The world is emerging—albeit at an uneven pace—from the shutdowns and slowdowns brought on by the COVID-19 pandemic. It is difficult to point to silver linings over the last two plus years, given the loss of millions of lives, but there were mitigants—capabilities and technologies that allowed some aspects of life and commerce to continue on and prevent a bad situation from becoming even worse for consumers, small businesses, and the families of migrant workers.
The Visa Economic Empowerment Institute (VEEI) research found that small businesses which were digitally enabled and connected to global and regional marketplaces fared better than firms that were not; these digitally enabled and connected firms were also more optimistic for the future and planned to continue their digital transformation. VEEI also found that digital remittances proved invaluable for migrant workers sending money home to families, and these remittances also demonstrated the power of innovation and global networks to reduce costs and improve speed and transparency. Migrant workers were able to navigate significant economic disruption and job loss in G20 countries to defy expectations and send much more money home to families in low- and middle-income countries (LMICs) in 2020 than originally expected. In 2021 remittances set a new record of $773 billion, of which $605 billion went to LMICs—with digital remittances growing rapidly. We believe that this shift to digital is likely here to stay in most parts of the world.
In this article, we will discuss developments with larger value cross-border commercial payments. Through its cross-border payments roadmap, the Financial Stability Board (FSB) is coordinating with the BIS Committee on Payments and Market Infrastructures (CPMI), the Financial Action Task Force (FATF), the World Bank, several other international organizations, and of course the private sector to work on resolving the frictions inherent in cross-border money movement. As defined in the cross-border roadmap, retail payments are quite heterogenous, with larger value business-to-business (B2B) payments to be found alongside smaller value consumer-to-business (C2B) payments, among several other use cases. Given the differences between the types of payments and use cases, market-led innovation is critical in continuously improving the experience for consumers, businesses, governments, and all participants across the value chain.
Visa B2B Connect, as an example we will talk more about, was launched as a new multilateral network a year before the roadmap even existed, and was (and still is) aimed at improving the cost, speed, and transparency of cross-border B2B money movement. This is a testament to private sector solutions being responsive to market dynamics to fulfil unique needs and resolve frictions.
When it comes to innovations in business-to-business (B2B) payments, the marketplace is—not for the first time—taking its cue from consumers. Modernization of consumer payments has largely been driven by demand for a better customer experience. The acceleration of cross-border commerce makes cross-border B2B payments even more of a focus. Banks are responding to businesses that are keenly interested in leveraging emerging technologies to improve transparency, expand optionality, and lower costs associated with cross-border payments. Considering the difficult environment banks and businesses alike are experiencing globally, providing tailored payment solutions that are transparent, simple, and efficient is now more important than ever.
As global business continues to expand, so too does the volume of cross-border payments. There are currently $120 trillion in global B2B payments processed annually, with at least $10 trillion supporting cross-border trade. In the face of this growth, banks are left to deal with these highly complex transactions that are dependent on correspondent banking relationships, offering limited visibility into the status of payments, costs, and certainty. The traditional payments process leaves receiving banks with little predictability of when payments will arrive or the amount they will receive after currency exchange calculations and various fees are deducted. Know Your Customer (KYC) and Anti-Money laundering (AML) regulations are also adding to the demand for new approaches. Complying with regional AML rules can result in transaction delays, which fosters greater uncertainty in an already uncertain process and a current business landscape fraught with unpredictability.
With expanding global business growth comes increased opportunities for modernization across the cross-border landscape. Banks are in an excellent position to take advantage of dynamic changes made possible by emerging technologies, such as distributed ledger technology, artificial intelligence, and cloud capabilities, which are bringing greater innovation to cross-border payments. The rise of leading-edge solutions designed to reshape B2B cross-border payments will enable savvy banks to meet the shifting demands of clients.
Executing cross-border payments using the traditional bilateral correspondent process lacks transparency because both the originating bank and the beneficiary bank remain unaware where the funds of a transaction are at any given moment. Since the transaction is routed across multiple correspondent banks, knowing when payments will arrive or what costs will be incurred is essentially impossible to determine. It is little wonder that banks view transparency into the movement of payments as a key to improving B2B cross-border payments. New digital technology innovations are entering the marketplace to address this pressing need. In a pre-pandemic survey, 82 percent of banks worldwide viewed gaining improved visibility as one of the most appealing features of emerging payment approaches.
Fintechs and other innovative players are bringing their digital expertise to bear, looking to create a more transparent ecosystem. As a result, financial institutions have a unique opportunity to partner with these innovators, combining resources to overcome B2B cross-border payments challenges. Another benefit of such innovation is the ability to gain access to important data. In the current model, much of the data related to cross-border payments does not ultimately make it through to the beneficiary. Without this information, bank clients struggle to reconcile payments efficiently. Any solution that ensures a full stream of data accompanies payments throughout its lifecycle can begin to deliver on the highly sought-after goal of straight-through reconciliation.
At the end of the day, the importance of listening to business customers should not be overlooked. Especially in challenging times, customers need as much data as they can get—to enable them to make smart, strategic decisions which can have a huge impact on their business. If emerging solutions hold the potential to deliver the critical data that businesses need, their implementation should be a no-brainer.
When it comes to B2B cross-border payments, banks and their customers view expanded optionality in the marketplace as a very positive development—today more than ever. Up until now, these types of payments have almost always been completed through the tried and true combination of messaging and correspondent banking, which continues to serve the industry well—and continues to innovate. But clearly there is room for more choice.
Innovative new solutions are enabling efficient cross-border payments through a multilateral relationship structure. This type of structure overcomes the restrictions of the traditional bilateral approach that relies strictly on correspondent networks. Emerging networks are tapping into next-generation technologies, such as distributed ledger infrastructures that can facilitate financial transactions on a private, permissioned, and highly secure network. Increased optionality built on innovative technology promises to democratize the way cross-border payments are made. Of course, ultimately, it is all about empowerment and helping businesses, both large and small, do more business—even during tough times.
Innovative solutions are emerging that reimagine how B2B cross-border payments are made. These evolving solutions are offering important advantages to banks and their customers—providing greater optionality, improved transparency, increased predictability, enhanced compliance, and better access to vital data. Cost savings remains another important benefit of adopting a multilateral cross-border payment solution, as expenditures associated with managing intermediary bank relationships are eliminated. Look no further than Nostro accounts, for example. The average annual cost of maintaining these accounts among global banks can amount to $1.5 billion; while maintaining just one of these accounts costs a US bank $27,270 each year. That is a lot of money.
A centralized, permissioned network, where all participants are known participants, will enable payments to be processed securely and directly, thus minimizing the expense of maintaining Nostro accounts. With ongoing market-led innovation and new technologies, the future of B2B cross-border payments promises to be simpler, secure, lower cost, and more transparent. Geographic barriers will gradually be eliminated in this rapidly evolving global payment ecosystem. Banks can be expected to partner with fintechs and other innovative players to bring new technology to the space, tapping into their expertise as digital natives, with the goal of strengthening customer relationships. Modernization is here for cross-border payments, and that is a good thing for everyone involved.
Visa continues to provide leading edge cross-border solutions that can deliver near real-time services for financial institutions. We have built Visa B2B Connect, an entirely separate cross-border payments network focused on the challenging business-to-business buyer/ supplier payments which are typically high in value and data payload requirements. Visa B2B Connect streamlines the entire process; it provides same-day payment services and removes the friction associated with multiple banks in the process chain to deliver direct payments from buyer’s bank to supplier’s bank in one step for transactions between participants. It provides identify and wallet services to ensure all participants are known to each other to reduce risks.
Visa has also acquired capabilities and integrated them to round out solution sets; the recent Currencycloud acquisition will help us continue to deliver global services including foreign exchange, embedded finance, and Treasury-as-a-Service (TaaS) solutions to financial institutions around the world.
As we have discussed, newer global money movement networks, or even a “network of networks” can improve cost, speed, and transparency. Innovating to solve problems for specific user needs is where the private sector is uniquely positioned to contribute. Cross-border money flows do not lack for innovative infrastructure, but there are a variety of things policymakers can do to help the private sector move money more efficiently, securely, and inclusively.
For payments to move freely across borders, data has to do the same. This does not mean things have to be less secure—quite the opposite. For something like fraud, the open and free flow of data is what allows new technologies to emerge to provide greater security and consumer protection. Fraudsters do not respect geographic boundaries. Cyber security benefits from global data and the ability to move at lightning speed, day or night.
Cross-border payments also encounter a variety of compliance requirements on their journey, and the varying implementations and interpretations of these requirements add friction. We are pleased that the FSB’s roadmap calls for greater coordination and streamlining here.
Lastly, payments innovators who wish to bring new products and capabilities to market must navigate vastly different license requirements around the globe, and this takes resources and adds costs to solutions. Policymakers can help the private sector achieve the roadmap’s objectives by working with it on these issues, and we are heartened by the public-private partnership on the roadmap to date.
Chad Harper helped found the Visa Economic Empowerment Institute, where he is Global Payments Fellow. He previously spent nearly 20 years at the Federal Reserve Banks of San Francisco, Chicago, and Richmond in cash, financial services, and payments outreach and analysis.
Alan Koenigsberg is SVP and Global Head of Treasury and Working Capital Solutions. Previously, Alan led all aspects of the commercialization of Visa B2B Connect. Prior to this role, Alan was Chief Revenue Officer at Traxpay, a payments and supply chain fintech based in Germany. Alan has held senior Payments, Corporate, and Investment Banking positions at JPMorgan and Bank of America Merrill Lynch.
 Small business in the digital age focuses on a group of developing countries; see also VEEI studies on MSME resilience in the United States, Mexico, and Dubai, with studies for the United Kingdom and Poland to follow.
 Research conducted by East & Partners Europe, June 2019; Visa B2B Connect: Voice of the Customer – Banks Markets Report