How B2B payment automation threatens banks

• Key insights: Fintechs and card networks are pursuing B2B payment, creating more options beyond banks.  
• What's at stake: Up to $13 trillion in transaction value could move to emerging payment rails in the next four years.
• Forward look: Digital assets such as stablecoins, tokenized deposits and central bank digital currencies are also emerging choices. 

Companies are looking beyond banks for cross-border transactions, a trend that could continue to accelerate as potentially faster, less expensive alternatives gain traction.
A recent Accenture report suggests that traditional methods for cross-border corporate payments, including credit cards, ACH and SWIFT, are under threat. Up to $13 trillion in transaction value could move from traditional to alternative payment methods by 2030, putting about $13 billion in payment fees at risk. This raises the stakes for banks to revisit how they compete for cross-border flows.

To be sure, there are multiple challenges related to moving money internationally, including cost, transparency, timing and access. Several alternatives, including fintechs, stablecoins, tokenized bank deposits, and central bank digital currencies, have the potential to mitigate these challenges for corporate customers—often circumventing banks in the process.

Banks "need to be realistic about what it's going to take to come to market" with alternatives and not underestimate the changes necessary, Tim O'Donnell, managing director in Accenture's North American payments practice, told American Banker. Risk models need to be adapted, liquidity models altered, and reconciliation issues considered. "It's a holistic change," he said.

Here's what banks need to know about competition for cross-border corporate flows:

Competition from fintechs is heating up

Some companies are turning to fintechs for cross-border solutions, bypassing banks, Rodman Reef, managing principal at Reef Karson Consulting in Larchmont, N.Y., told American Banker. Fintech competitors for corporate cross-border transactions include Airwallex, Wise, TransferMate and Papaya Global. These providers are user-friendly, offer reduced fees, fast transactions, and other benefits for companies, and, as a result, they've been gaining traction with businesses.

Late last year, for instance, Airwallex raised $330 million in a Series G funding round and said it had established a second global headquarters in San Francisco. The company said it plans to spend more than $1 billion in the next few years to scale its U.S. operations, recruit top talent, and increase its physical and brand presence.

Stablecoins

Stablecoins are gaining ground as an alternative payment method, even though they are still a relatively small slice of the market. There are multiple privately issued digital tokens designed to maintain a stable value relative to a fiat currency, and banks risk being left behind. Examples include USDC by Circle, USDT by Tether, PYUSD by PayPal and EURS, a euro-backed stablecoin issued by the Malta-based fintech company STASIS.

The card brands have also been vying to get in on the action. Visa will expand an existing collaboration with Stripe-owned Bridge to issue stablecoin-linked cards in more than 100 countries. Mastercard has partnered with SoFi Technologies to enable SoFiUSD as a settlement option on Mastercard's network. 

While he doesn't see traditional rails going away any time soon, Gareth Lodge, principal analyst at Celent, told American Banker that banks should take the opportunity to explore options offered by stablecoins. "Banks need to figure out what role they want to play in this. Is this an opportunity for them? Is this a threat to them? Is this another service for them?" 

Some mid-tier banks are aligning with companies like Wise or Western Union and coming to market with offerings that can compete with large banks, Accenture's O'Donnell told American Banker. Aligning with a fintech or participating in a consortium allows smaller banks to compete.

The regulatory landscape in the U.S. is changing, making it more imperative for banks to be proactive. The OCC announced recently that it is seeking public comment on its new proposed rulemaking for implementing the GENIUS Act. It represents the first comprehensive U.S. regulatory framework for payment stablecoins. The goal is to ensure stability, protect consumers and create regulatory clarity. 

Tokenized bank deposits

Accenture predicts that commercialized bank deposits represented on a distributed ledger will continue to accelerate for B2B payments and other use cases. "These deposits offer faster, cheaper settlements, greater transparency and new opportunities for innovation in payments and asset transactions," according to Accenture's report. Accenture noted that 87% of financial institutions are exploring tokenization and tokenized deposits. JPMorganChase and Citi are front-runners in this space.

Central bank digital currencies

The Bahamas, Jamaica and Nigeria already offer a sovereign alternative to traditional money. However, as many as 135 countries are exploring a central bank digital currency, according to Accenture. Unlike private stablecoins or tokenized bank deposits, CBDCs are state-backed and have legal-tender status. They enable direct monetary policy, foster financial inclusion, and reduce transaction costs, as well as lower exposure to private-issuer risk, according to Accenture. "As more pilots mature, we expect significant developments over the next two to three years, with Europe in particular making strong progress toward launching a digital euro," the report said. 

How will it all shake out?

Regional banks are at a disadvantage to large-tier banks when it comes to cross-border transactions, said Reef, a member of the U.S. Payments Forum and part of the Faster Payments Council's working group on cross-border payments. They'll have to determine if customers are profitable enough to make facilitating cross-border transactions worthwhile. This could mean aligning with other banks or fintechs to offer services they wouldn't otherwise be able to offer. "They're going to have to pick their place," he told American Banker.

While there's currently no clear champion in bank alternatives for cross-border transactions, banks need to put on their thinking caps now, while the winning alternatives are still being determined. It's hard to predict when a victor will emerge, but it's clear that corporate customers want real-time transactions and less expensive options — similar to what Venmo provides in the B2C or P2P space, Gavin Cicchinelli, president of BlueSnap, a global payments platform, told American Banker. "I think there's still a race out there for true alternative methods for the commercial space."