Visa: How Mid-market Companies are Taking Advantage of Global B2B Payments Innovations to Meet Trade Finance and Working Capital Objectives

May 2024 by Todd Fox , Head of Global Policy, Visa, Alan Koenigsberg Alan Koenigsberg, Senior Vice President, Global Head of Large and Middle Market Segments: Treasury and Working Capital Solutions, Visa, and Kati Suominen Founder and CEO, Nextrade Group . Published in Central Bank Payments News May 27th, 2024

Fast-growing mid-market businesses are increasingly embracing the dual objectives of payment digitalization and sustainability in pursuit of international growth goals. Unfortunately, mid-market businesses that are diversifying their exports haven’t always had the same options as larger enterprises when it comes to working capital solutions. But opportunities are emerging to better meet the trade finance and working capital objectives of these mid-market firms.

The most recent Visa Growth Corporates Working Capital Index found that 77% of surveyed mid-market CFOs and Treasurers cited costs as a prohibitive factor in accessing external working capital solutions, while 66% cited lengthy approval processes as the primary detriment.[1]

Mid-market companies are typically defined as those earning between $50M and $1B in annual revenue, though they share other common traits. We refer to these firms as “growth corporates” due to their dynamism and global growth achievements. Many of these businesses are attempting to better manage global supply chains, shortening their lead times to meet increasingly digitized and demanding customer requirements.

To help meet the demands of global business, governments are looking to promote access to faster, safer, and interoperable cross-border payments with innovative working capital solutions across countries and currencies. For example, the G20 has developed a roadmap to make international transactions faster and more accessible through coordination amongst international financial institutions, standard-setting bodies, and national governments. The Financial Stability Board (FSB) has been monitoring the progress on this roadmap.[2] This is in addition to efforts by governments around the world to offer guarantees and other credit enhancements to reduce bank risks and help globalize and digitize businesses’ access to working capital.

Several economic integration schemes, such as the Asia-Pacific Economic Cooperation (APEC), Association of Southeast Asian Nations (ASEAN), the Pacific Alliance, and the African Union, among others, have also prioritized cross-border payments facilitation.

Focus on the Mid-market as International Growth Engines

Mid-market companies have long been viewed as important growth engines for national economies around the world.[3] However, these businesses often struggle to secure traditional trade finance solutions because they are too small for enterprise-scale investment grade solutions, yet too large for fintech platforms that service small businesses and micro enterprises. Mid-market businesses are often stuck in the so-called trade finance gap, estimated at approximately $2.5 trillion in 2023, according to the Asian Development Bank.[4] The Visa Working Capital Index found that only 75% of surveyed growth corporates in the Asia-Pacific region accessed external working capital solutions in the last year, which represents one of the lowest rates in the world.[5]

Many growth corporates rely on technology-driven payment and financing solutions that bring together an interconnected ecosystem of global payments and working capital solutions. These companies are turning to innovative financing solutions, including high-value cross-border B2B payments — allowing transactions to happen in an efficient and secure manner. Next-gen solutions such as Visa B2B Connect are also enabling them to access working capital so they can more effectively manage their supply chains and strategic growth initiatives in the midst of an unpredictable global economic landscape.

Leveraging Emerging Working Capital and Payment Solutions to Create Value

Some growth corporates have found success by leveraging emerging working capital and payment solutions to create value for their businesses. These innovative companies commonly focus on three areas: trade and supply chain resilience, digital transformation, and sustainability.

• The Importance of Achieving Trade and Supply Chain Resilience — As growth corporates globalize, they may experience geopolitical tensions, disruptions in global shipping, and increased regulatory scrutiny on suppliers. This makes it imperative to achieve flexible and resilient supply chains. To attain this goal, some growth corporates are using working capital solutions as a mechanism to build more resilient supply chains. This might include paying in advance to secure critical supplies, retaining high-performing suppliers, or quickly reconfiguring supply chains to avoid disruptions. Today’s working capital solutions, including B2B payments, are helping address challenges presented by letters of credit, that take time to secure, or executing account transactions that often have little appeal to global vendors. The Visa Commercial Solutions: Growth Corporate Working Capital Index surveyed the CFOs and treasurers of top performing growth corporates and found that they can save an average of $3.3M annually by using working capital solutions in strategic and supplier-centric ways.[6] In fact, seven of 10 survey responses indicated improved business metrics through the use of external financing.[7]?These emerging working capital solutions also help growth corporates meet the burgeoning demands for supply chain finance.
• Using Working Capital to Drive Digital Transformation — Cybersecurity, traceability, and predictive analytics are also central to growth corporates’ operations, customer service, and supply chain management. For these businesses, innovative working capital solutions offer a means of accessing capital that can fuel digital transformation. When used strategically, working capital can be invested in transformative initiatives around cybersecurity, data analytics, AI, cloud migration, and expansion into ecommerce. Modern working capital solutions enable growth corporates to embrace technological change and quickly mount digital transformation trials. For example, when it comes to digitizing transactions, many growth corporates are expanding to ecommerce, which is permeating traditional B2B sales channels. These organizations are more likely to be omnichannel sellers where they face short lead times and high demand variability. Responsiveness, enabled by flexible working capital solutions, digital payments, and innovative new card-based payments, are key to these omnichannel sellers’ competitiveness. The push to digitize payments and financing also serves to facilitate more efficient billing and invoicing. More data-rich transactions can help reduce unnecessary, error-prone, and time-consuming manual payments and invoicing processes.
• Working Capital’s Role in the Greening of Treasury — Some growth corporates are adopting ESG practices as an important contributor to government sustainability targets, having put in place plans to achieve net zero objectives. While such initiatives may include up-front costs, they can also drive new value propositions and business opportunities. These efforts require funding across critical functions, such as procurement, operations, and R&D. Once again, working capital solutions offer an invaluable means for investing in green growth initiatives.

Governments Can Support Growth Corporates Through Smart Monetary Policy

Governments have a key role to play in ensuring that growth corporates can access technology-driven payment and financing solutions, so they can sustainably grow by meaningfully participating in international trade. One tool for government stakeholders is monetary policy. Growth corporates are especially impacted by interest rates. Today, as many economies are experiencing high-cost capital and inflationary pressures, central banks are increasingly taking growth corporates’ cost of capital and cost of goods sold into consideration when setting monetary policy.

Additional policy considerations that governments can take to propel growth corporates, include:

• Promote access to payment solutions through faster licensing — As evidenced by the Visa Working Capital Index survey results, working capital is a strategic growth tool for growth corporates. For many of these companies, the most important considerations are practical and immediate solutions for working capital access and efficiency, interoperable cross-border payments, and easy access to foreign exchange. Policymakers should respond to these needs with equally practical measures, including speeding up licensing for innovative B2B payment solutions that facilitate multilateral payments.
• Increase focus on supply chain security initiatives — Trade and economic policymakers should focus policy proposals on ensuring flexible and secure payment methods and working capital solutions to facilitate supply chain security and resilience. It would benefit growth corporates if frameworks, like the new Indo-Pacific Economic Framework for Prosperity (IPEF) Supply Chain Crisis Response Network in Asia-Pacific, included mechanisms to activate emerging working capital and digital payment solutions.
• Diversify export finance through emerging working capital solutions — Export credit agencies seeking to service growth corporates can complement their export loan guarantee and trade credit insurance products with emerging payments and working capital solutions. This is especially important for businesses that need fast approvals and may not meet all requirements associated with loan guarantees. Export credit agencies can incentivize loan officers at banks and their own staff to help mid-market companies leverage technology-driven payment tools and develop complementary solutions.
• Support digital transformation and sustainability initiatives — For economic ministers, SME ministers, and national development banks, working capital and digital payment solutions can support efforts to promote digital transformation within the corporate community. This is especially true in developing economies where banks may be hesitant to lend for digital transformation initiatives absent a loan guarantee. Similarly, finance and economic ministries may face challenges in unlocking financing designed to drive green transitions. There is a clear public-private partnership opportunity to use working capital and card solutions to support practical greening initiatives — and complement them with, for example, tax incentives for growth corporates to invest in green technologies.
• Focus on lowering tariffs, reducing non-tariff barriers, and greater trade facilitation — Trade is a proven job creator.[8] At the same time, tariffs and other trade barriers can risk undercutting economic dynamism and stifling innovation. To best support growth corporates, trade and economy ministries should deepen trade liberalization and help facilitate trade at borders, through means such as paperless trade practices and the use of technology to streamline export and import transactions. Ensuring an open trade environment also involves supporting digital policies that accompany the flow of goods, such as the free flow of data. Many growth corporates can also benefit from trade-related capacity building and relationships with potential global customers.

Powering Mid-market Growth with Trade Finance and Working Capital Solutions

As growth corporates look to expand their operations around the world, many are turning to technology-driven payment and financing solutions to support working capital objectives. A good example of this innovation is Visa’s suite of solutions, which include Visa B2B Connect and virtual cards. Visa B2B Connect is an innovative multilateral payment network, offering an alternative cross-border solution that addresses the unpredictability associated with the current correspondent banking processes. These solutions allow growth corporates to transact more efficiently, securely, and transparently around the world, while enabling them to access working capital and better manage their supply chains and strategic growth initiatives. In today’s global economic landscape, this is more important than ever.

Visa’s commercial focus on Money Movement Solutions — to accounts, cards, wallets, and in-person disbursements — addresses challenges growth corporates face, including operating expenses, transaction times, and lack of transparency in the payment process experienced in regions such as Southeast Asia. As a result of these solutions, a regional exporter can use their bank’s channels, integrated with Visa’s world-class assets, to send a payment to a supplier locally, in a neighboring country, or across the world in near real-time. The transaction is executed quickly, ensuring transparency and predictability for both cash flow and liquidity.

Government stakeholders have a significant role to play in facilitating mid-market growth. Savvy monetary, trade, and economic policy choices, coupled with continuous payments innovation, can serve as economic growth engines in many economies. By implementing monetary, trade, and economic policy that supports growth corporates, governments can enable supply chain resilience, digital transformation, green transition, and cross-border e-commerce. Policymakers, and central banks in particular, have an opportunity to come together to coordinate and optimize policies to support growth corporates’ global aspirations, which benefits everyone.

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About VEEI

Economic empowerment is about removing the structural barriers and systemic biases that have made it difficult for all individuals to take part in the global payments ecosystem. The Visa Economic Empowerment Institute (VEEI) provides a platform for the international exchange of policy ideas that can advance economic empowerment.

VEEI brings together experts in the fields of payments, economic policy, technology, security, international trade, and economic development to advance VEEI’s mission. These experts share a common purpose: the development of strategies that can eliminate the obstacles to economic success for people and businesses everywhere.

[1] Visa (2024). Growth Corporates Working Capital Index (page 52). https://assets.foleon.com/eu-central-1/de-uploads-7e3kk3/48327/growth_corporates_working_capital_index_2023-2024.dd374557b026.pdf

[2] Financial Stability Board (2023, October 9). G20 Roadmap for Enhancing Cross-border Payments: Consolidated Progress Report for 2023. https://www.fsb.org/2023/10/g20-roadmap-for-enhancing-cross-border-payments-consolidated-progress-report-for-2023/

[3] AON (2019, May 2). Make Way For The Middle Market: An Economic Growth Engine. https://www.aon.com/en/insights/articles/make-way-for-the-middle-market-an-economic-growth-engine

[4] Bloomberg (2023, September 4). Global Trade Finance Gap at Record $2.5 Trillion, Says ADB. https://www.bloomberg.com/news/articles/2023-09-05/global-trade-finance-gap-at-record-2-5-trillion-says-adb

[5] Visa (2024). Growth Corporates Working Capital Index — Asia Pacific Edition (page 10). https://assets.foleon.com/eu-central-1/de-uploads-7e3kk3/48327/growth_corporates_working_capital_index_2023-2024.dd374557b026.pdf

[6] Visa (2024). Growth Corporates Working Capital Index (page 26). https://assets.foleon.com/eu-central-1/de-uploads-7e3kk3/48327/growth_corporates_working_capital_index_2023-2024.dd374557b026.pdf

[7] Ibid (page 36).

[8] World Trade Organization (no date). The WTO can stimulate economic growth and employment. https://www.wto.org/english/thewto_e/whatis_e/10thi_e/10thi03_e.htm