Published: July 02, 2024
While an array of real-time, data-rich domestic payment schemes have been launched globally in recent years, cross-border payments have remained frustratingly inconsistent. Payments pioneer Visa aims to change that through the growth of its Visa B2B Connect network.
In the intricate web of global commerce, cross-border payments serve as the lifeblood of multinational corporations, facilitating trade and fostering economic growth. However, unpredictable transactions, high fees, and complicated rules make it hard for companies to manage their money and send it internationally.
The underlying cause of these issues is the traditional correspondent banking network, a system containing inefficiencies, opacity, and fragmentation. Historically, banks have relied on correspondent relationships to facilitate cross-border transactions, with one bank acting as an intermediary to process payments on behalf of another. When multiple banks are involved in this chain, the complexity rises rapidly.
Patrik Havander, Head of Visa B2B Connect Europe, comments: “Corporates are fed up with the consistent nasty surprises, delays, lost information, and unpredictability in pricing. It’s just not a great experience.”
There are several challenges presented by the correspondent banking model. The lack of transparency and standardisation can lead to delays, errors, and disputes, eroding trust and increasing business operational costs. Additionally, the proliferation of intermediaries along the payment chain introduces additional layers of complexity, heightening the risk of fraud, compliance violations, and data breaches.
“The machine room for cross-border payments is outdated and obsolete,” underlines Havander. “In its current state, it will not solve the problem that the G20 roadmap for enhancing cross-border payments is aiming for in terms of better speed, transparency, cost and accessibility.”
Another central pain point for corporate treasurers is the unpredictable nature of cross-border payments. Fluctuations in exchange rates, regulatory changes, and geopolitical uncertainties can all contribute to volatility in the international payments landscape, making it difficult for businesses to forecast cash flows and manage financial risks effectively. Additionally, when there are issues in the transaction, such as payment investigation or fraud analysis, resolution often involves highly manual, time-consuming processes.
“If you compare the domestic payment experience treasurers have, with a more instant flow of transactions and data, against the current cross-border landscape, there is a vast difference between the good and the bad experiences,” Havander adds.
Domestic transactions have real-time tracking and reconciliation as standard practices, while cross-border payments often involve multiple intermediaries and opaque processes, making it difficult for treasurers to monitor and manage their payments effectively.
In response to these challenges, industry stakeholders, including banks, fintechs and regulatory bodies, have embarked on a quest for innovation, seeking to modernise and streamline the cross-border payments landscape.
“Disruption always starts in the big mass-market spaces,” notes Havander. “We’ve seen disruption for quite some time in the retail sphere from fintechs going after the low-hanging fruit following PSD2.”
Another example of innovation is embedded payments. These make the end-to-end payments experience more streamlined, adding significant value to cross-border flows. Next generation solutions are simplifying the ability of merchants to accept myriad local payment methods in one experience, enabling buyers to make purchases through marketplaces or send money without having to leave the app or website that they are purchasing from.
Embedded payments also make it much easier for organisations to reconcile payments and financials, as all transactions are recorded in databases and pulled into company financial systems. This makes STP possible, reducing the need for manual intervention and driving automation for payments operations – saving time and money. A global survey found that 54% of participating companies indicated that embedded payments would be extremely important to them in 2024.
Replicating disruption in cross-border payments outside of the P2P space is difficult, however. One reason for this is the restrictions around connecting ACH payment networks. A key element to this is that ACH networks can pay out only in their local currency.
“If you look at something like the [SEPA] One-Leg Out initiative, it is of limited value to corporates because around 80% of B2B invoices are invoiced in non-domestic currencies,” Havander explains.
Fintechs have tried to provide another form of innovation in this space, addressing corporates directly to offer B2B payment services. But there is a world of difference between consumer and B2B payments. Corporate treasurers require absolute trust in the payment channels they are using, which Havander believes still eludes fintechs.
“Corporates are thinking about who they can trust with their payments, this precious cargo, that can be millions of dollars,” continues Havander. “This often means that they won’t consider startups and fintechs for payments processing.”
Where that level of trust does traditionally exist is with banks. For cross-border payments, that typically means the big US-headquartered global banks. Smaller regional banks can struggle to offer the service that their larger rivals can in this space. This, in turn, limits the competition and has a knock-on effect for corporate treasurers regarding the costs associated with cross-border payments and the growing complexity of lengthening payment chains in the correspondent banking network.
One solution that has been growing since its global launch in 2019 is Visa B2B Connect. This real-time global network that is designed to deliver consistency, predictability and pace to cross-border payments, which will deliver various benefits to corporates.
“If their bank is signed up to Visa B2B Connect, corporate treasurers will receive a consistent service throughout 118 markets worldwide,” explains Havander. “The full principal amount, excluding possible bank fees is provided, with same-day value if it is sent before the cut-off time. And the bank itself will get a much lower price than going through the traditional channels.”
According to Havander, the bank-friendly approach of Visa B2B Connect enables FIs to establish direct relationships with each other, allowing for tailored agreements. This can be an advantage for corporates because it means that they do not need to try to convince their business partners around the world to join their bank. Their counterparties just need to check that their own bank is also signed up to the platform. As such, there is opportunity to create proprietary corridors.
“Our goal is to ensure a consistent experience and, crucially, there are no limits on transaction amounts,” underlines Havander. “That means it can be used for treasury payments, financial transactions, or high-value transfers. We also support pay-outs in non-local currencies, such as sending US dollars to Sweden, for example.”
He adds that Visa B2B Connect also keeps the FX income on the bank side, meaning that FIs can settle in 20 different currencies and get the associated FX income, which is a significant advantage for banks.
Furthermore, Visa has expanded its innovation capabilities through acquisitions such as Earthport for retail payments in the SME and P2P space and Currencycloud for FX expertise. This consolidation supports Visa’s goal to create an innovation engine for banks, enabling them to align with their strategic ambitions and tailor offerings to specific markets and corporate clients.
For banks that could not previously offer a cross-border payments solution to corporates, Havander says the Visa platform provides a way to enter the market and be a direct participant in the network. In turn, banks can deliver predictable international payments with real-time visibility.
“We aim to provide banks with a comprehensive toolkit to meet their strategic goals and offer compelling solutions to their corporate clients,” adds Havander. “This approach also drives innovation. Treasurers can help themselves by asking their banking partners whether they are participants on Visa B2B Connect.”
Payments sent between two banks on the platform are settled almost instantly. The goal for Visa is that, when the majority of banks are part of this platform, it will essentially operate as a real-time global payments network with instant settlements. In the build-up to that point, Visa also has a second solution offering out-of-network payments where settlement is down to within an hour.
“A payment can’t get stuck. It is either with the sending bank or the receiver,” reveals Havander. “Every bank will have conditions on what it finds acceptable and what type of transaction information it needs accompanying the payment. On the Visa B2B Connect platform, this can be resolved quickly between the banks, as they can each see it on the platform and communicate with each other.”
What sets the Visa solution apart – in Havander’s view – from fintech endeavours in this realm is that the well-known brand has 60 years’ experience of providing a robust infrastructure for banks in the card space. The firm is now extending this expertise into the account-to-account space, aiming to replicate the same level of quality in a complex and opaque payment environment.
“Our ambition is to provide an alternative solution to the current correspondent banking system by introducing a global platform for banks,” enthuses Havander. “While banks remain integral to the process, our platform is based on Visa technology and has a different logic to the old ways. Importantly, we’re not diverting flows from banks, but enhancing customer experiences.”
Crucially, the Visa model still places the banks at centre stage, sending and receiving transactions between two banks. The advantage is that this model is based on a different logic and the cutting-edge Visa technology.
Since its launch, Visa B2B Connect has demonstrated that Visa can apply its experience and innovation to other areas of the payments ecosystem. “If you think about RTGS [real-time gross settlement] high-value payments, which are some of the most demanding and difficult payments out there, banks and their corporate clients can now get a very consistent global service by utilising Visa,” Havander reflects.
With Visa entering the B2B payments space, it might look like a new threat has emerged for the incumbent banks. However, Havander stresses that Visa does not want to take any volume out of the banks. “We want to support banks to thrive by being more competitive and efficient. This has a similarly positive knock-on impact for their corporate clients.”
Supporting Visa B2B Connect’s global footprint is the firm’s global infrastructure - including compliance, security, and government engagement teams in markets all over the world.
And while banks, rather than corporates, are the direct participants in the network, treasurers can also find out more about how Visa B2B Connect could enhance their cash management and payments processes.
“We will be at all the major treasury conferences this year, which are a great opportunity for corporate finance professionals to speak with us and their bank at the same time,” concludes Havander. “While our direct customers are the banks, the platform extends benefits to financial institutions and corporates alike, so there is clear motivation for treasurers to engage with their banks about this topic.”
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