Small business, big cross-border opportunity

As SMEs go global, so do their banking needs

Small businesses have long been recognized as one of the true engines of global economic growth. According to the World Bank, small and medium-sized businesses (SMBs) represent approximately 90% of businesses and more than 50% of employment worldwide. [1] As small businesses increasingly do business internationally, the volume of business-to-business (B2B) cross-border payments is growing. A recent study projected that B2B cross-border payments are expected to increase by 30%, reaching $35 trillion by 2022.[2] And the Mercator Report found cross-border payments made by SMBs increased sharply year-over-year, reflecting a broader potential increase for cross-border trade payments. In 2020, 43% of SMBs indicated they conducted international business as compared with 34% in 2019.[3] 

Of course, banks have long been a provider of services to small businesses. In addition to providing banking portals with domestic bill payment solutions, banks have supported working capital needs through liquidity management services and lending. However, when it comes to cross-border payments and foreign exchange (FX) – which typically represent 8%-14% of overall bank payments revenue [4] - small businesses often don’t have the infrastructure in place to process complex payments, making it more difficult for them to handle cross-border payments.

In recent years, banks have introduced digital processes and new technologies designed to reduce manual handling and enhance reconciliation that are perfect for large corporates. But small businesses are often unable to take advantage of these tools, creating opportunities for enterprising fintechs to innovate and deliver easy-to-use FX payment solutions, allowing them to secure market share from this business segment.

Fintechs have delivered these cross-border solutions largely by riding the existing bank rails. So banks have an opportunity to step up and re-position themselves as playing a primary role in supporting SMBs with their cross-border payment needs by fostering partnerships with innovative FX payment providers and delivering better customer experience, more competitive foreign exchange rates and improved transaction pricing strategies.  

SMB cross border challenges and pain points

With digitization of payments dramatically driving up demand in the cross border space, the pain points experienced by small businesses is even more acute. The typical journey of cross border payments is complex, associated with high fees, it is lacking visibility, certainty and predictability of payments and often lacks data payloads and messaging. Existing ways to make cross border payments often falls short of small business requirements for better speed, visibility, fees and guarantee of full value delivery.

Small businesses operating internationally are looking for similar cross-border payment advantages enjoyed by their large corporate and middle market counterparts, such as faster access to data, fewer intermediaries, transparent transaction times and most importantly, reasonable fees. Small businesses also expect their user experience with financial transactions to be the same, if not better, than the social networks or other apps they use daily. 

The Need for a Single, Integrated Solution 

New models are emerging for cross-border payments that will allow small businesses to leverage APIs to gain the benefits of real-time updated accounting software solutions. Additionally, these new models will allow for focused, cloud-based enterprise resource planning (ERP) tools, enabling near real-time views of business cash flow and financial positions.  

In partnering with third-party providers, banks can offer a single, integrated solution that delivers more seamless, timely execution of FX payments and data integration of transactions. By giving small businesses such a solution, banks will give them the ability to focus on growing their business instead of dealing with administrative issues associated with international payments. 

Cross-Border Payment Innovation: An Opportune Solution

As the small business segment increasingly pivots to online business models and expands globally, there is a growing need to make international supplier payments and cross-border payments more cost effective. The disruption of the small business cross-border payments space is continuing to gain momentum and banks are well positioned to deliver international payment services that suit this customer segment.

That’s why partnerships between banks and fintechs make good sense. Banks can collaborate with fintechs and payment networks to develop solutions that create a more transparent and efficient ecosystem. Key players can combine resources and enable true B2B payment automation, and banks should demand more from their networks, to make partnerships happen. By offering small business customers solutions that meet their cross-border needs, banks can expand the payments playing field.

The time to realize these opportunities is here, heralding in an exciting new era for banks and their small business clients.

Please visit the Visa Business Solutions Knowledge Hub for more expert insights into the complex world of global B2B payments.

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[1] https://www.worldbank.org/en/topic/smefinance

[2] https://www.juniperresearch.com/press/press-releases/b2b-cross-border-payments-to-grow#:~:text=The%20new%20research%2C%20B2B%20Payments,up%20from%206%25%20in%202020

[3] Need attribution. Could be - https://www.mercatoradvisorygroup.com/Viewpoints/Business-to-Business_Cross-Border_Payments__New_and_Improving_Options/

[4]https://www.mckinsey.com/~/media/mckinsey/industries/financial%20services/our%20insights/accelerating%20winds%20of%20change%20in%20global%20payments/2020-mckinsey-global-payments-report-vf.pdf