How do international payments work today & what are the hurdles?
The international B2B payment process today is complex and clunky — yet, full of potential. In a traditional setting, for an SME to carry out a cross-border payment, access to a global banking network is a necessity. Primarily, the two main banking partners an SME would need to facilitate cross-border payments are a domestic bank and a correspondent bank that facilitates communication and business with an international bank.
One clear problem with this strategy is that not all international regions have well established banking systems, nor do all regions have high rates of banking customers. In fact, around the globe, there are roughly 1.4 billion adults that are currently unbanked.
This obviously matters from a B2C standpoint, but it is equally crucial to consider for B2B payments.
For example, let’s say a UK-based SME wants to work with a Mexico-based supplier. If that supplier’s business team includes unbanked individuals, the supplier may need to go to extra lengths to convert funds into useable payments for these employees. In turn, this means the supplier needs to receive their payments as quickly as possible to carry out the necessary processes for paying their staff.
As a result, that supplier is going to be much more reluctant to work with international businesses that do not have a highly efficient B2B cross-border system in place.
Unbanked populations are just one factor of many that impact the international payment process. With the complexity of adopting emerging technologies added to the equation, a variety of international payment hurdles can arise.
The key B2B cross-border payment hurdles for SMEs to consider include:
Fraud & Identity Verification Processes
B2B banking services are inherently more difficult when it comes to fraud prevention and identity verification processes when compared to B2C. In B2C scenarios, Know Your Customer (KYC) processes can be easily streamlined and completed with speed. By contrast, Know Your Business (KYB) involves much larger quantities of complex data and information, such as a company’s chart of accounts, employee risk assessments, shareholder information, and many other key details. Cross-border B2B payments only intensify this complexity, as fraud and verification processes can differ from region to region.
Centralised Information & Data
When juggling regulatory requirements across several different regions of the world, SMEs need easy access to all the essential payment information —such as account information, fraud protocols, and business partner risk profiles. Traditional payment processes have long used APIs to help solve this issue, but modern cross-border payment systems need to take this a step further by establishing a fully integrated system that keeps all necessary information secure within a central location. APIs are also a key piece of the technological puzzle of open banking, making their role in cross-border payments undeniable.
Along with the challenge of dealing with varying fraud and identity verification regulations found across different regions, there is a multitude of region specific regulatory standards SMEs are likely to encounter when conducting business abroad. Although the G20 roadmap is prioritising more coordinated regulatory frameworks in 2023, there’s still a long way to go when it comes to unifying payment regulation around the globe. Moreover, with cryptocurrency and blockchain technology becoming more prominent in the payment industry, this is a particularly important hurdle to consider as crypto regulations vary drastically from country to country.
Inhibited Financial Inclusion
Not only does the cross-border payment space lack global regulatory standardisation, but it can also be a hurdle to achieving financial inclusion in certain regions. For example, according to Mastercard, certain governments impose rules and restrictions that prohibit data exports — a problem that not only slows cross-border payments down further but also drives up costs as well. This issue of financial inclusion can be incredibly problematic, especially when expanding into regions where your target B2B customers or partners already have limited payment method options available to them.
The demand for speedy payments is spreading amongst consumers and businesses alike — with many now expectant of real-time, instant payments. This preference for instant payments is driven by the many alternative payment providers and money management platforms (such as PayPal) that have offered instant transfers of funds for years now, showing both consumers and businesses that exceptional payment speed is, indeed, a viable possibility. In PwC’s Payments 2025 & Beyond report, it is even revealed that 42% of payment industry professionals predict an acceleration of cross-border instant B2B payments in the coming years.
Liquidity & Settlement Risks
In the same vein as the real-time payment challenge is the issue of liquidity and settlement risks that arise when we consider how time zone differences impact cross-border payments. Most central bank payment systems have limited hours of operation which can significantly impact settlement times and liquidity if a transaction or trade cannot be settled immediately. According to a 2022 BIS report that looks at SWIFT gpi processing time, the global average payment processing time is more than eight and a half hours, with certain regions in Africa and the Middle East extending to 10 hours or more. Though most other regions can complete processing in less than 2 hours, these long processing times can greatly impact settlement risk for any businesses operating within these regions.
Banking Relationship Maintenance
The rise of digital payment solutions and Fintech payment providers are reshaping not just cross-border payments but also the larger global banking model. This change to the banking landscape could not be coming at a better time, given the recent banking collapses seen at various institutions — including Silicon Valley Bank, Silvergate, and Signature Bank — that have rocked SME confidence in banking providers to its core. As a result of this diminished trust, Fintech providers are not just playing the role of technology experts but are also helping to rebuild those broken banking relationships between SMEs and banks, as well as facilitate greater banking diversification and stability overall.
With so many factors impacting the international payment process, SMEs need to seek out providers that go above and beyond one-size-fits-all payment strategies. For a cross-border payment system to be exceptional, a nuanced approach that assesses the specific requirements of both the SME itself and the regions it plans to expand into is of the utmost importance.
Learn more about cross-border payments and Freemarket, read our free eBook.
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