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 (SMEs). Additionally, SMEs are often at a working-capital disadvantage with many of their suppliers.
Fortunately, relatively new FinTech players in this realm are gaining popularity, giving companies from small and mid-sized businesses (SMBs) to large enterprises more cost-effective alternatives from which to extend trade credit to their buyers.
Where the Industry Stands: International Payment Solutions
B2B international payments are more complex than personal overseas transfers.
For instance, if you need to make a payment in excess of a million dollars, you might have no option but 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 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. This can be a possible risk for businesses looking to extend credit to international buyers.
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. Large enterprises are looking for affordable, digital means to extend credit to their business buyers.
New Technology is Changing the B2B International Payment Space
A recent study carried out by Juniper suggests that the B2B international payments space is all set for the 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 $85 trillion in 2020, and you get a better perspective of size.
This study identifies Visa and Mastercard as leading pioneers in this space. Visa’s B2B Connect service makes use of a blockchain solution called Chain.
In addition, Visa has also tied up with Billtrust, a leading provider of order-to-cash solutions, with the aim of providing virtual cards for B2B transactions.
Mastercard, on the other hand, works with Optal (now part of WEX), 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 Service Alternatives
There are three basic alternatives for businesses that want to make B2B international payments:
- Business credit cards: You might consider using a business credit card to make a small or a one-off payment. If you choose this international payment solution, you may 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 your bank account details from different countries that you get to manage under a single umbrella, allowing you 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 FinTech companies give 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: Limiting orders gives you the ability to set upper and lower limits at which you are willing to carry out your trades. This can help you ensure that your company is profiting by doing business with international customers.
The B2B cross-border transfer space is witnessing significant changes, and it is only a matter of time before the process becomes even more cost-effective and secure.
FinTech companies, and credit and A/R automation companies like Apruve, can provide your large enterprise with B2B internal payment systems and solutions that can help you expand your international business offerings and build loyalty with SMB customers.
Looking for a B2B international payment solution for your business? What about something better? Apruve can help you easily extend risk-free credit to your international customers. Learn more about Apruve's international services or contact Apruve’s specialists to sign up for a demo today!
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.