Solving for Seamless B2B Payments
With Visa B2B Connect, distributed ledger technology (DLT) and tokenization are being used to reimagine cross-border bank transfers – creating a multilateral solution that is picking up global momentum and giving participating banks a new competitive edge.
The world of B2B bank transfers dates all the way back to the 19th Century. That’s when international trade began to pick up real pace; companies needed a way to move funds across national borders, and the correspondent banking system was born1. It was a pragmatic solution, which drew on the conventions and technologies of the time, but it had certain innate, structural limitations. Subsequent changes have helped to automate the process, but the underlying structure remains the same. No matter how much innovation is thrown at it, those underlying problems will persist. So, it is perhaps ironic that, 200 years later, this system is still used to process the majority of the world’s international B2B transactions, valued at more than US$100 trillion a year2.
In recent years, a few alternative approaches have been postulated. But, due in part to the enormity of creating a new global network from scratch, none have gained much traction – until now.
In 2019, Visa launched B2B Connect. Structurally, it is an elegant solution, replacing complicated correspondent and intermediate relationships with an alternative, multilateral model, in which funds flow directly from the bank of origin to the beneficiary bank. Technologically, it draws on new digital tools such as DLT and tokenization. And this means it can bring reduced costs, increased certainty, new levels of security, and an enhanced experience to the world of cross-border transfers.
But Visa B2B Connect still faced the age-old issue affecting any new payment method – how do you generate the necessary scale so that global coverage is achieved, and enough banks and businesses see the benefits of participating?
It seems that the strength of the proposition, combined with the reputation, the relationships, the reach, the regulatory expertise, and the risk management credentials of the global Visa organization, have been enough to solve the conundrum. The solution now extends to 108 countries worldwide. In the last six months alone, around 30 additional banks in more than 20 countries have signed up, to reach 100 enrolled banks globally and, with every passing week, the momentum grows stronger.
The benefits are considerable. When the sending bank and the recipient bank both participate in the Visa B2B Connect ecosystem, everyone benefits from an enhanced experience. Irrevocable payments are delivered in full value, it is clear when the funds will be delivered, and there is certainty over the applicable fees and FX rates. Also, the entire process is protected – safety is layered, tokenised data is used to safeguard sensitive business information, rich data and direct messaging enable the efficient resolution of any issues that may arise and, with Visa at the centre of the network, the counterparty risks are effectively mitigated. It is unsurprising, therefore, that Visa B2B Connect has been recognised by Global Finance magazine as one of the Best Financial Innovations in 20233.
Of course, there are still some gaps in the global reach. But, even if the recipient bank doesn’t participate, the payment and many of the associated benefits can nonetheless be delivered via one of Visa’s existing settlement partners. This means that, at a minimum, the sending bank gets a uniform process and a single counterparty via a single connection.
“Visa B2B Connect is an innovative solution, which enables us to provide a better service to our business and corporate clients,” says Aidos Zhumagulov, Advisor to the Chairman of the Board of Directors Freedom Finance Bank Kazakhstan JSC. “The process is faster, more predictable, and more transparent. That’s good for our bank, good for our clients and, ultimately, good for global trade.”
Given the obvious market enthusiasm, Visa B2B Connect is gathering pace globally. In the CEMEA region alone, seven banks signed up in 2022, a further 13 joined in the first half of 2023, and conversations are underway with many others. This means there is already decent coverage across this region and the solution is set to extend further afield.
Visa can therefore envisage a time – in the not-too-distant future – when B2B Connect provides a ubiquitous global experience, finally diminishing the need for intermediaries, and bringing finality, transparency and predictability in cross-border B2B payments.
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2Short cuts fast growth, Fintech Finance News, March 2023: https://ffnews.com/magazine/exclusive-short-cuts-fast-growth-ben-ellis-visa-business-solutions-in-the-fintech-magazine/
3Global Finance Magazine Top Innovations In Finance list for 2023 https://www.gfmag.com/magazine/june-2023/best-financial-innovations-2023
4This is the case in any of the 108 countries currently covered by the Visa B2B Connect network.