Over the past decade, the world of business-to-business cross-border payments has seen an acceleration of innovation, development and market moves. Companies that traditionally catered to the consumer space have increasingly moved into the industry, while those who are long-established have increasingly digitized and improved their offerings in response to changing customer expectations.
While the banking industry has at times been slower to respond than fintechs, it too has upped its B2B offerings. However, one area that remains under-addressed is small and medium-sized businesses.
Traditionally thought of as typically having either little need for cross-border transactions or send values too low to serve through a business product, SMBs have often fallen through the cracks when it comes to cross-border payments offerings. Such companies have generally either been offered dumbed-down versions of corporate banking products, or offered consumer products, neither of which address the needs of a typical SMB customer.
The industry is beginning to wake up to the needs and potential of SMB customers, and with good reason. My own company, FXC Intelligence, estimates that in 2023 SMBs will send $10.4tn in cross-border payments globally. However, more needs to be done to address this unique segment, particularly as SMBs globally are increasingly looking beyond borders for their customer bases.
The challenges of serving SMB cross-border payments customers
For banks, serving SMB customers effectively can be challenging, not least because the total they typically send and the support needed can put a lot of pressure on margins, especially if in person branch support is required. As a result, catering to them effectively can be expensive.
One potential solution to this is to provide a service that is either led by or exclusively digital, enabling large numbers of SMB customers to be served at scale. This approach has found success among some fintechs, with money transfers player Wise having a significant and growing SMB customer base.
However, not everyone in the industry agrees with this approach. At a panel I hosted at this year’s Sibos conference, one of the biggest events in the banking industry calendar, speakers from Mastercard
MA
, TD Bank, Lloyds and FIS
FIS
were split on the relative importance of providing a digital-first solution versus one that provides effective in-branch support.
Certainly some types of SMBs will be better suited to a digital-focused cross-border solution than others. Some SMBs tend to have high levels of digital expertise that extends across marketing, customer communications and beyond, making digital products a natural fit. However, more traditional companies may be less comfortable with such solutions and prefer the reassurance of in-branch support, particularly when it comes to sending large sums internationally.
Such divides are also notable among certain industry verticals, particularly given that the nature of some businesses creates very different cross-border payments needs than others.
The global evolution of SMBs
Part of the reason that SMBs pose such a significant cross-border payments opportunity for banks now compared to in the past is that many more SMBs are now operating internationally than was previously possible. Changes in working practices, the increase in online marketplaces for products and services both on the consumer and B2B side and the continuing proliferation of digital tools and infrastructure have all contributed to a world where small businesses can look beyond borders more than ever before.
For some, particularly – although by no means uniquely – businesses that would have previously been localized in Western nations, this is resulting in an increasingly distributed workforce. For such SMBs, employees are based in multiple countries, or in some cases move regularly, with such companies able to access a greater talent pool without the constraints of distance to a physical location.
These kinds of companies are likely to be headquartered in one country for operational reasons, but may consider themselves ideologically associated with multiple countries from their outset, or even borderless, interacting with multiple markets from their outset. Here, the expectation is that money can be sent, stored and received just as easily as in a single domestic market, with companies looking to pay employees and contractors locally while taking and making payments across multiple corridors and currencies.
Similarly, there are SMBs that are catering to an international customer base from day one, rather than achieving a certain scale domestically before expanding internationally. This type of company can be found across the world, but is in particular thriving in countries where domestic demand is small. Such businesses often sell through marketplaces or more generally online, and support their efforts with marketing and related activities in their target markets.
This not only creates a need to enable them to access their payments, but also for them to make payments and even access working capital in different currencies in order to fund their business operations.
Such needs can be complex and highly nuanced to precise verticals, and a wide variety of fintechs have developed to cater to specific needs. However, banks do have the opportunity to better tap into this market by recognising where they can add value to their SMB customers.
SMB payment opportunities for banks
Given the diversity of cross-border payments needs among SMBs, there are considerable opportunities for banks to create tailored solutions for this market that cost-effectively cater to its specific needs.
Within this, there is likely to be an increasing need to develop more vertical-specific offerings, for which both digitization trends and deliverability will necessitate a significant technological underpinning. Here, current examples include connectivity with accounting software or support for mobile options in markets where such devices dominate digital access, but certain verticals may see ever more tailored solutions for these purposes in the future.
For banks, catering directly to some niches may not be the ideal solution, however, the ongoing adoption of embedded finance for SMBs is likely to be key here. Small and medium-sized businesses increasingly want and expect everything to be in one place, meaning there are significant opportunities for platform-based plays for this market – and for the banks that power them.
The B2B payments space is likely to see significant continued evolution over the next few years, and this will be felt acutely in the services for SMBs. For banks, now is the time to increase focus on this often overlooked market and develop serious products that effectively consider SMBs’ needs.
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