The Top Three Cross-Border Payment Pain Points Faced by SMEs

Posted on 30th October 2023

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B2B cross-border payments are vital for facilitating trade between businesses in different countries. In 2022 B2B transactions exceeded $150 trillion and accounted for more than 96% of the overall cross-border payment volume.

Thanks to digitalisation and the growth of eCommerce, three-fifths (58%) of SMEs say they are sending and receiving more cross-border payments now than before the pandemic.

While the cross-border payment experience has improved for consumers, B2B market standards have mostly stayed the same.

As more businesses aspire to grow internationally, cross-border payments must become simpler, cheaper and faster.

1. Unfair pricing

Research shows the top pain point for SMEs when it comes to cross-border payments is unfair pricing. Banks don’t just charge the exchange rate and the FX margin, they also inflate the overall price.

To make matters worse, the more banks involved in the process (which can be many) the higher the fee SMEs have to pay – hindering profits.

The extent of the challenges SMEs face becomes clear when comparing their experience to that of large multinationals. Typically, the largest firms with the highest volume and most payments get the best deals, while smaller firms pay higher fees.

2. Speed of execution

Huge strides have been made in the B2C payments space. We can now make near-instantaneous international transactions between some currency corridors. But in the world of B2B payments, we still rely on correspondent banking which is hindered by slow processes and legacy technology.

When sending money internationally, payments can take days or even weeks to process as they pass from bank to bank in the correspondent banking network – making it very challenging for firms to manage their cashflow effectively.

Unlike global firms, SMEs can’t afford to wait days for payments to land in their bank accounts and varying, unpredictable fees and slow processes inherent in the traditional banking process means it is difficult – and often impossible – for SMEs to forecast just how much a payment will cost and how long it will take.

3. Reporting of transactions

The third and final main pain point SMEs face when using traditional banks for cross-border payments is the reporting of transactions.

Many banks offer limited and incomplete payment information, making it difficult to reconcile payments meaning businesses struggle with a lack of transparency in their transaction reports and currency conversions. This adds uncertainty to their cross-border banking operations.

What does the future hold?

At the heart of all of these issues is SMEs’ reliance on traditional banks. SMEs are continually let down by traditional banks and are now exploring alternatives as a result.

Fintechs can provide a faster, easier and more secure service that banks cannot compete with.

Virtual or digital wallets allow businesses to make same-day payments. Enabling firms to organise their funds and store multiple currencies, ready for making rapid payments or a currency exchange and revolutionising the way businesses transact. Removing the hassle of managing local banking relationships and navigating complex payment systems.

Additionally, through an International Bank Account Number (IBAN), SMEs can set up a single international account with their own multi-currency, allowing them to manage cash flows and view trading data, all in one place.

IBAN and digital wallets can also provide enhanced security through encryption, multi-factor authentication and real-time fraud detection mechanisms – securing the business’ activity and assuring international customers that their purchase is being conducted safely.

For too long SMEs have been let down by their banking partners when it comes to cross-border payments. SMEs need to move away from legacy relationships and technology which is holding them back and instead embrace new technology which can help them realise their international potential.