payments in this space are critical, with 68 percent of AP professionals reporting that speed is most important for their suppliers, and more than half (54 percent) of respondents believe payment reliability needs the most improvement.

Much of the $38 trillion international B2B payments market still involves paper check transactions, however. That’s why it is not surprising that the vast majority (88 percent) think that moving vendor payments from paper to digital will have a high impact in the next three years. Specifically, two-thirds (66 percent) think real-time payments will make a difference, and 46 percent feel the same about SWIFT gpi.