How the pandemic is pushing legacy B2B payments deeper into the past
As the coronavirus began to sweep through Europe and the U.S. during the early spring, Phillip McGriskin was in the middle of a crucial funding round.
The CEO of Vitesse, a London-based fintech that offers real-time B2B cross border payments across insurance, payroll and corporate markets, McGriskin had to keep business running as usual while trying to persuade venture capitalists to invest in the midst of a global crisis.
“As well as this, we were having to absorb some pretty significant changes across the board, as did everyone around the world, re-forecast, and make sure that our customers had all the support they needed to make sure claims were being paid during a highly sensitive time,” said McGriskin.
Despite the disruption, Vitesse raised almost $9 million in Series A funding by August. In many ways this is a reflection of the rapid growth predicted for the B2B cross border payments industry over the next couple of years. EMQ, a Hong Kong-based startup developing network infrastructure to make cross border payments faster, also raised $20 million in Series B funding in July.
A recent study from tech analysts Juniper Research predicted the total value of B2B cross-border payments to grow by 30% to $35 trillion by 2022. The volume of these payments facilitated by fintechs such as Vitesse, Currencycloud, TransferWise and others, is predicted to rise substantially, meaning that non-bank vendors will account for nearly 13% of all B2B payments by 2022.For these industry disruptors, the coming years represent a significant opportunity. Businesses will be more cost conscious during the post-pandemic recovery, meaning that payment vendors who offer the most cost effective and transparent solutions will see a rise in traffic.
“This crisis has really brought to light just how much traditional cross-border payments methods don’t serve business needs, particularly those of SMEs operating on tight margins,” said Steve Lemon, co-founder and VP of strategic partnerships and corporate development at Currencycloud. “When the crisis hit, cash flow challenges were exacerbated by not being able to make payments and collect funds from overseas in the quickest and most cost-efficient way possible. This is a big opportunity for fintech payment platforms that can cut through this complexity.”
But doing so does not necessarily involve circumventing established legacy players. The current environment could foster more collaboration and lead to more of an ecosystem approach to easing friction within the cross-border payments landscape, Lemon said. Major banks and card networks are likely to partner with fintechs to gain access to innovations which can increase transparency, and improve their reach in emerging markets.
“The way to bring effective solutions to the B2B payment market short to midterm is to twin the strength, scale and coverage of the banks with nimbler and more innovative, regulated fintech partners,” said McGriskin. “Vitesse have always worked closely with banks, but lately I think we’ve started to see more proactive collaboration from them.”
One of the major obstacles is the sheer amount of variation in regulation, currencies, consistency of information, and business laws across geographies, but an ecosystem approach to cross-border payments could go some way to tackling these hurdles, McGriskin said. “Some of these can be solved by collaboration between banks, the networks, and fintechs,” he said.
Markets where cash has historically dominated are ripe for innovation, as are those where banking services are behind the curve, McGriskin said, adding there are certain geographies where payment technology exists and all the necessary partners are available to contribute, but where laws or market and currency controls make it very difficult. "In these instances, banks, networks and fintechs should work to highlight the blockers, and work in a joined manner to petition for changes in regulation and law.”
But while some borders remain more problematic than others, the continuing advances in breaking down these geographical barriers means the sheer amount of growth predicted in B2B cross-border payment activity over the next couple of years is only likely to continue. Cross-border payment is already increasing on a daily basis, according to Vitesse, as new services become available to small businesses wanting to sell online.
"This has been a lot less straightforward for the more regulated businesses," McGriskin said, adding the complicated regulatory and payment environment which creates some headwinds, but not enough to stall growth. "Now we’re seeing banks and regulated fintechs work together to optimise services that can transform the way these businesses can transact globally, we’re definitely going to see some sharp increases in cross border B2B activity.”