Banks continue to dominate the International B2B payments space even though they provide slow and typically expensive services, especially when it comes to small and mid-sized enterprises.
Fortunately, relatively new FinTech players in this realm are gaining in credence and popularity, giving businesses more cost-effective alternatives from which to choose.
Where the Industry Stands
B2B international payments are more complex than personal overseas transfers in different ways.
For instance, if you need to make a payment in excess of a million dollars, you might have no option than to turn to a bank. While banks usually provide considerably marked up exchange rates and charge steep fees, businesses using their services are left wanting for better alternatives.
A number of FinTech companies give individuals easy and cost-effective means to make cross-border fund transfers, but not many offer B2B international payment services.
Some leading players that already dabble in this space include TransferWise, WorldFirst, OFX, Remitr, and Revolut.
Another existing problem of limited reach is set to change with time. However, most of the companies that currently provide B2B international payment services are suited for small and mid-sized enterprises, and big businesses still need to turn to banks.
The Times They Are a-Changin'
A recent research carried out by Juniper suggests that the B2B international payments space is all set for disruption that will come about because of evolving technologies and changes in banking regulations.
It is estimated that B2B international payments will get to around $218 trillion by 2022, which is a noticeable increase from the existing $150 trillion. Compare this to the global GDP of around $80 trillion in 2017, and you get a better perspective of size.
Data from the Juniper research suggests that the proportion of B2B international payment transfer values that originate through FinTech companies will increase from 7.5% or $10.4 trillion in 2017 to 13.3% or $29 trillion by 2022.
Juniper identifies Visa and Mastercard as leading pioneers in this space. Visa’s B2B Connect service makes use of a blockchain solution, Chain Core.
In addition, Visa has also tied up with Billtrust, a FinTech company, with the aim of providing virtual cards for B2B transactions.
Mastercard, on the other hand, is working with Optal, a B2B global payment solutions provider and virtual card specialist, to provide virtual business accounts.
Banks can also benefit by adopting technological changes on their own or partnering with FinTech companies that already have the expertise.
Blockchain, it appears, might prove to be another disrupter, with scores of banks from different countries now partnering with Ripple.
B2B International Payment Alternatives
Businesses that need to make international payments get three basic alternatives from which to choose:
- Business credit cards. You might consider using a business credit card to make a small or a one-off payment. Bear in mind that you might need to pay an international transaction fee and you cannot lock an exchange rate ahead of time.
- Bank account transfers. If your bank provides online access to your business bank account, there is a good chance you can use its internet banking system to send money to an overseas bank account. Banks also let you initiate transfers in other ways, such as in person and over the phone. However, most banks tend to fare poorly in comparison to their FinTech alternatives when it comes to cost effectiveness and speed.
- Foreign currency accounts. If your business makes or receives payments to or from multiple countries, you may benefit by opening a multi-currency account. These accounts typically give you bank account details from different countries that you get to manage under a single umbrella, and you get to bank like a local. Some of the FinTech companies that provide multi-currency accounts include TransferWise, WorldFirst, and OFX.
Hedging options provided by some of the FinTech companies gives businesses the ability to make the most of the fluctuating forex market. Other than carrying out a spot transfer, where the existing exchange rate applies on your transfer, your basic options include:
- Forward contracts. Consider this – you need to make a business payment in two months from now but have a feeling that the exchange rate might fall by then. To tide over this uncertainty, or to make the most of a favorable rate, you can go the forward contract way. This gives you the ability to lock in existing exchange rates for up to two years with some companies.
- Limit orders. Limit orders come in different forms, all basically giving you the ability to set upper and lower limits at which you are willing to carry out your trades. Once the exchange rate gets to the desired level, the company you work with carries out your transfer.
The B2B cross border transfers space is witnessing significant changes and it is only a matter of time before the process becomes even more cost effective and secure. To find a service provider that suits your business needs, it is important that you compare your options well.
Author Bio: Jon works with iCompareFX, a website that specializes in the comparison of leading overseas money transfer companies from different parts of the world. A major part of his work involves researching how these companies operate. Outside of work, he’s all about reading and music.