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Global B2B payments are messy, and that’s fine

As companies begin to develop a multi-sided business model or rely more heavily on multinational suppliers, their supply chain relationships become just as valuable as their customers. Paying those partners is key to keeping the flow of goods and services running smoothly. Yet, if you draft a check or send a wire transfer for every payment, the cost of paying and managing those accounts can eat into operations. No one wants to pay to pay, therefore, getting the process right is imperative if you aim to grow the business. Payments problems due to banking regulations or remittance challenges can damage the relationship with that partner or supplier.

While a treasury officer at a large organization may have all these nuances figured out, the vast majority of businesses don’t have that luxury. And for many accounts payables teams – where the money leaves the building – these cross-border nuances are rarely factored into their processes. Embracing the unique approaches for global B2B payments will go a long way towards strengthening the supplier relationship and minimising payment pain.

Contending with varied payment methods

No single payment method is viable for every situation. Based on our internal remittance data – where we make $5 billion in payments (USD) annually across six different payment methods to 190 countries – we’ve uncovered some interesting findings. For one: choice in payment methods matter. Suppliers appreciate being able to control and pick a method that is efficient, economical, and reliable for them.

In the US, ACH is by far the most popular remittance method, because it’s inexpensive, reliable, and lands in a reasonable time. Whereas in Brazil, eChecks (a.k.a. Global ACH or local bank transfers) are the most popular form of payment. In Russia, PayPal is the most popular option. Wire transfers are expensive, so using them for all international transactions is not the most cost-efficient. However, once transactions reach above $2,500, payees start to opt for wire transfers. And of course, everyone knows the nightmare paper checks introduce, but there is still a need for them in certain situations.

More data from our last 12 months of remittance is available in our article: Demystifying Cross-Border Payments.

Offering choice when it comes to remittance methods can be challenging. The key lies in getting the right data from the payee into the system. Once the data is captured, and assuming banking rails are established within the organization to execute on those payments, businesses need to properly remit across multiple payment methods. Success lies in the intelligence of the onboarding process – it needs to guide a payee through the vast array of potential inputs. Keep in mind, each payment method may introduce reconciliation challenges that the organization will need to address.

Simplifying currency conversions

Our remittance data also indicates that payees in some countries have a higher propensity for wanting to be paid in their local currency, while others strongly prefer USD. For instance, there’s a huge preference for USD in countries with less stable economies, such as Nigeria, Honduras, and Lebanon, but there are also a few outliers with a heavy USD preference like Iceland and Liechtenstein. At the same time, payees in more established EU countries (Germany, France, etc.) prefer to be paid in local currency. Alternatively, if you pay someone in Israel, they prefer to be paid in USD. Only 16.2 per cent opted for conversion to shekels.

Giving payees a choice in currency is a good thing for maintaining loyalty and reputation, particularly in digital-first industries such as software, media, advertising, the gig economy, and e-commerce. Often, these partners would have to make the conversion themselves with their banks and incur fees against what they’ve been paid.

On the back end, many organizations opt to establish local bank accounts to remit locally to payees. This seems like a great approach if you have a treasury department, but for many smaller businesses, it’s not feasible. If the currency management effort was more centralized, it would lead to greater oversight and minimize the effort required.

The problem with Holy Grails

Silver bullets and the Holy Grail are popular tropes to solve complex problems. In the case of cross-border and B2B payments, today’s Holy Grail crusade seems to point to blockchain, cryptocurrency, and their poster-child bitcoin. In theory, if everyone magically started to accept bitcoin, the problems of global remittance would be solved. These are fine, technocratic ideas, but they fail in real-world applications.

Money is faith and when people lose faith in their money, the system collapses. With emerging structures like bitcoin that are just in their adolescence, that faith hasn’t been built or earned yet. These transactional methods are a generation away, and no doubt, we need to consider them. But they do not have the public trust and stability yet to be viable for the vast majority of B2B transactions. And even when cryptos become more prevalent, other methods will not simply disappear. ACH didn’t kill paper checks. PayPal didn’t kill banks.

Real B2B solutions embrace how difficult and diverse the world is and work to fill in the gaps, rather than ask everyone to convert to an untested paradigm.

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