SMBs Could Get a Much Needed Lift for Cross-Border Payments

August 16, 2023

Ever since the dawn of commerce, small businesses have been boosting economies around the world, and today, small-to-medium (SMBs) have the same role. However, even though they are important, they have historically been underserved by financial institutions, especially when it comes to expanding beyond borders.

According to head of payments products at Ripple, Pegah Soltani, most of the businesses across the globe are SMBs, and while they provide much needed “drive and innovation”, they remain underserved.

According to PYMNTS, when financial institutions look at SMBs, they don’t only see the value they bring, but also the potential costs involved, and as a result, SMBs are competing against larger companies.

(Larger companies) benefit from established global payment rails and correspondent banking relationships

And because SMBs have fewer resources, their prices are higher and service can be much slower compared to the “big competition”.

But the value of SMBs shouldn’t be overlooked: according to Soltani, they constitute over $17 trillion annually to cross-border  payments, and they are growing at a much faster rate than their competition, aided by the market opportunities that the digital economy brings to the table.

As the digital economy continues to evolve, small businesses must have access to efficient and cost-effective cross-border payment solutions

In light of this, Soltani highlighted the use of cryptocurrency tools to solve the problem of inefficient cross-border payments.

Crypto Removes Legacy Frictions Along the International Expansion Journey The most established multinational jumbo conglomerates know that international transacting is inherently complex, no matter your scale.

According to PYMNTS, part of the problem stems from the fact that there is no global banking system in place, and because of this “fragmentation” inefficiencies arise and create problems.

By using blockchain solutions, you not only remove intermediaries but can also reduce delays and provide upfront visibility into fees. There are a lot of operational benefits because the technology is transparent, traceable, auditable, and you have clear records at every stage.

But can cryptocurrency provide SMBs with the solutions that they need to thrive beyond frontiers? According to Soltani, yes they can, by cutting out the “middle man” they can speed processes and reduce costs.

With cross-border crypto solutions, [SMBs] gain instant settlement, which reduces the need to forecast or park capital over weekends,” Soltani said. “So, you’re not waiting around for a wire to arrive in three to five days. You don’t need intensive resource requirements or manual overhead, and you’re not paying up to 6% of your margin in costs.

In addition, the solutions have a 24/7 availability and can be up to 90% less costly than traditional financial systems.

According to Soltani, with traditional banking systems, one has to forecast for many things, such as how much money, when they will need it, and even have holidays in mind, and if SMBs mess that up, it can rack up costs and have a negative impact customer service-wise which will result in more loss of revenue. In contrast, blockchain technology can be transparent and traceable, and can leave an “immutable payment trail for SMBs that is often lacking in traditional payment systems.”

Because the standards are different across the world, the “richness of data” can be lost in translation.

So, if you’re using SWIFT or TIPS in Europe or [FedNow] in the U.S., you follow a different protocol, and the richness of that data is limited, (…) The result is a bunch of closed networks that don’t really talk to each other, so there’s a lot of manual intervention and ultimately a poor payment experience.”

The solution, according to Soltani, is ISO 20022, and explains Ripple has been aligned with it from day one. And assures us Ripple is committed to the “highest standards in safety, privacy and security, as evidenced by its SOC 2 certification.”

According to PYMNTS, even if expanding internationally can be made simpler, it can never be “cheap”, as the upfront costs related to expanding a business across borders are high, and as many as 40% of SMBs do not get that much needed capital. Making a gap of $5 trillion.

Because of this, it is important for businesses to have processes and a strong treasury team, which many do not possess, but according to Soltani, this can be remedied also by crypto and blockchain solutions.

“A lot of times for these companies, the working capital pain points come from a timing mismatch between when you’re receiving money and when you have to pay it out. And for small companies, just a few days makes a huge difference.

Ripple has already processed $30 billion in over 20 million transactions, proving that blockchain technology has the power to boost SMBs globally.

Want to learn more? Check out PYMNT’s full write-up here.

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