Garðar Stefánsson, CEO of Rapyd Europe and General Manager of Rapyd Collect, discusses the challenges and opportunities of cross border B2B payments
Businesses often thrive in adversity, but by any measure, the past few years have been extreme. From supply chain disruption, to lockdowns, to inflation and higher borrowing costs, businesses across the world have had to dig deep to find new paths to growth.
While 2023 has brought better economic weather, many businesses are still concerned about the future and the outlook is fragile. Our recent 2023 State of B2B Cross-Border Payments report showed 43% of businesses are still concerned about their prospects, with inflation their biggest worry, followed by increasing interest rates (46%) and market volatility (35%). In the UK, business sentiment is even more shaky, with 49% of businesses expressing concern about current conditions.
Businesses are finding solutions where they can, and it’s notable that more than two in five international organisations believe business expansion is essential to offset their key challenges. Cross-border trade can help businesses side-step weaker growth in their domestic markets. This is particularly true for countries where economic growth has stalled, such as the UK.
Payment barriers persist
While the most agile businesses are seeking to open up new markets abroad, global expansion brings its own difficulties. Our report shows companies wrestling with cross-border trading issues such as currency fluctuations (32%) and import/export challenges (30%). Businesses report constant setbacks from the cost and complexity of global trading. It is, they believe, far more expensive and time-consuming than it should be to do business internationally.
A big part of the problem is the world’s disparate and inefficient financial architecture. Payment solutions tend to serve local needs rather than facilitating cross-border trading with similar ease. Companies may source an effective payments solution in one country, only to find it doesn’t work elsewhere, or the lack of interoperability between one local market solution and another inflates the cost of doing business.
To put this into real world terms, 76% of businesses frequently pay $10+ transaction fees on cross-border payments. 42% of international businesses paid between 0.25% to 1% in foreign exchange fees when carrying out cross-border transactions, with a quarter of the businesses paying FX fees of between 1%-3%. This is a huge amount of margin to sacrifice that may make expansion into new markets uneconomic. It is a crazy situation when a sound business rationale is undone by the constraints of making international payments.
It may also limit where companies can do business – and with whom. For example, payments challenges are often more acute in developing markets, with less liquid currencies. Similarly, small businesses often lack the financial bandwidth to support multiple payment systems and a large finance team. In both cases, the growth opportunities may be greater, but payment complexities can make it unviable for established multinationals to take a chance on developing new trading relationships.
Businesses are also struggling with the speed of payments: 38% of respondents experienced delays of five days or more when sending or receiving cross-border payments to other businesses. This has an impact on trust, on supply chain efficiency and on working capital. In the UK, payment delays were the most commonly reported challenge when receiving cross-border payments, cited by one-third of businesses in our report.
The path to growth
At a time when advanced economies are struggling to find growth and businesses need to open up new revenue streams, payment problems are a major headache in need of a cure.
Could that cure be better fintech?
Businesses certainly think that fintech solutions may hold the key – with 35% of businesses calling for better fintech solutions to improve the transparency, speed and cost of payments. More than 6 in 10 businesses (61%) have made payments systems digitisation a top priority, while another third have already automated their payments systems. And in a recent report, Flagship Advisory Partners put the business to business growth opportunity from greater payments digitisation and better fintech solutions at a vast $48 trillion.
However, some countries have a long way to catch up – and these are often the countries with the greatest need to rejuvenate growth. Only 10% of UK businesses have automated their payments systems, for example. This is in spite of UK businesses polling higher than the study average for market volatility concerns (41%) and import/export challenges (35%). The UK has struggled with domestic economic turmoil, combined with ongoing trading difficulties caused by Brexit, and 41% of UK businesses believe improved cross-border payment terms would go furthest to ease their business concerns, but this has not yet translated into action.
Fintechs like Rapyd have a tremendous opportunity to help cross-border businesses with their expansion ambitions by providing faster and more cost-effective payment solutions, as well as creating innovative new approaches that simplify the way these systems operate. Many of the solutions are already in place for businesses with the appetite to adopt them, but fintechs can be even more ambitious in building bolder, better payments solutions that make cross-border trading seamless and straightforward.
