Banks need to keep pace with customer expectations and fintech disruptors or risk being left behind.
According to the 2017 B2B Payments & Working Capital Management Survey, 45% of participants consider the quality of a bank’s B2B payments offering to be a critical factor when selecting a banking partner. Furthermore, for those focused on global expansion, the ability of banks to align their services with an enterprise’s own growth trajectory is important, with around 20% of survey respondents mentioning that they use alternative options for B2B cross-border payments.
Not only does this highlight that businesses are transitioning from inefficient and costly paper cheques to electronic payment methods, but also that banks have not been able to meet demand for innovation and simplicity in the international payments arena.
Meanwhile, corporates struggle with the fragmentation and complexity of cross-border payments. Navigating the multitude of payment options and identifying the most suitable ones while handling evolving compliance and regulatory requirements can prove to be frustrating.
A survey by Saxo Payments focused on cross-border B2B payments indicated that the costs associated with international payments are a major cause of dissatisfaction: 48% of respondents were unhappy with the fees charged, while 80% of businesses would consider changing providers to reduce costs. Other challenges cited include a perceived lack of transparency, foreign exchange rates variations and slow transactions. This prevailing discontent has been one of the primary factors underpinning the growth of fintechs, many of whom provide innovative solutions that help companies manage their payments more efficiently.
Gaps in knowledge sharing, where traditional banks are unable to meet requirements or guide companies regarding the best ways to execute global payments, can hamper progress. This has created an inefficient and unsustainable ecosystem that prompts companies to look for other options. Paytech firms are leveraging technologies such as platforms and artificial intelligence (AI) to provide the building blocks for more efficient solutions. Technology-based platforms also deliver better value propositions and facilitate innovative business models.
For example, automated systems can identify and ensure fulfilment of all requisite payment protocols before initiating a payment process. TransferMate (Ireland) offers a range of global services for international payments that can be integrated with businesses’ accounting and enterprise resource planning (ERP) systems. With access to 117 currencies, 145 countries and transparent exchange rates, corporates can initiate secure and fast cross-border transfers.
According to Frost & Sullivan research titled ‘The Global PayTech Market: Driving Transaction Transformation’, a noteworthy growth opportunity in the coming years will be instant or real-time payments. Expected to be implemented globally, the massive adoption of mobile devices and mobile payments will underpin this trend. Previse (UK), which received £2 million in seed funding to develop its proprietary artificial intelligence (AI) solution, enables buyers to pay their suppliers as soon as an invoice comes in. Ripple (USA) offers a global real-time payment system that enables banks and financial institutions to send money globally using the power of Blockchain. Many such use cases of advanced technologies are being explored and will likely be adopted to further increase efficiency and reduce costs.
The value propositions and business models of paytech companies can vary considerably. However, they essentially all work towards creating a seamless and easy-to-execute system. Integration with existing systems, Single Euro Payments Area (SEPA) transfers, FX conversion automation, marketplaces, payment gateways, automatic compliance and notifications are some of the benefits that paytech companies offer.
For instance, dynamic currency conversion (DCC) and multi-currency pricing (MCP) are technologies that enable banks and merchants to price goods and services in the local currency of their customers and receive payment in their chosen currency. It simplifies international sales, while offering a tailored, transparent shopping experience to consumers. Irish fintech firms working to reinvent global finance by developing innovative solutions for merchants and ATM networks include Fexco, MonexFS and Continuum Commerce.
The corporate cross-border payment cycle is complex and paytech companies can disrupt different parts of the value chain to improve customer experience. CurrencyCloud (United Kingdom) automates the entire payment lifecycle by eliminating the need for companies to build a payment infrastructure or conduct negotiations with banks to enable international payments. The cloud-based platform enables frictionless global payments and rapid launch with its application programming interface (API). Paytech firms can lower costs by leveraging streamlined process and online or branchless models. Take Flywire (United States), for example. The global payment and receivables solution provider can charge its customers currency exchange margins that are almost 50% lower than traditional banks because it has a streamlined system and low overhead infrastructure.
Reinventing the cross-border payment ecosystem
The innovative cross-border payment solutions offered by paytech start-ups are encouraging incumbents to redesign their solutions to meet customer demands and remain competitive. Banks are either collaborating with or investing in paytechs to access innovations and enhance their services. For example, AIB acquired a minority stake in cross-border B2B payments company TransferMate and, as part of a strategic partnership, will offer business customers a convenient and cost-effective way to send or collect funds globally. European banking giant ING also entered into a strategic partnership where TransferMate services will be available to the bank’s SME and corporate customers.
Going forward, as corporates increasingly use innovative services, they will benefit from cross-border payment trends that encompass instant payments, better FX rates and technology-based platforms that help to streamline processes, cut costs and reduce delays. Although some transactions may still require
the involvement of banking entities, paytech will reduce costly errors and complexity to ensure better customer service and agility.