The B2B cross-border trade payment market is vast yet remains significantly underserved, particularly for small and medium-sized enterprises (SMEs). According to the World Bank, SMEs represent approximately 90% of global businesses and play an essential role in cross-border trade, contributing around 65% to this sector. Estimates from organizations like the World Trade Organization and the Organisation for Economic Co-operation and Development suggest that the B2B cross-border trade payment market for SMEs amounts to about $20 trillion. However, traditional banks encounter a range of challenges when attempting to serve SMEs, such as stringent compliance regulations, risk management hurdles, lower profit margins, and limitations in licensure. These factors contribute to a considerable unmet demand within formal financial systems.
Research by XTransfer indicates that many SMEs are compelled to utilize unofficial settlement channels, including underground banks, due to these limitations. Alarmingly, the trade volume transacted through these illicit channels could be two to five times greater than reported official import and export figures.
The cross-border payment industry can be classified into four segments based on the flow of money. The first encompasses payment processing services for e-commerce sellers, where risk management is reliant on integrated data streams from platforms. This sector faces high saturation due to relatively low technical barriers for entry.
The second segment focuses on traditional cross-border trade enterprises, which holds significant potential but also presents complexities in risk control. Payment service providers in this realm are required to verify extensive information flows for each transaction, resulting in many companies entering the market but only a few succeeding.
The third segment pertains to individual cross-border remittances, which is limited in market scale and use cases. Finally, the most established segment is led by payment giants such as Visa, Mastercard, PayPal, and Stripe, characterized by intense competition and a saturated marketplace.
While the consumer-to-business cross-border payment market has seen transformative growth over the last five decades, particularly with the advent of mobile wallet services in regions like China, the U.S., and Europe, B2B cross-border payments still primarily depend on traditional bank transfers. This sector is on the verge of a potential “mobile payment revolution” but lacks a unified clearing mechanism and standardized risk control processes.
This gap indicates a substantial opportunity for innovation. The B2B cross-border settlement market for SMEs is in dire need of reform. Service providers that understand global market needs and possess adequate technological and compliance expertise are positioned to unlock significant growth in this area.
XTransfer’s thought-leadership series, “Beyond Borders: XTransfer Insights,” aims to share perspectives on the evolving landscape of global trade and financial services, providing insights into emerging trends, challenges, and opportunities on the international stage. This ongoing discourse highlights the pressing need for advancement in cross-border payment systems to better serve the vital SME sector.