Fragmentation of B2B Cross-Border Payments

The B2B payments ecosystem is experiencing a digital renaissance as companies ditch manual processes and adopt modern methods similar to those they expect from a B2C experience. Today’s Businesses want fast and seamless payments, and the ability to process cross-border payments digitally. The advantage to this is that it eliminates manual processes, extensive costs, and it reduces their overall DSO in global markets. 

The dream payment experience international businesses want is one where the buyers are able to get invoiced in their local currency at preferred FX rates while gaining the ability to pay how they want. This means having access to a full suite of payment methods like wire transfers, net terms, and credit cards. The sellers, then get to receive funds quickly while incurring low processing fees and minimal hassle regarding reporting and reconciliation. But, most importantly, B2B businesses want all this to exist in one all-inclusive solution.

However, the reality of the B2B cross-border payments experience as it exists today is less of a dream and more of a fragmented & expensive nightmare. 

This fragmentation exists due to the sheer number of individual parties you need to work with to offer the modern payment experience that your clients demand. You will need to work with a myriad of different financial institutions, credit cards, FX providers, and payment facilitators to meet your buyers’ needs. And these individual parties are not ubiquitous across jurisdictions. Every market has its own unique economic characteristics and local payment preferences that are often guided by domestic jurisdictional dynamics and long-held legal and regulatory traditions. These regional dynamics, and the various players involved in reaching these markets, is at the heart of the B2B payments fragmentation experience. 

Let’s break down some of today’s most in-demand cross-border B2B payment methods to examine why this fragmentation happens.

FX Management & Wire Transfers 

In order to offer your international buyers their local currency and manage changing FX rates, you have to outsource to an FX provider. While FX providers can provide competitive FX rates for your global markets, they are limited in the number of payment methods they can accept. They only can offer payment methods like wire/ bank transfers. So if your buyers want to pay via another payment method, such as credit cards, you won’t be able to leverage the benefits of your FX provider.

To add insult to injury, bank transfers are slow & expensive. Traditionally, these cross-border transactions will pass through three banks between the buyer and seller. These are made up of an acquiring bank, an issuing bank, and a processing bank. Each of these fragmentation points will charge interchange fees to talk to each other, and these drastically increase as soon as your transactions crosses a border. This added complexity also creates longer settlement time frames which can strain your business’s cash flow.

Net Terms

Another payment method that remains a mainstay in B2B payments is net terms. It’s an extremely attractive payment method as it can help to protect and extend your business’s cash flows. Learn more here. However, traditional net terms are not exempt from fragmentation. You still will have to outsource your FX to deal with fluctuating currency rates in each of your desired markets. Not only that but in some cases, your buyer may not be approved by net terms. So even if you outsource your currency management to an FX provider, you still have to connect with additional parties to offer the payment methods your B2B buyers require.    

Net terms fragmentation also exists because when it’s used cross-border, it becomes exceedingly complex. Net terms require a lot of administrative leg work as you will need to meet the requirements and gain approval from lenders in each region you plan to process in. This multiplier of pain points makes net terms a colossal undertaking and creates a level of fragmentation most businesses can’t manage.

Credit Cards

Like consumer transactions, credit cards provide an easy, secure, and established payment method for common or recurring purchases. They’re simple and easy to use for international payments, as they are accepted in the majority of regions around the world. However, there is an underlying problem – credit cards are not FX providers. This means when cards are used for cross-border transactions, they have to deal with different global acquirers and exchange rates, and you better believe they have assessment fees for that.

So, while credit cards are great at what they do, they are horrible at FX. On average, credit cards will charge 2-3% in fees to assess and handle FX. Now a fee of around 2.5% may not be the end of the world on a $250 B2C purchase, but add a few more zeros on the end for a B2B purchase, and your head may start to spin. On a $250,000 transaction, you would rack up $6,250 just in FX fees, and you still have not even accounted for interchange or additional assessments. This gets even more painful when you imagine this impact multiplied if the transaction is recurring because it is a core function of your business. In fact, this expense has caused many international businesses to not utilize credit cards at all due to their sheer cost.

So, If you’re conducting B2B payments cross-border, fragmentation, hassle, and high fees may seem like your only option to provide your buyers with the payment experience they want. That is unless you choose the right global partner.

Your All-In-One Solution

Integrating with Reach eliminates your B2B payments fragmentation by unlocking optimized cross-border payments and guaranteed FX rates through one complete end-to-end solution. While other payment facilitators, card schemes, and FX providers may be good at what they do individually, they are each only one piece of the puzzle. When you leverage our vast Merchant of Record network, all these pieces fall together through one integration. With our established international infrastructure, you can unlock preferred FX rates and a full suite of in-demand payment methods including credit cards, net terms and more. Best of all, you also can drastically reduce cross-border fees in your global markets thanks to our next-level advantage of local acquiring. 

Connect today to see how we can eliminate fragmentation from your cross-border B2B payments with our comprehensive solution designed to save you money and help you scale quickly.