But B2B transactions – particularly those that require cross-border flexibility – are complicated by the different international regulations governing and securing financial transactions. In an ever-changing and developing industry, where speed and agility of transactions are paramount, the challenges are vast.
According to a recent study by Rapyd on digital transactions in Europe, the international payments space has a raft of fresh demands. For example, in Denmark, 71% of respondents reported a recent online purchase using Danish mobile payment apps. Alongside this, only 5% of Germans chose credit cards as their top online payment method, while more than two-thirds of Spanish spenders said they used PayPal for a recent online purchase.
Technology & cross-border innovation in payments
While streamlining this complicated space is no picnic, technology and innovators are working hard to solve the issues. Ben Aier, VP Product, Yapily, points out that there are many dynamic operators in the current marketplace driving disruption. “For me, the most exciting changes happening in this space today are at the intersection between embedded finance and open banking.”
Aier says that managing payments when doing business internationally “presents a huge challenge for merchants”. Very often, the end-customer is charged with an international payment fee and receives non-competitive rates when paying an invoice in a different currency from their own. “What’s more, lengthy settlement times are leaving merchants waiting for their money and the end-customer waiting for the delivery of their goods and services.”
She goes on to say that better understanding and implementation of cross-border payments within open banking and embedded finance are leading to streamlined cooperation between finserve providers.
“Open banking payments enable the instant flow of cash from one bank account to another, bypassing card fees, lengthy settlement times, and risk of card fraud. International open banking payments currently use SWIFT to facilitate cross-border transactions.”
But, currently, this process is expensive and slow, and cross-border payment fintechs need banks and regulators across Europe to move faster to match the demand for a cheaper international payments alternative.
How open banking is easing the way for frictionless cross-border transactions
While these challenges will take time to overcome, combined open banking and embedded-finance solutions are enabling payment service providers and merchants to access an entire payments ecosystem through a single connection. Aier says: “Using embedded finance, open banking platforms like Yapily can enable businesses to collect domestic payments, perform cheap foreign exchange interchange, initiate instant payouts and refunds, and streamline reconciliation.”
Greater visibility over payment status, more control over the distribution and flow of funds, and reduced costs when it comes to accepting and transferring cross-border payments are just a few of the benefits, as these “enable businesses to focus more resources on expanding globally whilst saving both time and money”.
Why crypto and borderless DeFi transactions are winning
Meanwhile, cryptocurrencies have risen within the cross-border space as payment methods that aren’t required to meet the strict regulatory requirements of fiat currencies. Transactions in crypto carried out on the blockchain currently enable buyers and sellers relative freedom from government interference, as well as personal privacy.
But many countries still don’t allow crypto transactions, thus preventing it from comfortably occupying a mainstream position, and the regulation of DeFi will almost certainly tighten up over the coming decade.
Jurijs Borovojs, CTO of Transact365, says the crypto landscape has remained largely unchanged by external events, making it a popular option for the cross-border payments space. “Crypto’s flexibility means it is not as heavily impacted by country or region-based economic landscapes. Although cryptocurrencies can undulate in value, they are more robust to exterior changes.”
He believes that global economic instability has contributed to the popularity of digital currencies in the international payments space because they are easily transferable assets that fly above the fiat regulatory requirements of individual countries.
“While financial problems persist in Europe, merchants operating in and from fast-growth ecommerce landscapes can take advantage, using global payment gateways to facilitate the scale-up of their businesses. With an increase in ecommerce merchants enabling alternative finance payments, alt-fi sectors may gain more customers who wish to purchase online without using assets temporarily stored and secured in mainstream bank accounts.”
Cross-border payments in China
Each country handles its cross-border transactions differently, and China – the world’s biggest supplier of goods and services – has implemented its own regulatory requirements that benefit trade while also taking AML and security measures into account.
David Messenger is the CEO of leading China-born fintech LianLian Group. The company’s purpose is to connect merchants globally through two-way channels whereby companies both within and outside China can have a streamlined transaction network.
Messenger tells us: “When you look at fintechs in China, really, there are two areas of regulation. One is the People’s Bank of China (PBoC) and the financial regulations; the other is the Cyber Administration Authority of China, which is the data security, data privacy regulations. In China, what often happens in new areas is that the regulations are left flexible to let a market and solutions develop. Then, once the position is clear, the regulator brings in regulations that are broadly in line with the same objectives that regulators have all over the world.”
The process is, he says, a method that ultimately works best for the business climate and the customer because it closes areas of vulnerability, making the environment safer for business by providing greater stability in the financial system, data security, and data privacy.
THREE Cross-border megatrends in 2023
According to J.P Morgan, there will be three megatrends disrupting cross-border payments space in 2023. To remain competitive, fintechs and banks will have to deliver cost-effective, fast and secure cross-border payments options to merchants and vendors, alike. But to do this, they will have to contend with:
- #1 New payment methods: These will consist of faster, more streamlined and agile payments that cater to multi currencies including crypto. Kiat-Seng Lim, Global Head of Sales for J.P. Morgan, says: “To remain competitive, companies must leverage infrastructure that supports instant payments, lower costs and greater transparency to make them adept in the realm of cross-border payments.”
- #2 New technologies: Faster, more innovative technologies and an increased use of APIs is transforming the space from a software and hardware perspective. Cross-border payments require greater transparency, efficiency and visibility.
- #3 Greater risks: As the space becomes ever more digitised, the risks rise in terms of fraud, money laundering and cybercrime. Providers must adopt the most secure means possible to build trust within the marketplace
Aier concludes: “In 2023, we can expect to see more fintech collaboration and partnerships evolving between players providing these disruptive technologies. In turn, businesses will be able to unlock exciting and innovative open banking use cases for their customers, remove even more friction, and create new growth opportunities.”
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