Invention is a funny thing. Sometimes, something new will hit the world and fundamentally change how we live in an instant. More often, though, invention creeps up on us, until suddenly one day we look up and realize the world has changed around us.

When we look at a high-speed train, for example, its easy to see the similarities to those first steam engines. They kind of look the same, they travel using tracks, and their purpose is to carry people or goods from one destination to another. Dive below the superficial level, however, and we soon realize that a whole new system was invented to make these trains possible.

Invention upon invention adding up to make a revolutionary change.

With international banking, the fintech sector has been building a new system to make global B2B payments, utilizing and transforming the old payment rails used for centuries, transforming them into equivalents of the high-speed train systems. If you haven’t taken the time to look, you may have missed how much it really has changed.

How fintech has changed B2B global payments

1. Instant global payments

‘The check is in the post’ should be assigned to the dustbin of history as an excuse for late payment. While businesses still use checks – around 50% in both the US and UK – the reality is that checks are an inefficient payment system open to fraud.

Modern payment rails allow companies to make global payments as if they were lodging directly into the payees’ bank account. While instant payments generally require an initial set-up time (although, even here, the initial set-up time is equivalent in administrative burden as what a traditional payment would require every time) this leap forward allows businesses to better manage their cash flow, improve supplier relationships and enhance traceability.

By 2020, India boasted the largest Real-Time Payment (RTP) market by volume, with 41 million payments per day.

FIS

2. Real-time fraud and money laundering detection

Fraud has always been a significant threat when it comes to B2B payments. Whether it’s an outside entity infiltrating the payment process, or insider criminal activity, fraud costs businesses billions each year.

A core part of the new wave of fintech solutions is automated fraud detection, using in-built rules to detect potential fraud and immediately alerting the account owner. Anti-money laundering protection is a key pillar in these detection systems, looking out for suspicious transfers and movements of money.

Of course, criminals know this and have technologies themselves that can keep attacking our systems. It’s an arms race of sorts, but without the solutions fintech companies are putting into the market, this would’ve been a one-sided war.

3. Transparent movement of money

Good communication between suppliers and buyers is always crucial to a smooth-running business and efficient supply chain. In the past, money moving across borders would essentially disappear into the ether as it moved along traditional banking rails, before appearing on the other side.

Modern systems allow both the payer and payee track the money from the moment it’s sent to the moment it arrives. Crucially, the amount paid is also the amount received – not always the case with traditional payment methods…

4. Dramatically reduce banking fees

The other thing that happened to money moving along the traditional rails was that it could become subject to banking fees. When the money moved through several banks – a common occurrence when paying internationally – each bank could potentially take a cut or fee for moving that money along.

If open finance continues to accelerate, it could reshape the global financial services ecosystem, change the very idea of banking, and increase pressure on incumbents.

McKinsey, 2021

With modern fintech payment rails, the amount paid is the amount received because it skips over these steps and simply uses the rails set-up by the fintech company.

5. Reduce FX risk, and cost 

While that money was travelling through multiple banks, it may also have been moving through multiple countries. This means that the money is subject to FX fees and detrimental currency fluctuations.

Again, the ultimate outcome was that often the money paid wasn’t the money received and led to big headaches for finance departments working out how much they needed to send through the chain in the first place.

With new fintech solutions, all this is done away with. Due to the infrastructure in place, near instant payments means a finance professional sending a payment through the network knows that that money is not subject to any of this movement, and therefore not subject to any FX risk.

6. Procure-to-get paid

A real indicator of how the traditional global B2B payment model has been flipped on its head is that businesses can now earn money on FX transactions by partnering with fintech payment providers. Because of the global infrastructure the fintech company has set-up, they can offer partners a commission on international payments and the FX margins that they receive.

This means that global payments become an additional revenue stream for the business rather than just a straightforward cost.

As David Hughes, Chief Commercial Officer in TransferMate puts it, ‘We offer our long-standing clients a share in the FX margin we’ve created through building our infrastructure. The combination of the network we built, and the scale and regulatory of payments made by our clients means we can create a sustainable payment network that not only allows our clients to save money on banking fees and FX rates, but make money too.’

7. Genuine digital infrastructure

We’ve talked a lot about ‘infrastructure’, but what does that mean? For fintech payment companies, it means a global network of regulatory licenses and bank accounts. While it's an arduous process to apply and receive these licenses to operate in different countries, and opening local bank accounts, it means that fintech companies can safely and securely circumvent traditional banking payment rails.

In 2019, FIS calculated that 54 countries had activated real-time payment systems—a fourfold increase since 2014.

A lot of the B2B payments we thought of as digital actually required lots of manual work in the background, but fintech solutions have changed that paradigm, creating a genuinely digital, global banking infrastructure.

8. Making mass, automated payments, easily reconciled

Another headache fintech has solved for finance departments is the sending of mass payments. In the past, this could be a cumbersome, time-consuming process prone to error.

Today, businesses can send mass payments in a batch form, with the automated solution significantly reducing the admin time spent reconciling payments and recording invoices on multiple platforms.  

9. Connecting systems through API integration

One of the fundamental challenges with the global payments system is that it requires different systems to communicate and interact with each other. Indeed, the proliferation of technologies added layers of complexity to this, with different providers and facilitators using different systems. 

However, today, API integration allows fintech companies to connect disparate payment systems, creating efficiencies throughout the chain and for the people operating them. While they can require a big lift to get off the ground, the savings (both in money and time) businesses make once they kick into gear can be genuinely game-changing.

“One of the major hurdles in removing friction from the payment lifecycle is ensuring straight through processing from the back office all the way to the banking institution. We have been providing a seamless integration experience between our client’s back-office systems and global payment rails for almost two decades using traditional and advanced methods of communicating” said Andrew O’Garro, SVP Strategic Innovation at Axletree, on how they connect different systems. “This has significantly reduced the burden imposed by legacy and disparate systems. Together with TransferMate, we have embraced the revolutionary change and are committed to delivering a frictionless cross border payment experience across all the markets we serve.”

Standing on the shoulders of giants – how banking and fintech move together

While the fintech sector has made huge progress in making global B2B payments easier, more cost-effective, quicker, more transparent, more accurate, safer, and less prone to error, much of this progress has been made in collaboration with the banking sector.

Those old train tracks had begun to creak and piling digital infrastructure on top of them had the potential to crack them completely, so a new, ‘third-rail’, needed to be constructed and created.

When we look at how global B2B payments have transformed over the last decade, it’s hard to point to any single genius that made it possible; it’s been through the work of thousands of people, standing tall on the shoulders of giants, that our world has fundamentally changed.

Have you noticed it yet?

If you're looking to transform how your business makes domestic and international payments, get in touch with the TransferMate team today.