By Lead Monitor
A series of transformative events, and an age of ever faster digitalisation, demands greater flexibility and agility from enterprises of all sizes, not least in the area of cross-border payments.
When it comes to hedging against major, sudden disruption, small to medium-size enterprises (SMEs) often lack the robust internal infrastructure or financial security of their larger corporate peers, leaving many exposed by events such as national lockdowns, supply chain disruption and international conflict.
Many smaller organisations built in the cloud, such as fintechs, have been able to move quickly in response to these demands, with digital-first business models already in place, but businesses operating legacy systems and practices have seen operations disproportionately impacted by the aftershocks. Manual processes are no longer fit for purpose and pre-existing fault lines have come starkly into view.
There have also been inevitable knock-on effects for supply chains in a globalised economy reliant on the movement of goods across borders. SMEs have been hit especially hard by these issues as they have become increasingly reliant on international trade.
Cross-border payments are naturally an essential part of international business operations. However, change and increasing uncertainty in international markets have made it all the more difficult to negotiate favourable rates. Often, cross-border payments can take several days to complete and can cost up to ten times more than domestic payments.
Back in April 2020, the G20 and Financial Stability Board identified series of frictions in existing cross-border payment processes and set about developing building blocks to address them. However, may of the issues highlighted – including fragmented data formats, complex compliance checks, legacy technology platforms, high funding costs, and long transaction chains – remain unaddressed two years later, with the reforms required to modernise and strengthen cross-border payment infrastructure delayed by other urgent priorities. The ‘open finance’ revolution has been embraced by the European Union, but opportunities are yet to be seized by small businesses.
How are SMEs dealing with these challenges?
According to Nathan Cheema, EMEA managing director at cross-border payments and currency risk management provider Corpay, a string of disruptive global events has forced many SMEs to make flexibility a cornerstone of their business strategy.
“They have had to find smart tech solutions to problems arising from workforce and partner distribution, like moving money across international borders and negotiating the shifting regulatory landscape associated with that,” he says. Many organisations are essentially asking ‘what’s the equivalent to Zoom when it comes to making international payments?'”
In the meantime, organisations must be light on their feet in a way that manifests not only in the development of new strategies but also in pivoting into markets where previously they had no familiarity.
“Many businesses Corpay works with couldn’t carry out their previous day-to-day practice,” Cheema says of the disruption enterprises faced during the pandemic. “One organisation that has utilised our services for the past decade sells fitness equipment in bulk to various large-scale gym operators. During the pandemic and WFH [working from home] situation, they pivoted to selling their product directly to consumers across the globe. They even pivoted their yoga mats by selling them as specialised flooring for factories manufacturing delicate goods.
“Innovative thinking and business initiatives like this helped a number of businesses adapt – as well as responding to the added impact of Brexit regulations. Corpay joined in this process to help the client pivot, delivering a solution to adapt to their changing requirements.”
Tools of the Trade
For SMEs to successfully adjust to rapidly changing conditions, it is key for them to be able to make and receive cross-border payments in a frictionless manner. Banking giants still hold 80% of the marketplace when it comes to global transactions, but tend to retain cumbersome practices, often resulting in delays, stoppages, legal issues and loss of revenue.
Cross-border payment specialists such as Corpay have sought to individualise their approach to each customer based on their needs instead of a one-size-fits-all approach. Every client speaks to their own relationship manager (or up-to-speed backup) who is connected with the details of a specific case and does not need to learn from scratch how to help the client attain the best outcome. This continuity adds the personalisation and reassurance in the face of constantly changing global demands.
Corpay utilises its global infrastructure to facilitate local delivery channels for cross-border transactions. By leveraging their footprint, network and channel partners, Corpay is able to deliver a truly local service for international clients.
“It is not only about ensuring that our team has a strong knowledge of the product suite that Corpay offers, but also ensuring that they understand our clients’ business and how our solutions can benefit them,” Cheema explains. “We truly position ourselves as a partner and we aim to be involved in commercial conversations, helping clients to innovate by benefitting from our expertise.
“As well as helping clients with their risk management strategies, it’s giving our clients access to our team, our technical solutions – like API [application programming interface] integration – and to provide a consistent degree of flexibility so as to help clients as they weather, for example, geopolitical issues or supply chain delays.
“Our risk mitigation strategies are also facilitated by our network of [more than 100 correspondent banking partners] across nearly all countries, including markets in the Middle East and Africa that enable local currency access and clearing.”
Such requirements are only growing in urgency. According to the Bank of England, following a slight drop in volume and value last year, the value of cross-border payments is estimated to increase from almost $150trn in 2017 to over $250trn by 2027.
Factors shaping these predictions include a new, more international employee base in companies forced abroad due to labour shortages and with hybrid working becoming standard, as well as the recovery of emerging markets after the economic shock of the pandemic.
SMEs, and for that matter, global businesses of all sizes, stand to potentially benefit, but moving beyond the constraints of legacy technology in favour of more innovative solutions is a key ingredient to fully take advantage of these opportunities.