How blockchain solves the problems of B2B business payments
The major issue faced with B2B business payment systems, is that they have failed to evolve at the same rapid pace of other technologies, especially when it comes to international currency exchange in particular.
With the majority of B2B business payments, a significant percentage of these involve money being sent overseas. The issue here, is that most payment systems still come with bank charges, exchange fees, and everything else that B2B businesses have been forced to endure.
Reports show that B2B cross-border payments totalled £150 trillion in 2017. It is estimated that this will reach £250 trillion by 2027. At present, the payments are being sent via SWIFT, Western Union, and even bank transfers. Considering the fact that SWIFT came into being back in 1973, this highlights just how this marketplace has been left behind.
However, with a recent rise in fintech companies, it is creating a revolution in the blockchain space, bringing new payment possibilities forward for B2B businesses.
In this article we explore some of the issues that B2B businesses face with the current system of payments, but also taking a deep dive into blockchain and the reasons why this provides the perfect solution.
With a significant marketplace to tap into, it’s fair to say that now is the time to get on board and invest in this technology.
The key challenges when it comes to traditional B2B business payments:
Of course, fees eat away at profitability. Given that B2B business payments tend to be of a high value, and the fact that fees are often a percentage of what is being transferred, what is lost can be hugely significant.
Another key sign that the processes involved in B2B business payments have become archaic is the fact that they take so long. In a world where we have become used to everything being provided in an instant, it seems absurd that B2B business payments still take so long. Traditional banks all have the same issues when it comes to cash flow, and the current payment processes are hindering this.
A closer look at the issues
At present, perhaps one of the most popular platforms used for B2B business payments is SWIFT. Established in 1973, it has become the go-to place for processing international payments. To highlight just how used this service is, it processes over $2 billion worth of payments every year. So, what are the issues with Swift? Let’s take a look:
- There is a fee for outgoing wire transfers
- There is a fee for incoming wire transfers where you’re receiving money
- You’ll also come across the Swift tracing fee
- There are also foreign exchange fees to consider
The initial fees can vary but you can easily be spending $65 to cover the initial fees. When it comes to exchange fees, there is often a 5% mark-up so the more you send, the more you’ll pay. The big problem is that banks that use the SWIFT system aren’t always transparent when it comes to the fees. You need to ask them for a full breakdown to see exactly what you’re being charged.
On top of the fees, there then comes the issue with processing times. The irony in SWIFT’s name is apparent to anyone who has used this service. It is more than plausible for a transfer to take up to 5 working days. In this day and age, that is nothing short of being unacceptable and that is why businesses are desperate for an alternative.
Those looking for another way have relied on traditional bank transfers and the likes of Western Union Business Solutions. The problems encountered here are pretty much the same as those with SWIFT though, with high fees and lengthy processes.
How blockchain provides a modern solution for B2B business payments
As we have seen, the issues faced with B2B business payments are many. Not only are they significant in number, but they are also significant in terms of the impact that they have. They stall businesses when they are looking to expand and have an ongoing effect on their bottom line.
It’s for these reasons that businesses are exploring alternatives and that makes it an exciting time to be involved in the area of fintech and blockchain. Let’s explore how blockchain has the capability to improve the B2B business payment process:
A significant increase in speed
When you look at traditional payment methods, you can expect it to take up to 5 days for these to settle. For businesses that have the need to make frequent, global, payments the significance here shouldn’t be underestimated. The good news is that blockchain does away with such issues.
The maximum processing time for B2B business payments is reduced to a single hour when utilising blockchain technology. This means that businesses get their funds within timescales that suit them.
A reduction in fees
B2B business payments that are carried out the traditional way are expensive, to say the least. When you take wire transfers as an example, you can expect to pay around 6%. Seeing a payment of $10,000 would lead to you being charged $40 in fees plus around $200 in foreign exchange fees. Consider how many times these transactions are made and think how much these $240 add up to over a year. When you consider that there are around 42 million SWIFT transactions every single day, the totals here are staggering.
If you chose to make the same payment via blockchain the savings are astounding. There would be a $0.10 blockchain fee and then a $50 exchange fee. The overall saving? Around 75%. That is why it just makes sense for businesses to take up the blockchain alternative.
Blockchain payments are cheaper and faster than traditional methods for one reason: decentralisation. This means that, when payments are sent, there is no middle man or intermediary involved. It is these middlemen that see fees rocket as they scramble to take their cut. With blockchain, this is removed entirely.
When it comes to B2B business payments, it is worth standing back to consider developing countries. Some of these are pushing to lift themselves up and have offerings that are truly innovative. The problem, however, is that some countries make it almost impossible to open a bank account. By traditional standards, the lack of an account meant that you could not operate as a business.
What’s exciting is that blockchain circumnavigates this problem. It empowers people, and businesses, in developing nations to get on board and push their ventures forward. Those who have previously been excluded by the global financial institutions, now have somewhere to turn.
A new standard of accounting
With blockchain, there is no need to follow what we’ve done for hundreds of years by recording every B2B transaction separately. What blockchain allows for is a transaction to go into a joint system where there is a joint record of transactions. What this really means is that you’re no longer just making a record of every debit and credit. Instead, your B2B payments are verified electronically by nodes around the globe.
The way in which B2B business payments are made has remained largely unaltered for decades. The reality is that businesses are tired of the issues that are faced, but they have always believed that there was no alternative. Blockchain has emerged as the only viable alternative and the one that ends the frustrations that have previously been encountered.
Now is the time to get on board with blockchain. As more and more people become educated and realise the benefits, more and more will make the switch. This means that blockchain itself is a fantastic business opportunity.
Cutting edge solutions in the Blockchain space are allowing any currency such as fiat or crypto to move through a payment gateway that can be sent faster than any other traditional method, to whoever they need to pay, in whichever currency they want to be paid in.
There is no doubt that, when the potential is realised, B2B businesses will embrace this technology. What business would turn down the chance to improve security, have infallible account keeping, faster payments, and lower fees? Of course, any business owner offered any of these wouldn’t hesitate to make the transition to blockchain.