International business payments: the solution is on blockchain

The international business payments industry is growing and overcoming several challenges, also thanks to blockchain

International business payments are estimated to have reached 39.3 trillion in 2023, and the trend is expected to stay positive in the coming years.

While globalisation initially fuelled the phenomenon, it is only in recent years that the real leap forward has been made. Since the pandemic, in fact, more and more companies are using online marketplaces to purchase goods and services, giving a strong boost to B2B e-commerce.

There are many cases where companies have to make cross-border payments, here are some of the most common:

• B2B E-commerce
• Import-export
• Software subscriptions (SaaS)
• Salaries of international staff
• Trading and corporate investments
• Repatriation of funds and cash flows (multinationals)

The timing and costs of traditional payment methods, however, limit business growth and have real impacts on cash flows.

Thus, in recent years, new players have emerged in the fintech sector, which have developed solutions both with existing models and by exploiting new technologies such as blockchain. 

Let us elaborate below on the problems of international business payments and the solutions being developed.

The problems of international payments today

Despite the digitalisation drive and the emergence of numerous innovative and efficient payment solutions, the development of this sector is not homogenous and synchronised worldwide. Therefore, obstacles and challenges still exist in the field of foreign payments, as several studies show. 

Costs and settlement

Credit card circuits charge fees between 2 and 4% for international payments.

Bank transfers such as Swift and SEPA, on the other hand, rely on complex global networks, which may include numerous intermediaries and consequently higher costs and extended timeframes, as well as opaque or unpredictable information about these. 

In general, cross-border business payments can cost up to 10 times more than a domestic payment.

In terms of costs, the need to exchange currency also plays a significant role. Each intermediary may charge various conversion fees, offer different exchange rates, or not provide sufficient visibility of the rate charged. Let’s say a US company accepts payments in Japanese yen: if these weaken against the dollar, the company will get less revenue than expected.

There is also an outdated habit of some banks that affects costs: that of keeping a separate account with foreign currency funds at another bank. This type of account, called ‘nostro/vostro account’, is used to facilitate high volumes of foreign exchange, but has exorbitant costs that can be passed on to customers.

Regarding settlement times, a cross-border payment can take up to one working week.

This is due to a number of factors. First of all, most banks in the world are still restricted by weekday inactivity and daily closing times.

Not only that: many institutions still refuse to update their software or even automate processes. This means that many operations are still manual and therefore slower.

Payment latency naturally impacts the liquidity and cash flow of the companies involved, but above all exposes them to currency exchange rate fluctuations.

Transparency and security

While in Europe we are used to the extreme simplicity provided by the single currency and a good-enough adoption of efficient and up-to-date payment systems, this is not always the case. The financial system is very fragmented at both the technical-structural and regulatory level. 

Financial regulation is constantly changing within different countries and economic areas. Therefore, it can be complex to maintain adherence and compliance with the laws of each country with which one conducts business.

In this context of diversity, which implies different security and quality standards, cases of poor user experience and lack of traceability of transactions are frequent.

A simple and transparent experience, on the other hand, is also crucial to ensure security, an aspect that should always be taken into account when handling payments. International ones are all the more vulnerable to cyber attacks and fraud attempts that exploit the lack of information and differences between financial systems. Therefore, companies carrying out global transactions must equip themselves with a solid security system and be aware of the dangers of the specific market they are entering.

Speaking of differences, the cultural aspect should also not be underestimated: the language barrier can intervene to complicate the experience and the resolution of problems such as disputes or refunds.

All these issues are felt most by small businesses, which have less access to resources to employ in this area. It is therefore not so much a matter of inventing new solutions from scratch, but of making them available: it’s about accessibility.

New technologies and their advantages

The adoption of new payment solutions does not only mean solving the above-mentioned problems, but also opening up new opportunities. To summarise, here are the 3 key benefits of innovating in this area:

1. Efficient international payments make it easy to open up to new markets and adapt to them in order to attract customers.
2. The automation implemented by fintech solutions speeds up the processing of transfers, avoids human errors and systematises fraud prevention. It also saves money, especially in the long term.
3. Greater transparency on costs, settlement times and exchange rates allows companies to forecast their expenses more accurately and optimise them.

So what are these solutions and how are they shaping up? 

In the banking and traditional payments sector, there’s talk about features and services such as:

• Optimisation of currency exchange rates, e.g. through APIs providing real-time data on foreign currency prices and the actual application of the desired rate.
• Virtual accounts, to manage their customers’ virtual balances more efficiently.
• Local acquiring or intelligent routing, to rely on a network of local banks in order to better manage payments to a given country.
• Multi-currency accounts, so as to avoid opening several accounts to manage different currencies.

Needless to say, these are just pieces of possible solutions, there is no definitive one.

In general, the most established payment circuits are beginning to build services focused on international trade. Among them, Swift launched Swift Global Payment Innovation in 2017, then Swift Go and Payment Pre-validation, which promise breakthroughs in settlement times and transparency. The circuit is also studying the possible benefits of CBDCs in this regard.

By the way, it is interesting to note how traditional institutions are increasingly moving towards blockchain. 

The blockchain and stablecoins

The benefits of blockchain have been identified mainly by digital payment providers, digital banks and card issuers.

Visa, in fact, launched B2B Connect in 2019, a solution that leverages the blockchain to facilitate transactions between banks, without requiring a card. Mastercard Send has also joined the trend, providing instant global payments through a private blockchain.

But why do the market leaders in digital payments choose blockchain, and how do they use it?

First of all, transactions on blockchain take only a few minutes, require very low fees and are easily traceable. Moreover, they can be executed in stablecoins, blockchain-compatible representations of fiat currencies. These, unlike cryptocurrencies, are not particularly volatile, as they replicate the trend of the dollar.

Thus, one can simply send stablecoins and convert them into fiat instantly so as not to incur price fluctuations during payment.

Stripe, one of the world’s largest fintechs, has also realised this, offering merchants the ability to transact with the USD Coin stablecoin. Visa, on the other hand, is exploring the use of USDC and the Ethereum network; while American Express has been working with Ripple since 2017 to process international business payments.  

It is not necessary, however, to enter into partnerships or subscribe to an expensive payment service.

You can start taking advantage of the benefits of blockchain for your company’s international payments in an even simpler way. By creating a Business Account on Young Platform you can easily buy, send and receive cryptocurrencies, plus access various services designed specifically for businesses.

On the account you will have all operations under control and a support service always available. 

Contact the team for more information at [email protected]

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