When your company is doing business with partners located in different countries or continents, you will need cross-border payment services to settle the costs of the products ordered and services rendered. There are many possible ways to do it, depending on your and your partner’s countries of origin.
Let’s see what alternative payment options do you have:
- VISA / EuroCard MasterCard payment by debit or credit cards. Once you have a bank account (or any blockchain processor account) with an issued card, and also your partner’s bank has card processing systems in place, the job is done. Costs are covered by the seller, it happens instantly. There may be daily, monthly, or per item limits of the transaction. Costs can be anywhere between 3-6% per transaction. Good for B2C sales, many private persons own a card.
- Wire transfer to the seller’s bank account. You both need to have bank accounts where the banks are linked with a wire transfer messaging system, or through correspondent banks (more costs). Money sent between different countries may run currency rate and conversion risks, especially if the time to settle is high (e.g. I pay today and they receive the money in a week). There are two widely used transfer systems:
- SWIFT - used since the dawn of time. High costs, slow processing time (2-5 days), many banks involved in the transfer chain, but at least it works in most of the countries with over 11.000 partner institutions.
- SEPA (Single Euro Payments Area)- European banks started a EUR-based quick transfer system in 2008. Covers 28 countries, with a transfer time of 5 min - 1 day, a significant improvement over SWIFT. Costs are also reduced to fractions of the old system. Another key limitation is opening hours. You may not be able to send inter-bank transfers over the weekend. Not particularly useful when you ran out of cash and are abroad over the weekend.
- Neo-Banks - no matter how fancy they are, their services mostly rely on the good old SEPA/SWIFT system, and their bank accounts are often located in existing traditional banks. Your banking fees are lower, but they still require the KYC process and all other banking requirements. Also, in most cases, you cannot pay in cash to these accounts, only transfers from existing bank accounts under your name are allowed.
- Cash payments - very much troublesome, customs limits, currency conversion risks, and high costs are in play. Maybe an option for smaller transactions between partners that already know each other.
- Blockchain transfers - to replace centrally controlled and maintained transfer systems with their enhanced control and supervision issues, blockchain-based systems were invented around 2005, with the most prominent chain having been born in 2008: Bitcoin. Important to understand that Bitcoin and blockchains are not identical. While you may choose to use Bitcoin for overseas transfers, it is also possible to use the security of the blockchain systems and transfer other assets and forms of payments. One must carefully plan the business case and select the providers accordingly. We discover this option in detail below.
Blockchain transfers across the border
A blockchain is an accounting ledger that (ideally) contains ownership records of payment means and allows the exchange of those assets between parties. I.e. paying for services and products in a non-cancellable way in a tamper-proof system. The most well-known systems are Bitcoin and Ethereum (they represent 60% of market capitalization).
Many blockchains offer anonymity. Blockchain account owners’ identities cannot be directly read from the chain. That holds true until you need real (fiat) currencies converted from your digital assets. Unless you do it OTC, against cash paid by a private person, you will have to use the services of a cryptocurrency exchange company (like Binance, Bitstamp, etc.). Those are the places where you can convert your digital coins into cash or cash equivalent assets. Binance even offers an EC/MC debit card that you can use for ATM cash withdrawal or card payments (as above) with the backing of the coins and cash you have on your account. Should you use these services, the registration process will contain a KYC where you will be identified as the owner of the controlled assets.
Blockchain systems omit the traditional banking transfer systems and anyone can create an account (with the limitation explained above). They offer relatively low transfer costs which are mostly linked to the speed of the transaction (burning fuel) and not the total value spent. The transaction speed is usually within minutes (5-30 min) without any supervision or intervention of companies or bank employees. This makes the system available 24/7. Again, if your clients can pay in your designated currency and if you do not need instant cash converted from it, digital currency payments are a great way of doing business.
Coin prices can fluctuate like madness. 10-20% within the day is totally possible, even for the ‘big guys’, not to mention coins with near-zero liquidity. To avoid these problems the market invented stable coins. They are usually computationally pegged to real-world currencies and have 1-2% fluctuations. Once you receive a BTC or ETH payment, you can instantly convert the amount into USDT (Tethered to USD). This is still a digital asset, not readily cashable, but keeps the value of your money steady. You do not risk losing x% of its purchasing power overnight, but you also do not have the opportunity to gain an extra x% over the same time in an upward drift. In other words, a USD-based payment sent in BTC is instant, relatively cheap, and once converted to a stable coin, it can keep value. This allows the blockchain transfer systems to potentially replace the banking wire methods. Certainly, you lose less in conversion and transfer costs if you both receive and send all or most of your costs and revenues in the same currency.
Ethereum (natively) and Bitcoin (with Taproot/Stack soft fork in 2022) support smart contracts in different depths but solve the same key problem. Namely, one can define a set of conditions that once satisfied, the locked amount would be released to the other party with no interference possible. In other words, once the parties meet the requirements, and the transaction happens, the pre-allocated price of the event will be irrevocably transferred to the seller/provider. It is the perfect means to replace some more complex banking instruments at a significantly lower price like Payment Against Documents and Letter of Credit facilities where the parties require a neutral third party (usually a bank) to only release payments if the conditions are met…and ask for a significant amount of money for these fiduciary services. IT can handle it with ease once the parties are able to formulate their conditions in the pre-defined script language of the designated cryptocurrency. As you can see, it is a great opportunity, but it is probably a few months or years away to be widely used (talk to your IT guys).
Crypto-services are available on the market NOW
One thing is certain. The tools and means are already here to complement or replace standard banking processes and improve speed while dropping the costs. There are many start-up companies in the sector trying to identify the best use-cases to solve problems for thousands of merchants in international trading.
Key questions for you to investigate:
- What can your clients use as forms of payment?
- In what ratio should you usually use/store money in fiat or crypto?
- Do you need instant access to your funds over ATM or credit card?
- What kind of conversions would you usually need? Crypto-to-fiat, crypto-to-crypto…
- Do you want to speculate and keep your assets in a potentially volatile crypto asset or maybe in a stable coin?
- Do you need to cash out or wire transfer often to your local bank account?
B2BPay offers its services in this niche market, while conveniently located within the SEPA region. Our partners can open an IBAN account with us that can hold any mix of fiat (EUR) or crypto currencies with the option to convert assets between them, and with the help of our service partners, we can support your digital-banking needs from receiving B2B or C2B payments to safely storing your capital and transferring them into fiat currency cash at the end of the day.