How CFOs Navigate the ‘Cross-Border Storms’ of B2B Payments

From small businesses to global brands, businesses continue to face challenges when making payments across borders in order to pursue the massive opportunity that doing business globally provides.

In a panel discussion hosted by Ben Ellis, Global Head, Visa B2B Connect, Visa Business Solutions, two payments experts weighed in on how things have changed in the wake of the pandemic.

For starters, Immediate COO Michael Orme and Nuula CEO Mark Ruddock said that CFOs and treasurers now need to manage the rising cost of capital and also grapple with the rise of the strong dollar, all while being as strategic as possible amid uncertain consumer and business demand. Call it the “imperfect storm” of cross-border payments, where challenge and opportunity collide.

We’ve come a long way from the days when making a cross-border payment involved marching down to a physical bank branch, filling out paperwork and initiating wire transfers. Nowadays, platforms serve as digital conduits toward getting cross-border commerce done in different currencies and different time zones.

Pain Points Are Still Here

But at a high level, Orme and Ruddock said that despite the acceleration and adoption of technology geared toward making cross-border payments and commerce easier, numerous pain points persist, including inefficiencies, Orme said, that lie chiefly with coverage consistency and settlement.

There are still countries where businesses are underserved by traditional banking coverage and thus lack access to accounts, and there remains inconsistency in terms of how many days it takes a transaction to settle.

There’s also a notable lack of transparency in the mix, too, Ruddock said.

It’s hard enough to move money from one country to another, Ruddock remarked, “but it gets even worse when you’re not really sure what the settlement is going to be.”

Complexities mount across supply chains where lead times are long and where enterprises pay for inventory in one currency and sell it into an end market in yet another currency. According to Ruddock, the complexities are illustrated by transfer pricing — where work is being done in one jurisdiction on behalf of another jurisdiction but where products and revenue are tied to that second jurisdiction.

Then there’s hedging — which can help entities protect themselves from the risk involved in juggling multiple currencies but is generally not available as a “one click” function online. Get it wrong, and FX-related costs can eat into margins, a reality that is especially lethal for smaller firms.

Supply chain financing is also not readily accessible for these small and medium-sized businesses (SMBs), and they don’t have the resources to buy the same technology that their larger brethren might have to optimize treasury functions and hedge against risk (which generally can require the attention and efforts of dedicated teams).

“At the end of the day,” he said, “surprises are not really all that good for businesses.”

The friction points mentioned above are especially acute when sending disbursements internationally, as workers seek to access wages as they are earned or with a flexibility that is absent in the traditional two-week pay cycle.

For platforms including Immediate, Orme noted, “We have vendors that we settle with in USD and we have vendors that we settle with in other foreign currencies,” adding that reporting and compliance mandates in foreign markets become complex rather quickly.

The availability of same-day settlement and treasury management would clearly make operations easier and more capital efficient across the board, he noted.

“The quicker that we can get funds into end users’ hands, the quicker that we can get funds to bank accounts that we hold in other countries … the more value we bring to our end users,” he said in reference to the use of existing payment rails and Visa Direct.

As a small business financing app, Nuula has had to contend with the shifts that occur with lending in one currency but funding that loan from a facility that is tied to another currency, Ruddock said.

“When you’re lending on the basis of a U.S. book in Canadian dollars, a loan that is going to live six months to 12 months, or even potentially longer into the future, and you have a period of time in which currencies are fluctuating meaningfully, you now face an issue that it’s very difficult to predict what the return on that loan is going to be over time,” he said. The unpredictability is exacerbated by the fact that the small businesses that take on those loans are navigating a rocky macro climate too.

Regulatory Changes

Looking ahead, building out infrastructure and services, he said, helps create the secondary and tertiary FinTechs that will revolutionize access to capital, said Ruddock.

“My call to action for FinTechs that are working in the cross-border financing space is that this is a huge opportunity that’s here — right now — to innovate in that sector,” especially with the supply chain turbulence that is already in place.

Orme chimed in that platforms can help firms seeking to navigate cross-border commerce more adroitly to understand the rules and regulations around eCommerce more efficiently.

The challenges, said Orme, “are not for the faint of heart.”