Why connectivity is key for B2B payments across borders

Trillions of dollars are sent around the world via cross-border business-to-business (B2B) payments every year. According to Juniper Research^[1], the transaction value of cross-border B2B payments will exceed USD 42.7 trillion by 2026. That’s over 25% growth compared to USD 34 trillion in 2021. EY^[2] on the other hand, pegs the market at a much-higher value—they expect global cross-border B2B payment flows to reach USD 150 trillion in 2022.

If we consider the accelerated digital transformation that has occurred over the past two years, this hardly seems surprising. The shift from physical to digital invoicing and payments has been fuelled by supply chain disruptions, the massive reduction in personal travel, and the rise in demand for contactless payments.

The trouble with cross-border B2B payments

Despite the rapid progress we see on the consumer side of things, B2B cross-border payment processes remain complex, time-consuming and costly. B2B payments have to undergo necessary compliance processes, such as checking for possible money laundering, screening against sanctions lists, and being put through reporting requirements. An estimated one^[3], often because of false positives resulting from poor-quality or insufficient data. In addition to regulatory reviews, all international payments are subjected to FX conversions, regardless of the value of the transaction.

The end-to-end B2B payment process also touches multiple intermediaries with limited transparency over payment status, often resulting in high transaction fees and additional delays. Since the funds are routed across many correspondent banks, both the originating bank and beneficiary bank may not know when the payment will arrive or what costs will be incurred.

Expensive fees, long payment times and lack of visibility across the payment process are especially challenging for SMEs, which have relatively tighter cash flow and slimmer profit margins compared to larger enterprises. In uncertain times, efficiency, transparency and predictability matter more than ever in B2B payments.

Innovations in payments technology are making a difference

Traditionally, cross-border payments flow via a back-end network called the correspondent banking network (CBN). Most front-end providers including banks, money transfer operators (MTOs) and fintech companies still use the CBN to settle payments, but recent years have seen the emergence of new back-end networks such as payment aggregators and distributed ledgers to optimise processes, expand customer reach and enable interoperability between payment methods and providers.

Fintech innovations in recent years have made cross-border B2B payments cheaper and faster through two main methods: by establishing new back-end payment rails that aren’t reliant on the traditional CBN, or by using technology to help clients connect more easily to or gain better visibility over legacy payment networks. Visa B2B Connect is an example of the first, and the SWIFT Global Payment Initiative (SWIFT gpi) is an example of the second.

Visa B2B Connect enables cross-border transactions between banks through a multilateral network that Visa built using its core assets and latest technology. Its network provides a single, multilateral platform through which payments and data flow directly between financial organisations with greater speed and visibility, resulting in dramatically simplified and frictionless cross-border B2B payments.

On the other hand, SWIFT gpi combines the traditional SWIFT inter-bank messaging system with new payment rules such as fee transparency, end-to-end tracking and receipt confirmation. It provides banks with connection to a global network with no intermediary fees for more efficient cross-border transactions. Over 50% of payments over SWIFT gpi are credited to beneficiaries within 30 minutes^[4], with only 5% taking more than a day to complete. Real-time payment tracking also means greater transparency and predictability of payment flows, which allows for faster reconciliation and minimised trade delays.

SWIFT gpi has also been integrated with domestic real-time payment networks, such as Singapore’s Fast and Secure Transfers (FAST), Malaysia’s JomPay, Thailand’s PromptPay and Australia’s New Payments Platform, to enable instant cross-border transactions. The result is radically transformed B2B payment experiences that are faster, cheaper, more secure and more predictable.

Connectivity matters in cross-border B2B payments

For SMEs, significant value can be unlocked with the right digital payment solution, including improved working capital, better cash flow and more efficient operations. Top considerations when choosing the right B2B payment provider should include cost, speed, access and transparency—but another important factor is connectivity.

Connectivity is key because cross-border B2B payments require double-ended compatibility. Traditional payments rely on legacy networks such as the CBN, which is built on one-to-one inter-bank relationships—this is why intermediary banks are often involved in transmitting money from A to B.

New innovations in B2B payments solutions, however, are building connectivity through more direct, multilateral relationship structures between financial institutions. These back-end structures overcome the restrictions of the traditional bilateral correspondent networks. For businesses, this means more optionality and increased efficiency for cross-border transactions, which means it’s now possible to transmit and receive money regardless of your bank’s international footprint.

Build stronger relationships with the right B2B payment solution

In uncertain times, reliable, real-time B2B payments could be pivotal to helping SMEs build trust with their suppliers and trade partners. Improved payment capabilities can empower businesses to grow and scale by decreasing costs associated with cross-border transaction fees and exchange rates. Where payment gaps are identified, business owners can benefit by looking out for partner providers with a strong track record of security and reliability, and a clear understanding of the needs of local and regional SMEs.

DBS has been a key enabler of the development of cross-border payment payments through the adoption of the SWIFT Global Payment Initiative (gpi). We work closely with our SME clients to ensure that this service helps bring traceability and transparency to their cash management and business operations.

Click here for SWIFT cross border payments.