No matter where in the world they are operating, international businesses today expect global access to finance in real-time, writes Alan Koenigsberg
International business expects finance to be available in a manner that works for them in any currency and any country, without being held up inordinately by the historical constraints of national borders. Coupled with all this, they also want the financial institutions they work with to make this as smooth and seamless a process as possible for them.
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By GlobalDataThe trials and tribulations of cross-border payments
In spite of rapid progress in areas of payments processing on the consumer side, cross-border B2B payments remain unnecessarily complex, touching many intermediaries and frequently resulting in unpredictable delays. The traditional correspondent banking network operates on a largely bilateral relationship structure that is often perceived to be inefficient and unreliable, offering limited visibility on transaction status.
In addition, the set-up to support clients’ business in a new corridor or currency is often cumbersome. Receiving banks can’t be certain when payments will arrive and therefore cannot give status updates to their customers/suppliers – and the amount of money involved may change as a consequence of exchange calculations and various fees.
As consumers, we increasingly have access to payment opportunities that are real-time with complete visibility of our transactions. But the status quo around cross border B2B payments is now becoming unacceptable, with potentially multiple steps in the payment transaction and uncertain visibility and reach.
The need for new models and technological solutions
Banks and other financial institutions need to understand that it is a logical expectation of fast-scaling companies today to be able to offer their solutions or services worldwide. The need for new models and technological solutions capable of making this happen in a timely way is therefore increasingly urgent. So, we are seeing a real drive for change across the B2B cross-border payments space. In line with this, financial institutions need to adopt technology platforms that give their business customers a secure, fast and predictable way to process corporate cross-border B2B payments.
Regulation, especially around Know Your Customer (KYC) and Anti-Money laundering (AML), is also helping to fuel this change. The level of regulatory risk created by money laundering can be significant in some countries but the tightness of controls and regulatory adherence varies per country.
Across most of Europe, AML controls are more established. In parts of Africa however, including North Africa in particular, the risks are a lot higher as controls may be less defined or rigorous. This means the chances of money being delayed due to AML problems are higher. It is also key, of course, that any new approach enable banks to reduce the risk of money laundering happening in the first place.
Finding a way forward
Looking at the industry holistically, we are seeing a growing number of partnerships between fintechs and financial institutions. This is key because banks and fintechs can overcome B2B cross border payments challenges by partnering to pool resources, share ideas and work together to develop new technology. We are increasingly seeing new digital technology innovations coming on stream.
Today, for example, it is possible to develop platforms that can reduce the risk and time spent on cross-border corporate transactions by facilitating transactions from the bank of origin directly to the beneficiary bank.
Security is being enhanced through digital identity features that tokenise an organisation’s sensitive business information, such as banking details and account numbers, giving them a unique identifier that can be used to facilitate transactions on the network.
Fast Forward to the Future
We are living in a world where technology is significantly disrupting the B2B payments arena – and it is becoming increasingly urgent that it does. It wasn’t long ago that only the largest multinationals were concerned about how to pay and get paid globally, which meant payment solutions were geared to the large multi-national corporations. In our current, progressively globalised business landscape, every business of every size needs to have the capability to make global payments quickly, efficiently and securely.
As business’ requirements evolve, we will see a corresponding evolution of digital solutions in every aspect of payments from access to enablement to initiation. We also anticipate that the international nature of payments around the world will continue to develop to address the need for speed, transparency and optionality.
In line with all this, we expect to see banks and financial institutions generally moving over to these new and evolving payment solutions as they look to enhance the service they offer business customers.
Technology is changing all the time. Today, there is more and more evidence to indicate that the future vision of all B2B cross border transactions happening in a simple and reliable way is not just a pipe dream but will one day become a reality.
Alan Koenigsberg is Global Head of New Payment Flows, Visa Business Solutions
