Payments help the world go round. Yet, currency exchange and different payment infrastructures make it difficult for international companies to send payments around the world.
Companies dealing with B2B cross-border payments face challenges like:
- Fluctuations in exchange rates that affect the cost and predictability of global payments
- High transaction fees and tax compliance costs that cut into profitability
- Slow payment processing due to regulatory barriers and low interoperability can hamper cash flow and liquidity.
Overcoming these and other challenges is key for any business aiming to thrive in a globalized economy where international trade value has been growing 6% yearly since 1995, as the World Trade organization reports.
Companies that efficiently manage cross-border payments can reduce costs, increase efficiency, and gain an edge in this competitive global market.
Source: WTO
Streamlined and reliable cross-border payment processes don’t just improve cash flow and financial stability. They also foster strong relationships with international partners and suppliers.
With cost-effective transactions, businesses can expand global reach, tap into emerging markets, and quickly adapt to changing market conditions.
Yet to do this, business leaders must know the trends affecting the payment industry so that they know the most effective payment systems to use.
This article looks at the current state of the B2B cross-border payments market and how fintech’s next generation of B2B cross-border payment solutions will help the challenges businesses currently face.
[Is your business ready for the global economy? Schedule a free assessment with Berkeley Payments and learn how to integrate secure cross-border, real-time payments into your payment system.]
A look at the current B2B cross-border payments market
International transactions are on the rise. Globally, cross-border payments are expected to skyrocket from USD 187.5 trillion in 2023 to an impressive USD 290 trillion by 2030, analysts at FTX Intelligence predict.
B2B payments currently make up 96% of cross-border transactions, with wholesale interbank and investment transfers accounting for 76.4% of these. Large enterprise, SMB, and B2B e-commerce transactions (21%) and C2C & C2B transfers (2.6%) form the rest.
Source: FXC Intelligence
Focusing on the B2B cross-border payments market size, FTX projects payments to reach $56.1 trillion by 2030, marking a 43% increase. Driving the substantial growth in the B2B cross-border payments market are three main payment trends.
Digital services outgrow payments for goods
B2B payments for digital services are expected to grow twice as fast as those for goods by 2030 (26% compared to 12%), according to the above FTX report.
The supplier’s location is obviously less important for digital services than for sending goods, so this spike is much more likely to add to cross-border transaction volumes.
B2B e-commerce is booming
E-commerce marketplaces are booming both in the consumer and business-to-business markets. The B2B segment is anticipated to grow 120% from $10 trillion in 2023 to $22 trillion by 2030, according to FXC, making it the largest driver of growth in B2B payments.
Already, over 65% of corporate procurements are made through webshops, research from consultancy McKinsey shows. This is driven by the convenience, speed, and lower associated expenses offered by online transactions. Global e-commerce platforms offer companies the ability to more easily use their purchasing power to buy goods from emerging economies.
Demand for digital payments
In 2023, over half of B2B companies based in the United States still used eChecks for cross-border transactions, data from Statista shows. Nearly the same percentage opted for bank transfers. However, the preference rate for eChecks was extremely low, at only eight percent.
Used and preferred payment methods for B2B cross-border payments
Source: Statista
These statistics suggest that digital payment providers could expand their customer base, which appears interested in digital solutions. Tellingly, 41% of B2B professionals stated they were already digitizing their B2B payment solutions, and another 22% considered digitization for cross-border transactions a top priority, another Statista survey revealed.
Payment platforms are B2B payment solutions that allow businesses to send money quicker, safer, and from any part of the world– but more on these payment services and their added benefits later. First, we’ll look at the challenges current b2b cross-border payment methods are facing.
How most B2B cross-border payments are currently processed
When payments bridge different countries and currencies, the additional steps in the payment workflow add cost, time, and effort. Think of dealing with foreign exchanges, bridging payment infrastructures, and complying with regulations.
But it’s not the businesses transferring funds that deal with most of these steps – it’s the banks processing the payments.
Banks with international branches can process these money transfers simply by managing the currency conversion and account transfer internally, in which case the bank transfers can be settled relatively quickly – although they might still be costly for the sender.
However, most banks don’t have operations that span the globe. That’s why most B2B cross-border payments (and other B2B banking services) require separate banking entities.
Correspondent banking involves two banks where one carries out transactions for the other in foreign markets. This allows respondent banks to access international services such as processing payments, managing foreign currency conversion, and facilitating trade and investment.
While this allows companies to send wire transfers abroad through trusted banking partnerships, the downside is that money transfers through correspondent banking often come with high fees and can take several days to process, impacting a company’s cash flow and liquidity while decreasing profitability.
This process often requires multiple intermediary banks to facilitate a transfer, creating a payment corridor – in which case the money transfer becomes progressively costlier and time-consuming.
Three types of B2B cross-border bank transfers in the US follow this payment flow of correspondent banking:
- Wire transfers are electronic transfers of funds between banks. Commonly used for international money transfers, wire transfers are reliable but can be expensive and take several days to settle. They are mostly used for high-value payments that have low urgency.
- Direct debit allows businesses to authorize another business to collect payments from their bank account on a regular basis. Longer settlement times can be taken into account as these are planned, recurrent payments. This type of payment is particularly suited for service subscriptions. Direct debit is, however, not always available between countries’ different payment infrastructures.
- International ACH transfers are payment transactions between bank accounts that are facilitated by the Automated Clearing House Network. This clearing mechanism standardizes payment data and provides a cheap payment network domestically. It is also often cheaper than regular international wire transfers.
Because there is no global clearing mechanism, International ACH transfers match the payment with the respective country’s clearing mechanism. For instance, that European entity is the Single European Payment Area (SEPA).
International ACH transfers can take anywhere between one to five business days, with an average of three days. This is partially due to payment infrastructures using different messaging, but also because the ACH payment network processes requests in batches rather than individually.
Depending on the length of the payment corridor used, bank transfers can take unreliably long to arrive and at high fees. That’s why businesses often use credit cards to bypass these banking networks and access fast payments.
Using a credit card for cross-border payments
Unlike wire transfers, credit card payments are settled through much faster credit card networks, often within minutes, but at considerable cost. These networks are run by major international credit cards like Visa, Mastercard, and AMEX. So why don’t businesses only use credit cards for B2B cross-border payments?
First, credit card providers can charge merchants up to a 4% transaction fee plus a foreign exchange fee. Second, credit card payments have an upper limit (depending on account size) that is often inadequate for large transfers in supply chains and operations. That’s why these and other large payments still rely mostly on much slower bank transfers.
Real-time payment rails and the future of cross-border payments
Payment corridors are the main culprit for cross-border payments taking longer than expected. However, cross-border payment technology is improving, as payment providers worldwide are upgrading communications through APIs and expanding partnerships to speed up payments.
“Globally, 84 percent of payments are now either direct payments or they have one intermediary,” told Thierry Chilosi, Chief Strategy Officer at SWIFT, when interviewed by the bank J.P. Morgan. SWIFT is a cooperative of banks and financial institutions that provides the most widely used interbank payment messaging service.
These transactions are often fast, at least when it comes to back-end processing. “89 percent of the payments that flow through the SWIFT network arrive at the destination bank within an hour,” Chilosi shares. “Half make it all the way to the beneficiary account in less than five minutes; about 80 percent take six hours, with virtually all the rest coming within the 24-hour time frame.”
But some financial institutions are also exploring new approaches that could eventually lead to instant account-to-account, cross-border payments of any size, anywhere in the world.
“Currently the way the SWIFT network is set up means that cross-border payments can take a few days, and transparency isn’t great.” Kartik Kamat, VP of Payments at EQ Bank, points out. “The new era of A2A payments will see us make these foreign B2B payments in real-time, much like Wise is doing for the C2C market,” Kamat exemplifies.
With the launch of real-time payment (RTP) rails like the Federal Reserve’s FedNow and The Clearing House’s RTP, instant payments are already available for domestic payments in the US. Deloitte predicts that real-time payments could replace between US$18.9 and 37 trillion in ACH and check-based B2B payments in the United States by 2028.
Source: Deloitte
But with cross-border B2B payments through the two major US RTP networks still in their pilot stage, global RTP payment rails are years away from true interoperability.
Meanwhile, companies looking to speed up their cross-border B2B payments have to look elsewhere.
Next-gen alternatives that can power B2B cross-border payments
While banks and financial institutions are working hard to achieve interoperability between different payment rails, new financial players are coming up with technological innovations that promise faster payments and better functionality.
Let’s take a look at a few of these.
Cryptocurrencies, blockchain, and CBDCs
Cryptocurrencies are one such alternative offering fast and frictionless cross-border payments. 75% of retailers plan to accept cryptocurrency as a payment method by this year, a 2021 study for Deloitte showed. This type of payments can be processed quickly and securely, but crypto comes with a few big drawbacks – the biggest being the volatility in the crypto market.
Rather than looking at cryptocurrencies, it’s the technology that powers them that could be interesting for financial institutions.
Initially developed to power currencies without the need for a central clearing house, blockchain technology might seem like an unlikely contender to bring cross-border transactions to warp speed. Yet blockchains offer a crucial quality that has yet to be unlocked across existing B2B international payment systems: they don’t shut down.
“With the advancement of digital payment systems, there is an increasing need for an infrastructure that enables institutions and their clients to send and receive payments 24/7 across borders without being limited by cutoff times including across weekends and holidays,” Naveen Mallela, from J.P. Morgan’s Onyx blockchain division shared with J.P. Morgan in an interview. “By leveraging blockchain technology, we are able to enable a more dynamic way to manage treasury operations, especially during times when liquidity is constrained.”
As businesses try using cryptocurrencies and financial institutions look at blockchain to improve their payment systems, governments are testing the technology in the various digital currency pilots currently running worldwide.
“Around 90 percent of central banks globally are currently working on developing a Central Bank Digital Currency,” says Jason Clinton, Head of Financial Institution Group Sales Europe at J.P. Morgan.
“But ultimately, in the short-term, blockchain will not replace existing payment systems—it will complement them,” Clinton further comments. Like cryptocurrencies, blockchains have a few challenges to overcome before they can become ubiquitous in cross-border payments. These include regulatory uncertainty, as well as a lack of technical interoperability between blockchain networks.
Digital wallets are coming to the B2B sector
Fintech companies are revamping the financial landscape with more streamlined and cost-efficient payment services.
Digital wallets are already becoming omnipresent in the consumer landscape, with over 60% of the global population to use digital wallets in 2026, according to market researcher Juniper Research.
Digital wallets introduce a range of workflow functionalities beyond just the payment, including managing multiple accounts, issuing virtual cards, tracking spending, and leveraging credit options.
But like other B2B payment methods, the adoption of B2B digital wallets is not without challenges. Integration with existing financial systems, ensuring compliance with regulatory standards, and educating businesses on the importance of data security and privacy are just some of the hurdles companies face when adopting digital wallets for cross-border payments.
Why embedded payment systems are the best B2B cross-border solution
B2B cross-border payments are complex and can get costly if not done right. With various payment methods available that are each suited for different types of money transfers, optimizing your overseas B2B payments requires a hybrid approach.
Embedded B2B payments allow your business to integrate various next-gen payment options into your existing payment system for increased functionality, flexibility, faster payments, and cost-efficiency.
Embedded finance offers users more data insights into spending and customer behavior, allowing for better financial decision-making. APIs allow for all kinds of automation: invoicing, recurring payment setups, and integration with enterprise resource planning (ERP) systems.
Adopting embedded payments might seem like a daunting task, but specialized payment providers can help. Berkeley Payment is a one-stop fintech solution that seamlessly integrates streamlined B2B cross-border payments into existing payment infrastructures.
Our single-integration API gives you access to a ready-made banking infrastructure within hours then our built-in onboarding will let you settle cross-border payments with different payment methods in minutes.
[Don’t let your overseas payments get stuck in long payment corridors. Explore Berkeley Payments' payment solutions and seamlessly integrate fast B2B cross-border payments with your existing systems.]
