Cross-border payments have long been a topic of interest and a challenge for businesses making international payments. Traditionally, SMEs have relied on banks to manage all cross-border transactions in the absence of an infrastructure in place to process complex payments. Pain points have centred around excessive costs, outdated technologies, and lack of transparency. Furthermore, making international transactions has often been a slow process, causing delays and incurring varying fees and commissions. This has often led to uncertainty, and it raises the question of whether this is the best route to shift money across borders.
With B2B cross-border payments set to exceed USD 42 trillion in 2026 (up from USD 34 trillion in 2021, an overall growth of 25%) and a sharp increase of cross-border payments by SMEs year-over-year, there is no doubt regarding the sheer size and opportunity in this market. Technology-savvy businesses are considering their options when paying internationally by searching for alternatives to the traditional – they are demanding more, and the borderless payments landscape is rapidly being disrupted by a new cross-border breed: fintechs.
Drivers transforming cross-border payments
Ecommerce is reshaping the cross-border payments landscape
The ecommerce industry is spiking rapidly, going from USD 3,535 billion in 2019 to an estimated USD 6,542 billion by 2023. The COVID-19 pandemic fuelled growth further and proved to be the catalyst for long-awaited changes for cross-border payments, by speeding up processes to meet the needs of an expanding online market both locally and globally. Similarly, consumers are changing their purchasing behaviour, with many resorting to shopping online and internationally, where they can find a better-quality product, at a lower cost, and not currently available in their market.
The emergence of marketplaces and the gig economy has given rise to multiple small business entrepreneurs that can now sell products and services internationally, where little to no infrastructure is required, and consumers can pay in their preferred payment methods and currency of their choice. It is this rise of global ecommerce that has caused such rapid growth in the popularity of SMEs setting up multicurrency accounts.
Making borderless connections
Open banking and PSD2 initiatives in the UK and Europe have enabled API integrations between bank accounts and back-office systems to help businesses not only send and receive foreign transactions and hold foreign currencies, but also gain deeper insight into their financials because of connectivity with accounting and other portals. Similarly, financial institutions are revisiting their strategies in order to become more flexible while meeting the demands of new customers. A simple integration via an API enables financial institutions to connect quickly and easily to fintech partners and work together to provide a more streamlined, seamless, and richer payments experience for customers.
Fintechs simplify borderless payments with multicurrency accounts
SMEs operating internationally are searching for the similar competitive advantages that their bigger corporate counterparts are experiencing. Instead of turning to banks, the emergence of fintech providers has become a welcome alternative for SMEs looking to streamline and simplify the current complex cross-border payments process.
According to Mastercard’s Borderless Payments research, SMEs survived the COVID-19 pandemic’s turbulence thanks to digital platforms that have enabled cross-border transfers. By opening a multicurrency account, SMEs can hold funds in foreign currencies without having to open individual bank accounts in multiple markets, while also allowing them to then initiate payments in various currencies from that single account. Fintechs are making this process quicker, seamless, and more transparent, with a rapid onboarding process due to Anti-Money Laundering (AML) and Know Your Customer (KYC) tools having been already integrated. The rise of multicurrency providers is helping SMEs better control costs and understand FX management. Some multicurrency providers are adding and monetising new banking services in addition to just multicurrency, such as offering multicurrency cards, loans, and more – truly playing the role of a traditional bank.
Solving cross-border challenges through digitisation
Fintechs are all about automation and digitisation. Cross-border payments are no different. Fintechs have been delivering cross-border solutions by riding on existing bank rails. This has given rise to several challenges, which have prompted fintechs to search for new alternatives to improve overall efficiency.
Automation – Not all banks are built to automate the creation of accounts in real time due to their slow legacy technology. Fintechs are improving this by automation and digitisation of onboarding processes, ensuring that the journey for SMEs is improving and leading to a quicker, seamless, and better user experience.
Restrictions – Banks have certain restrictions in place when working with fintech multicurrency providers such as only opening multicurrency accounts for certain industries. This has driven fintechs to increase their network and partner with different banks to ensure that they cover all industries.
Geographical complexity – Banks cannot always have connections everywhere. Therefore, they tend to focus on areas where they have obtained a money transmitting licence, while in other areas they rely on using SWIFT, which is an outdated service with limitations. Fintechs are solving this problem by creating a network of connections with local providers in various geographies. This enables them to provide local rates instead of costly, international ones. Additionally, to avoid the process of applying for a money transmitting licence, fintechs are eyeing out potential acquisitions of companies that already have these costly licences.
Have we reached a crossroads in borderless payments?
It is well-known that banks control most business cross-border payments for large corporate entities because of the huge volumes of money they are moving, and the benefit of the additional client relationships banks have with large corporations. Fintechs are also capturing this market as their increased coverage enables them to provide more competitive rates that would otherwise be very costly, complex, and opaque.
The growing role of SMEs in international business
SMEs have started to see the benefit of simplified cross-border payments, as they have more access to affordable solutions. It is no secret that traditional banks are no longer able to fulfil this quick access to international payments. Fintechs are providing more updated technological solutions compared to slow responses from banks. By launching their respective wallets, fintech players are providing a more attractive option for SMEs that are demanding faster services and reduced costs.
Carving out a cooperative solution
Even with progressive steps by fintechs, banks are still ahead of the borderless payments game. Future-forward banks want to integrate with fintechs as this allows them to roll out more innovative services and better experiences for their customers without having to build them from scratch. It is questionable if fintechs will continue to live in an incumbent’s shadow or push to make even bigger changes to improve the cross-border payments journey. Either way, SMEs are realising the benefit of advances in cross-border payments.
This editorial was first published in our Cross-Border Payments and Ecommerce Report 2021–2022, which taps into the fast-growing cross-border market and provides a comprehensive overview of trends and developments that are pivotal in this space, being the ultimate source of information for ecommerce businesses interested in expanding globally.
About Elodie Trichet
Elodie has over 15 years of International Online Payment experience across all continents at WorldPay, Adyen and Airwallex. She works closely with the tech giants and multinational companies assisting them in their product launches. Elodie’s specialties include launching new markets from A to Z, building and growing team relationships with regulators, schemes, and local payment methods with a strong focus on the APAC markets for the last five years.
About Allyiz
Allyiz is the ‘go-to’ company for businesses to source knowledge, time, or people with expertise in payments and more. We offer a broad range of services both on strategic and operational levels in the fields of payments, risk management, marketing, education, and people leadership. We bring the experience of professionals who have successfully run the function on the business side and have done it well many times. Our purpose is to deliver actionable results fast. For more information, please visit our website.
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