It’s no secret the COVID-19 pandemic has been a boon to online sales, and that shift may be here to stay. The e-commerce industry in the United States, for example, climbed 39 percent in Q1 2021 compared to the same period in 2020, according to the U.S. Department of Commerce.
Yet during the first half of last year, cross-border business-to-business (B2B) payments actually declined. There are a number of reasons why, but it all starts with convenience. Business customers want simple, efficient and secure systems when they want to make and receive international payments.
Facilitating cross-border B2B payments has always been complex. The new work-from-home lifestyle has created even more challenges, leading business customers to automate every paper-based or in-person process associated with accounts payable and accounts receivable to continue operating remotely.
As business customers assess the efficiency and resiliency of existing supply chains and operating models with countries all over the world in different states of reopening, they would like a payments solution that can scale up globally to facilitate international payments faster and more seamlessly (including navigating limited banking hours, batch processing, etc.). This will be a huge advantage to businesses as the economy continues to recover.
Here are potential solutions for three primary pain points business leaders often experience when it comes to executing cross-border payments.
Improve technological solutions
The truth is that no one is really focused on what kinds of hoops a payor has to jump through. What they want is a solution that makes their own life easier. It’s not about the payment; it’s about the business process that precedes the payment, just as you’d expect in a B2C payment.
The financial services industry needs to continue building automation modules that leverage artificial intelligence to determine the best times to lock in a foreign exchange rate, which currency to use for the transfer, and a simple way to calculate fees and loss incurred from the transfer itself. Each of these use cases presents an opportunity to simplify a very complex process and free up time to work on more challenging issues.
Facilitate innovation through coordinated oversight
One obstacle complicating cross-border B2B payments is redundancies. Ideally, regulation would evolve and inform innovation design, not inhibit it.
What’s needed is a way for financial technology companies to work with regulators to reduce these redundancies by enabling cross-border coordination between the two countries.
Redundancies mostly come in the form of outdated oversight models put in place long before a global economy became a reality. Now, we have banks trying to stay within compliance models of multiple countries, as well as other banks, all while trying to make the end-user product as simple to understand as humanly possible, like a consumer product would be.
What’s needed is collaborative global oversight and a merging of regulatory bodies into larger groups that leverage improved data ecosystems and make cross-border payments and digital commerce more accessible.
Ensure trust through a modern approach to security
Last, but certainly not least, both buyers and suppliers within the payment process need confidence in the payment system. This is best accomplished through collaboration between public and private sector entities that prioritize cybersecurity standards to mitigate threats, protecting consumers and businesses.
This partnership would also benefit from cross-border collaboration by law enforcement agencies and an agreement to share information between jurisdictions when things go awry. Currently, we see little to no cooperation between governments when it comes to cross-border cybersecurity issues. Literally any solution offered here would be an improvement.
As competition among online retailers and brick-and-mortar stores heats up, especially in the midst of a pandemic, there’s no better time to ask these questions.
COVID-19 has caused businesses everywhere to second-guess these processes and look toward the goal of treating these payments more like we would B2C transactions, or even P2P transfers. The good news is that technology is creating a better way. The path ahead for B2B payments – both cross-border and domestic – looks bright.
Brian Keefe from NICE Actimize joins our BAI Banking Strategies podcast to tell us about how FedNow can be safe and efficient, all while allowing for a wider range of innovative instant payment services in the near future.