Introduction

TThe B2B cross-border payments landscape is undergoing rapid transformation, driven by evolving business needs, technological advancements, and increasing globalization. While large enterprises have traditionally dominated international trade, SMEs (small and medium enterprises) are increasingly playing a prominent role in global commerce. Total SME B2B cross-border flows amounted to $15.8 trillion in 2023, forecast to grow at a 5.1% CAGR to reach $22.3 trillion in 2030. However, their ability to efficiently manage cross-border payments remains a challenge due to high transaction costs, slow settlement times, and a lack of transparency.

With SMEs accounting for 43% of total international business-initiated flows, and this share expected to grow in coming years, improving cross-border payment infrastructure for these businesses is crucial to unlocking economic growth. While traditional banks have been slow to adapt, fintech companies and specialized payment providers are stepping in with innovative solutions that offer faster, more cost-effective, and transparent alternatives tailored to SMEs.

Edgar, Dunn & Company, a strategy consultancy specialized in payments with specific expertise in B2B and cross-border payments, analyzes the rise of SMEs in B2B cross-border payments.

Five Key Challenges SMEs Face in Cross-Border Payments

Despite their growing global presence, SMEs face multiple roadblocks when making and receiving international payments. Based on its experience, Edgar, Dunn & Company has identified five key challenges:

Overall, the financial and operational challenges SMEs face when transacting cross-border, ranging from issues posed by being an overlooked segment to those stemming from the correspondent banking network, can lead to working capital challenges, increased operational costs, and lower profit margins.

The Limitations of Traditional Financial Institutions in SME Cross-Border Payments and the Path Forward

While SMEs are increasingly participating in international trade, they remain an underserved segment in the cross-border payments market. Traditional financial institutions, such as banks and scaled payment processors, have historically focused on the more lucrative large corporate clients with high-value transactions, whereas SMEs typically engage in lower-value, higher-frequency payments that may not align with banks' business models. This disparity is evident in market share - banks processed 92% of total B2B cross-border payments flows in 2023, but their share fell to 76% when considering SME transactions alone.

Despite gradual improvements, banks struggle to effectively serve SMEs due to outdated and costly legacy systems. While 60% of banks recognize the need to modernize their infrastructure, bureaucratic hurdles, slower time to market, and stringent regulations – more restrictive for banks than fintechs – impede innovation. Additionally, the reliance on the correspondent banking model introduces multiple intermediaries, increasing costs, delays, and opacity in transactions.      

Traditional banking services also lack flexibility. Many banks require SMEs to open foreign business accounts or meet high minimum transaction volumes to access competitive FX rates - barriers that are often impractical for smaller businesses. Serving a broad client base further limits banks’ ability to tailor solutions to SMEs’ specific needs.

However, while banks have historically been slow to innovate, they are gradually adopting modern payment technologies. For example, Swift GPI improves transparency by enabling real-time payments tracking and facilitates high-speed cross-border payments, with nearly 60% of transactions completed within 30 minutes. Additionally, banks are implementing ISO 20022, a universal financial messaging standard that enhances data quality and interoperability in cross-border transactions.

Banks are also exploring blockchain-based payment solutions. JP Morgan’s Kinexys, one of the first bank-operated blockchain networks, is designed to drive adoption of blockchain technology and tokenization in cross-border payments. However, given ongoing structural constraints, many banks are increasingly looking to fintech partnerships. In fact, 62% of banks are actively seeking fintech collaborations to enhance their cross-border payment offerings. These partnerships enable banks to leverage fintech innovations - such as APIs and real-time payment networks - allowing them to improve efficiency and innovate at a fraction of the cost, ultimately remaining competitive in the evolving payments landscape.

The Rise of Fintech Solutions

Tailored Offerings Give Fintechs an Edge Over Traditional Banks

Fintech companies have become key players in transforming B2B cross-border payments for SMEs by leveraging modern technologies tailored to meet their specific needs. Unlike traditional banks, fintechs have leveraged proprietary payment networks, digital-first solutions, and innovative technologies to provide faster, more cost-effective, and transparent solutions.

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To address the unique challenges faced by SMEs, B2B cross-border fintech providers have created solutions tailored to the nuanced needs and demands of SMEs:

• User-Friendly Solutions: Fintechs offer user-friendly, digital-first tools and technologies, which enhances efficiency and reduces onboarding times for SMEs making cross-border payments easier and faster. This is favorable for SMEs as they typically lack the resources and in-house payments expertise that are common to large enterprises.

• Reduced Fees: At the core of their business model, fintechs hold Virtual Accounts in local currencies. When an SME in the US wants to pay a supplier in the UK, the payment is made to a local account held by the fintech in the US, and the fintech then debits the corresponding amount from its local account held in the UK. This reduces reliance on intermediary players, eradicating unnecessary costs and complexities. Fintechs also typically offer multi-currency accounts, which allow users to hold, send, and receive multiple currencies in a single account, minimizing the need for frequent currency conversions, which typically incur additional exchange fees.

• Faster Transactions: Fintechs have developed proprietary networks of payment rails, which may include their own payment rails and/or building on existing ones. This further eliminates the reliance on intermediaries, ultimately enabling faster transactions.  

• Heightened Transparency: Fintechs promote transparency, including clear FX rates, up-front transaction fees, and real-time payment tracking. This gives SMEs more control over their cross-border payments experience, improving trust between buyers and suppliers and fostering a competitive advantage.

• Expanded Access to Sophisticated Solutions: As SMEs demand more sophisticated solutions, fintechs have further tailored their cross-border solutions by expanding access to FX risk management and trade finance solutions. While these solutions create significant value for SMEs by helping avert risk and aiding cash-constrained businesses, they have the added benefit of generating incremental revenue for fintechs that extends beyond transaction fees and FX spreads.

Comparison of Banks vs Fintechs for B2B Cross-Border Payments

Innovative Technologies Further Enhance Fintech Offerings

Dedicated B2B cross-border fintech players boast modern, innovative tech stacks, which further improves the efficiency of cross-border payments for SMEs by enabling faster, cheaper, and more secure transactions. Fintechs have utilized emerging technologies by integrating with real-time payment rails, either through direct connections or partnerships. With faster payment systems now available in over 70 countries (e.g., PIX in Brazil, FedNow in the US, PayNow in Singapore, NPP in Australia, and SCTinst in the SEPA), this presents a significant opportunity for fintechs to enable instantaneous transactions across a substantial global footprint.

While still a fairly nascent solution, the more innovative fintechs in the space have explored leveraging blockchain-powered stablecoin rails to facilitate more efficient cross-border transactions, such as PayPal who launched its own stablecoin (PYUSD). Blockchain technology enhances fraud prevention and security through its decentralized, immutable ledger system. Unlike traditional systems, blockchain payment systems facilitate near-instantaneous, 24x7, and cost-effective processing. Platforms such as RippleNet have enabled financial institutions to efficiently handle B2B cross-border payments at lower costs by using Ripple’s XRP token for liquidity.

Cross-border fintech providers have increasingly utilized AI to deliver SMEs more sophisticated solutions. AI can be used to analyze real-time exchange rates, increasing transparency and reducing FX mark-ups. AI can automate processes, such as automatically routing transactions to the fastest or least cost payment rail and automatically settling and reconciling transactions. AI is also capable of enhancing fraud detection capabilities, reducing risks for SMEs.

Fintechs such as Airwallex and Flywire have also gained a competitive advantage over traditional banks by way of their flexible APIs. APIs act as the connective tissue of modern finance, connecting disparate payment systems with enterprise software, banks, and third-party services. They can help streamline the cross-border payments process by connecting with third-party foreign exchange services to provide real-time currency conversion and compliance checks, enhancing trust while simultaneously enabling faster and cheaper transactions. Additionally, APIs allow SMEs to connect their internal systems, such as ERP or CRM platforms, directly with payment providers, eliminating manual data entry and enhancing operational efficiency. For example, Airwallex APIs allow SMEs to accept payments in 180+ countries, create accounts globally with local banks, and access interbank rates while managing currency risk.

Fintechs Proactively Seek to Address Compliance Hurdles

As fintechs have generally been subject to lower regulatory scrutiny, at least when compared to banks, many cross-border fintech players have taken proactive steps to navigate compliance hurdles and establish themselves as trusted players in the financial ecosystem. Fintechs have sought to accomplish this through a variety of different approaches. Many have partnered with regulated local financial institutions and banks, which allows fintechs to leverage the bank's existing regulatory compliance infrastructure to reduce the operational burden posed by compliance. For example, Santander’s parpartnership with Ripple allows it to adopt Ripple’s blockchain technology, supporting same-day or next-day transfers with transparent exchange rates. Other fintechs choose to navigate local regulatory requirements by obtaining licenses in the regions in which they operate, ensuring compliance with financial regulations and establishing sufficient protection for customers. Regulatory sandboxes present another option, providing a controlled environment under the supervision of regulators for fintechs to experiment with new financial products, services, and technologies, reducing the risk of non-compliance. Fintechs have also leveraged AI to automatically detect abnormalities that might indicate non-compliance with AML or KYC rules.

Illustrative Instances of How Fintechs Have Tailored Solutions to SMEs

See below for select illustrative instances of fintechs who have effectively tailored solutions to SMEs in order to offer cheaper, faster, and more transparent B2B cross-border transactions:

Airwallex and iBanFirst Deliver Faster, Cheaper Cross-Border Payments

Wayo, an international B2B company that helps businesses source custom merchandise globally, faced significant challenges in managing international payments. With its operations spanning the US and overseas suppliers, the company struggled with high transaction fees and inefficient payment processes, especially for large B2B orders. Prior to adopting Airwallex, Wayo dealt with excessive fees and cumbersome processes when dealing with cross-border transactions. After switching to Airwallex, the payment provider’s streamlined solution helped Wayo address the challenges of blocked payments and unfavorable exchange rates. The integration of Airwallex Payment Links and QuickBooks allowed for seamless invoicing and financial management, significantly saving time and reducing operational complexity. Wayo also integrated Airwallex’s API into its platform, allowing it to customize its payment logic and supporting faster, more secure transactions. Ultimately, by consolidating all its payment systems into one platform with Airwallex, Wayo has become better positioned to scale its operations globally while optimizing costs and operational efficiency.

Workinghouse UG is a German trading company that imports goods from Asia to resell in Europe. CEO Eckart Schenck, based in Taiwan, required an efficient way to handle cross-border payments, including sourcing goods in multiple currencies such as USD, GBP, and EUR. Prior to adopting iBanFirst’s solution, the company had historically processed cross-border transactions with its regular bank, which required extensive paperwork and provided limited access to real-time exchange rates, leading to uncertainty about the exact amounts reaching their partners, especially when transferring VAT-inclusive sums. The company’s bank also charged high international transfer fees and provided unfavorable FX rates and limited transparency into these fees. After switching to iBanFirst, Workinghouse UG gained access to real-time exchange rates, transparent fees, and efficient transaction tracking. The ability to execute spot transactions in just a few clicks, coupled with the Payment Tracker feature, eliminated uncertainty and enhanced trust with suppliers. As a result, Workinghouse UG saved valuable time, reduced costs, and gained peace of mind, knowing that their international payments would be processed smoothly and predictably.

B2B Cross-Border Payments Market Growing Increasingly Competitive

The B2B cross-border payments market is vast, highly lucrative, and underpenetrated. Increasingly viewed as a space for innovation, forward-looking players are already taking notice. Card networks like Visa (Visa Direct), Mastercard (Cross-Border Services), and American Express (Amex Global Pay) have rolled out dedicated B2B cross-border payment solutions, often complemented by strategic acquisitions and fintech partnerships. However, these solutions vary in their focus on SMEs. At the same time, consumer-first cross-border fintech providers such as Wise and Revolut are moving into the B2B space, leveraging their core platforms to tap into new revenue streams and drive growth amid shifting economic conditions. For both incumbents and challengers, the message is clear: now is the time to act.

7 Strategic Priorities to Capture the Rise of SMEs in B2B Cross-Border Payments

The cross-border payments landscape is evolving, and SMEs stand to benefit from this transformation. As fintechs continue to innovate, taking a digital-first approach, and banks begin to focus on modernizing their tech stacks and forming strategic partnerships, the future of B2B cross-border payments will likely be shaped by greater accessibility, enhanced efficiency, and seamless global transactions.

Today’s B2B cross-border payments landscape has grown increasingly competitive. New entrants, such as consumer-first fintechs and card networks, have emerged to challenge existing B2B-dedicated players. Additionally, traditional banks have renewed focus on technological innovation in order to remain competitive.

Non-Exhaustive List of B2B Cross-Border Payments Players

B2B cross-border payments providers must innovate or explore strategic partnerships with other players in the space in order to remain competitive. To maintain a competitive edge, fintechs and banks must focus on the following seven strategic priorities:

1. Innovate Continuously: Keep exploring emerging technologies, such as blockchain and Artificial Intelligence (AI) to enable faster, cheaper transactions, improve fraud detection, and offer personalized customer experiences. Fintechs and banks should also continue to integrate a wide assortment of domestic real-time payment rails to increase global reach.

2. Ensure Compliance with Local Regulations: Concerns over security and fraud remain the most prominent challenge for SMEs, with 43% reporting this as a the most important factor when choosing a cross-border payment solution. Proactively ensuring compliance with local regulations, KYC, and AML requirements can assist in building trust with SMEs and facilitating cross-border transactions.

3. Foster Partnerships: Explore strategic partnerships between fintechs and traditional banks, which has the mutual benefit of providing banks with access to the innovative technology of fintechs while avoiding lengthy and expensive technology projects, in addition to offering fintechs the opportunity to significantly expand their global reach by tapping into banks’ international customer bases.

4. Monitor the Competitive Landscape: New entrants, including both consumer-first fintechs, such as Wise and Revolut, and card networks have emerged in the B2B cross-border space (e.g., Visa’s Visa B2B Connect and Mastercard’s Cross-Border Services). While these solutions vary in their focus on SMEs, anticipating market shifts is critical for cross-border payments providers.

5. Relentless Focus on User Experience: SMEs value simplicity and reliability, and both fintechs and banks must prioritize offering the most user-friendly  and intuitive customer experience possible. Competition is fierce and SMEs have grown to expect easy navigation, transparent and real-time payment tracking, and 24/7 multilingual customer support.

6. Explore Value-Added Services: Payments can be a launchpad for a range of products and services. To enhance and further diversify revenue streams, while simultaneously increasing customer stickiness, cross-border payment providers should continue to add to their suite of value-added services available to SMEs at reasonable costs.

7. Expand into Emerging Markets: Emerging markets, often boasting a rich and underserved SME population, are increasingly participating in international trade as digitalization becomes more widespread. Fintechs and banks should explore emerging markets with high potential for cross-border payments to expand their customer base and global reach.

In summary, the evolution of B2B cross-border payments has played a key role in the broader payments landscape in recent years. As SMEs continue to transact internationally more and more frequently, they face a wide variety of cross-border payment challenges, including exorbitant fees, opaque processes, and slow settlement times. While traditional banks have been slower to address these issues, hindered by outdated legacy systems and bureaucratic procedures, an increasing number are exploring partnerships with fintechs to offer relevant solutions to SMEs.  This slower response, however, has provided fintech companies with an opportunity to quickly step in with more innovative, cost-effective, and efficient solutions. Fintechs offer tailored services that improve the cross-border payments process for SMEs, including intuitive customer experience, reduced fees, faster transactions, and greater transparency. As the B2B cross-border payments landscape continues to evolve, it will be shaped by strategic partnerships and technological innovations, including artificial intelligence, blockchain and real-time payment systems, which have the potential to benefit SMEs by further enhancing accessibility, efficiency, and global transaction capabilities.

Edgar, Dunn & Company (EDC) has worked with a variety of stakeholders, including but not limited to fintech, cross-border payment solution providers and banks, on topics related to cross-border payments. The team at EDC would be delighted to discuss any assistance you may need and leverage our global and strong expertise and experience.

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The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).