The state of global B2B payments

In this guest post, Stuart Holmes, General Manager at AFEX, looks into the state of global B2B payments, the impact that recent geopolitical events have had on the industry, and how this ties in with issues of trade, currency and technology.

International trade has always been a complex undertaking, with cultural, logistical, taxation, regulatory and legislative issues high on the list of challenges.

Recent geopolitical events have done little to make life easier for businesses engaged in global trade, but advancements in trading systems and payments technology are breaking down traditional barriers and making it far easier, particularly for smaller companies, to access international markets than ever before.

The result is that a greater number of businesses are looking to increase their exposure to international markets; the key is to do so with maximum efficiency and minimal risk.

In many regards, international trade has never been easier, thanks to advancements in technology. Online trading platforms such as Amazon, eBay and Etsy offer unprecedented access to overseas markets. Mobile access and mobile wallets have served to extend financial inclusion and swell the size of the consumer market.

The result is that smaller businesses in particular are looking to increase their exposure to international markets and take advantage of these opportunities. According to AFEX’s first annual State of International Payments Report, exporters and importers across the globe expect to make more international payments this year than they did in 2015, and anticipate faster growth in international markets than domestic ones.


Changing attitudes to global trade

However, at a geopolitical level the current outlook is perhaps as uncertain as it has been in living memory, certainly for the developed Western economies. Donald Trump’s success in the US presidential election and the Brexit vote in the UK are in some quarters interpreted as part of anti-globalisation movement.

The principles of free trade, which have underpinned the development of the capitalism for much of the last century, are coming into question. Certainly Trump is no fan of the North American Free Trade Agreement (NAFTA), calling it the “worst trade deal in history”, and has threatened to slap unilateral trade tariffs on imports from some countries in some sectors.

While it remains to be seen if the world’s largest trading power will beat a retreat from free trade, its future is far from guaranteed.

In the UK, the ramifications of Brexit regarding its future relationship with its largest trading partner, the EU, are also some way from being realised. The timing of when Article 50 will be triggered is still matter for debate, and negotiations will run for up to two years after that. During this time, the UK will be unable to negotiate trade treaties with any other countries, meaning uncertainty for those engaged in international trade for at least the next two and a half years.


Managing currency risks

Exporters in the UK in particular are buoyed by the pound’s weakness since the EU referendum. With the currency down around 15% against the US dollar and 10% against the Euro, their products have effectively been made more competitive on the world stage.

For importers, however, the opposite is true; many are seeing their margins squeezed and are under pressure to raise prices as the cost of their products from overseas have increased. For businesses, FX volatility is cited as the number one challenge when making payments internationally. Indeed, over 60% of UK businesses in the AFEX survey identified this as one of their biggest challenges.

Smaller businesses do not typically have the resources to dedicate to managing currency volatility, and for the vast majority, it’s certainly not a core part of their business service. Firms need to ensure their payments partner has global insight and experience of managing multiple FX exposures. Not all payment providers, for example, deal with China.

Some firms are also able to offer tailored risk management strategies to mitigate the threat of currency risk. Even small movements in currencies can impact a firm’s bottom line, affecting profitability. Using a combination of spot and forward contracts can help firms smooth short-term exchange rate fluctuations and their impact on payable and receivables. Firms with more nuanced requirements can also benefit from more sophisticated products such as FX options.


Fragmented payments framework

Payments-related challenges are among the biggest obstacles to rapid international expansion, but are also often overlooked as firms weigh up entry into a new market. Payments practices and requirements can vary from country to country – and in some cases, like the US, from region to region.

Regulatory efforts, such as SEPA in Europe, have been introduced to improve the efficiency, speed and safety of payments, but on a global scale the framework remains fragmented and complex. The majority of businesses don’t have the time and understanding to navigate these issues, which can limit their ability to achieve efficient international growth.

There are moves towards standardisation aimed at simplifying the payments landscape, but this will take time, and at the moment firms that are able to process international payments reliably, easily, cost-effectively, safely and in a timely manner can gain a competitive advantage over their rivals. For this reason, businesses are increasingly moving outside of their traditional banking relationships and working with payments specialists who offer the flexibility, expertise and breadth of payment services required to support their global business needs.


Technology and the pursuit of efficiency

Issues of cost, timeliness and accuracy all feature highly for businesses when making payments internationally. It’s no wonder that nearly one in three firms (28%) are planning to upgrade to online automated international payments tools in the next 12 months (State of International Payments Report).

Payments is an area that’s seen a lot of investment and technological development in recent years. According to figures from KPMG and CB Insights, it’s one of the key areas of focus for the fintech industry, and VC funding for payments related technologies topped $2bn in each of the last two years.

Most of this has been in the consumer space, but there have been significant developments in the cross-border B2B space too. Technology focused organisations have developed systems that allow companies to streamline their processes, trade cycles, inventories and FX payment needs.

AFEX, for example, has developed an open Application Program Interface (API) platform that enables firms to seamlessly integrate their international payments and FX needs with their existing finance and accounting infrastructure. Firms are able to build a function-rich interface that meets their needs, automate their payments and extend functionality to their customers. Businesses are able to benefit from automatic validation of beneficiaries and faster payment processing, freeing up staff time previously spent on making payments to work on higher value business-critical activities.

Undaunted by the uncertainty caused by recent political events, many businesses are keen to take advantage of the opportunities presented by the democratisation of global trade. Developments in payment technology are enabling them to do this more cheaply, more securely and more efficiently and it looks certain that more firms will make the leap from domestic to international trade as a result.

Managing the currency risks associated with international payments is also essential to protect bottom lines and maximise profitability, particularly in these uncertain times.


Stuart Holmes is the General Manager EMEA at AFEX and has worked in the global payments industry for more than twelve years. He joined AFEX in 2004 to lead the UK market entry for AFEX as Global Sales Director, building a team of sales professionals and overseeing the company’s significant growth. In January 2014, he became General Manager for Europe, the Middle East and Africa, the company’s largest region, and manages the firm’s network of regional offices.

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