Uncertain Times: Small Business Banking and Cross-Border Payments Amid Global Chaos

Amid shifting tariffs and global uncertainty, small businesses are taking on more risk than ever as it relates to cross-border payments. Not only are the costs of doing business across the globe in flux, but there's growing fraud vectors to worry about and new competition in the market with the interest and adoption of stablecoins and other tech. Hear from an expert panel on the urgent need for banks to better support their SMB customers. 

Transcription:
Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record.

Bailey Reutzel (00:08):
Our last session of the day. Thank you for staying. Seriously, thank you very much. This next session is called "Uncertain Times." We've heard it over and over again at this conference. I feel like a lot of people have stolen the shine here because I didn't think so many people would mention the tariffs. I thought people were just hands-off and weren't going to talk about the bad thing in the room, but here we are. We're going to talk about it. This session mentions uncertain times, and it really does feel like global volatility has become the norm—from shifting tariffs and trade relationships to FX swings and new payment competitors. Let me introduce my panelists to you all. Right next to me, I have Vlatka Puljic.

(00:57):
She is the Managing Director of US Business Banking Revenue Initiatives and Product Partnerships at BMO. Then we have Saujin Yi, the founder and CEO of Liquid Trust. And next to her, we have John Gardiner, founder and partner of B2Brazil, a small business here with us today. Amazing. Thank you very much. To set the context, I want everybody to talk about what that uncertainty has meant to your business right now and what new things you've had to think about because of it. I'll start right down the line.

Vlatka Puljic (01:38):
Sounds good. Thank you again guys for staying. I'm really happy to see some faces in the room and excited to share some insights with you. From the context perspective, what really provides a lot of information to me is that out of everybody importing goods in the US today, more than 90% of those importers are small businesses. I think a lot of people don't know that stat because they don't think a small business would import goods; they think they would be more local. If you break that down even further, 50% of those folks have less than 50 employees. As you can imagine, the impact of tariffs is a lot broader than we would think in small business because they truly do use external suppliers. When it comes to impact, those guys are busy handling their day-to-day operations, but now they have to think about different regulations in different countries.

(02:43):
Most of them rely on several suppliers that may be in countries heavily impacted by tariffs. Now they have to reconsider their supplier relationships, and they haven't even gotten to the point of payments to those. The issue is quite complex and has a pretty distinct impact on small businesses because even a small increase in those prices due to tariffs means a lot to them.

Bailey Reutzel (03:10):
I wanted to ask a quick follow-up. In terms of those small businesses importing goods, has that changed drastically over the last five years? Has that increased pretty drastically?

Vlatka Puljic (03:22):
Absolutely. I think we've heard it throughout the day. COVID had a lot to do with that. We needed to expand supplier relationships and enhance our digital presence. Being digitally available allowed them to find new suppliers. But now we have to pivot in another direction where suppliers need to be a little bit more concentrated in countries that are not as impacted. That may change over time because there's so much uncertainty over where tariffs will go in the future.

Bailey Reutzel (03:56):
That will certainly change probably tomorrow, to be quite honest. Saujin, I want to pass the same question to you and tell us a little bit about Liquid Trust also.

Saujin Yi (04:04):
Thanks for having me. I'm Saujin Yi, founder and CEO of Liquid Trust. We embed trust into the payment flow, mostly for small businesses doing cross-border payments. I think the uncertainty has been amplified in this uncertain market. Let me just tell you from the beginning: I've had a lot of conversations with bankers over the last two days, and every time I bring up cross-border payments with a small business group, they say, "Oh, my guys don't do cross-border." No, they do. Maybe they don't do it with you, but they really do. As Vlatka said, a lot of people are doing it more than ever. There's $6.9 trillion in import-export in and out of the US. Two-thirds of that is actually unprotected in any way. For SWIFT, 80% of those transactions are under $100,000. There are a lot of smaller business transactions happening right now, and they're happening with the small businesses that are your clients.

(05:11):
They're probably doing it with the bigger banks or the secondary and third banks they have in addition to yours. This is what happens with small businesses: when they work together, they are the ones that take all the risk. They pay first and hope they get their goods and services, or they send the goods and services, invoice, and hope they get paid. They take all the risk because they're the little guy. Unfortunately, that means if they lose that money to fraud or loss, it's really detrimental to their business. This was before tariffs and all the current uncertainty. Now, what's happened is they might pay in advance, tariffs will change in that country, and then their shipment is stuck there.

(06:01):
Now they don't know what to do. They have to raise prices or pay more to get that money out. There are all these things happening that are making it so much more risky. At the end of the day, it's that uncertainty for small businesses where I hope we can talk more about where the banks could come in. All your small business customers are feeling very uncertain and frozen in place because of the whiplash going around.

Bailey Reutzel (06:33):
We're going to figure it out here today, right now.

Saujin Yi (06:35):
That's right.

Bailey Reutzel (06:36):
John, I want to give you a moment to comment on this as a small business as well. How is this affecting you?

John Gardiner (06:42):
B2Brazil is really a network of B2B marketplaces for the Americas. It's like alibaba.com but for the Americas. We have seven marketplaces—Brazil, Mexico, Argentina, Chile, even the US. We have 300,000 registered companies and the majority of them are importers, but they're all small and medium enterprises. The impact of the tariffs has been, as you might expect, like being whipsawed. Some tariffs have been equally applied. In Brazil's case, it was a 50% tariff tied to something political. So it's really impacted Brazil-US trade, which represents one-third of our base. It's had the impact you might imagine, but from our perspective, it's temporary. Companies are beginning to adjust. The administration is making deals; they're keeping the tariffs in place. To me, the tariffs are ultimately just a VAT on imports that American consumers are ultimately going to pay.

(07:53):
But I would expect some stabilization in the short term, and then companies will learn how to deal with it. Supply chains and purchases from specific countries will be affected by that.

Bailey Reutzel (08:08):
How are small businesses learning how to deal with that, though?

John Gardiner (08:11):
They're pausing. From our perspective, they are in "wait and see" mode. I think they also believe it's not going to be a long-term impact. You have to understand that for cross-border transactions, until the internet, small and medium businesses really did not partake in foreign trade. The cost of entry was too high to make sales calls or participate in trade shows. The huge number of importers in the United States has grown dramatically from the ability to purchase and interact with companies through the internet. That said, small and medium businesses still comprise a small percentage—20% to 30%—of the total number of companies engaged in foreign trade globally.

(09:12):
In China, they're more engaged than in other parts of the world because their export economy facilitated the growth of these small businesses. But for now, from my perspective in the marketplace, we're seeing a lot of companies that were investing slowing down and pausing. Again, I think it's a temporary thing.

Bailey Reutzel (09:34):
It's like we're going back to pre-internet for small businesses, which is worrisome. Everybody would rather buy from a small business. We don't want to buy from Amazon or Walmart all the time, but those larger entities are the ones who can take on those cost increases. Vlatka, are we worried about this?

Vlatka Puljic (10:01):
We're definitely worried about this. From a banking perspective, we really need to engage in a different dialogue. 20 years ago when I started in banking, it never occurred to me to ask someone if they're making cross-border payments or international wires to buy supplies. 20 years ago in business banking, people were focused on domestic suppliers; they were not expanding globally. Today, that's a must. That question needs to be part of the vocabulary the moment you start interacting with a client. We need to be in this together from a bank-customer perspective and have a conversation. How much of your payments are going internationally and what risk are you taking? It used to be positioned from the standpoint of trade finance, but it's not just about that.

(11:02):
It's actually about the security of the payment going to a supplier you may or may not know. There's a lot of fraud risk in that. We need to look at this holistically, not just from the operational impact of tariffs, but also from a fraud standpoint. Now we're engaging with suppliers we don't have a relationship with. We may need to pivot to different suppliers at different times. How do we ensure we know the suppliers? How do we ensure the goods or services—because this is not just about goods, but also contracting for services like engineering? I had an engineering company reach out to me wanting to hire someone in a different country for drafting services, and they needed to pay them.

(11:56):
That impacts tech services as well. It is complex, but I think banks should play an active role in education and partnering to provide value and clarity.

Bailey Reutzel (12:09):
Saujin, what are these small businesses using to get payments cross-border if not the banks? What fintechs are they using?

Saujin Yi (12:20):
The good news is they are using banks because banks are synonymous with trust for them. They usually trust three people: their accountant, their lawyer, and their banker. They ask their bankers or accountants all the questions. What happens is they go to the bank's bill pay section to do the wiring, but the experience is pretty horrible. Suddenly you have French wire instructions and you have to understand how to enter the IBAN number, what a SWIFT number is, and how to get that right. Then you press the button to get the wire out and it goes into the ether. You have no idea what happened, and you just paid someone you had to meet because your previous supplier was in China but the tariffs were too high. You found a new vendor and this person is new to you.

(13:26):
The experience isn't great, but right now they're just dealing with it as the cost of doing business. But really, the stat is that 75% of small businesses are not happy with their global payment solution and are looking to banks for an alternative. The safety part is a big area where innovation could solve the problem. That is what we're working on at Liquid Trust.

Bailey Reutzel (13:58):
John, have you flip-flopped banks? Have you seen small businesses do that, looking for a provider with innovative solutions?

John Gardiner (14:11):
Our experience with our clients is that they're still with the banks, mainly bigger banks. Before the internet, small and medium businesses were not engaged in trade. It seems like the banks still work with 20th-century financial instruments for small businesses, and they're stuck with them. Not only that, but they end up paying more than larger clients who have more volume. Large clients get better spreads, lower commissions, and more services. Small businesses stay with the banks but end up paying more for those services. They are not the early adopters of new technologies. If you went to a small business in, say, Colombia and offered a great blockchain payment system, they wouldn't understand it.

(15:09):
Unless the interface is navigable and easy to use, they're going to want to stay with Bancolombia, which has always been their main bank. Trust and credibility for where they put their money is a big issue, as is the security of payments. If you look at the big three services for foreign trade that small businesses are looking for: first, how do you pay? Existing means are wires, LCs, or standby letters of credit, and perhaps credit cards attached to their bank. The second main service is foreign exchange. You do the transaction and there's an FX operation with a spread and payment.

(16:10):
The bank makes it on the payment and the foreign exchange. The third thing—which is very important but small businesses often lack access to—is trade finance. I don't know how many bankers here can answer: how much do you lend to your small businesses for trade?

Vlatka Puljic (16:29):
Not as much. We have the capability, but it's a lot of work.

John Gardiner (16:35):
It is a lot of work. I'm giving you all a secret you can take home: small businesses are a great underserved niche market for making money for banks. If it's offered by a big bank like BMO, they will embrace it. But when it's offered by Liquid Trust, it's a little harder unless you have a kick-ass service that is easy to use and tied to credibility. For instance, Liquid Trust is working with JPMorgan Chase, which gives a lot of credibility to their transactions.

Bailey Reutzel (17:07):
Vlatka, do you want to comment on that?

Vlatka Puljic (17:10):
I wanted to tag on to that. Earlier today, Kristen from US Bank was talking about integration timelines and everything associated with making changes to a complex bank system. It's not that banks aren't starting to change; it just takes longer. These are big systems connected to many different pieces. What people sometimes forget is it's not just the system integration; it's also about what you do when things go wrong. If a customer's payment doesn't go through, what's the solution? Who do they call? If the money needs to be returned, how is that done? That's the complexity in bank rules and regulations that smaller fintechs may not have because we need to install that on existing infrastructure.

(18:13):
It's extremely expensive to change the overall infrastructure and it takes time. We're subject to many more regulations. It's not just sending the payment; it's about servicing that payment if something goes wrong. Bailey, you mentioned stablecoins. With the Genius Act passed in July, the groundwork is set. We know it's going to happen, but now regulators need to start drafting rules. Then banks will start reacting. From a stablecoin perspective, especially in cross-border payments, it is gaining legs in the upper end of banking. But in the merchant processing of payments, it's still murky because of those questions: How do we deal with it if something goes wrong? How do we refund the customer? There is a lot of complexity as banks rehash their systems to add value and modernize their platforms.

Bailey Reutzel (19:28):
That's a good point. I have sympathy for bank complexity. Saujin, while banks are modernizing their core infrastructure, fintechs can come in and take some of that market. You see an interest from small businesses and micro-businesses in just finding the first thing that can get the job done. They might switch back and forth or eventually go to a bigger bank. What do you see there?

Saujin Yi (20:01):
Because of the speed we can go at and our contact with small businesses, we know what they need and can build it faster. However, small businesses trust their banks more than anyone. For us, we believe it's a win for everybody. For years, we went directly to small businesses. We surveyed them every time: "Where did you make these cross-border payments before?" and 80% were saying they did a wire. What if I could provide that experience and UX that works for a small business? They need the complexity of commercial products with the UX of the retail side. We believe we can make this happen for you a little faster.

(20:57):
We can provide the product, you bring the trust and the customers, and the small business wins. There's a huge opportunity for partnership rather than just competitiveness with fintechs. Fintechs can't really do it alone. Honestly, for us as a startup to talk about payments and say "trust us" is a big feat. There is a good marriage that could happen between what we do best and what the banks do best.

Bailey Reutzel (21:32):
The big banks generally have the funds and talent to integrate embedded finance. For the smaller players in the audience who might not have those engineers or that money, how do they embed this stuff?

Saujin Yi (22:07):
That's the answer: the fintech products you have can allow you to be the central hub. You have to make sure they're compliant and go through the vendor process, but if you own that customer relationship and trust, you can provide them with the products they need behind the scenes. I'm a small business myself as a startup; the amount of software we have to log into to manage our business is not what we want to be doing. To have all of that connected to the bank would be amazing. You become that trusted hub, vetting the fintechs for me so I can pick what I need. "Oh, I need a CRM? It's there." And now the data is being shared. That would be a dream come true for small businesses.

(23:02):
If you think about what a small business needs and then aggregate those services into an amazing experience, there is a big opportunity. In global payments alone, we believe it's a $200 billion market if you were purposefully designing for small business needs like we are trying to do with micro-escrow. You can do that for lending, ERPs, CRMs, and all the different things out there.

Vlatka Puljic (23:41):
Integration is key. We've heard it over and over today: single sign-on is important. Customers tell us they don't want to log into multiple platforms. They want one platform for their deposit account, their loan, their TMS, and their cross-border payments. They want it all to be seamless because they wear a lot of hats and don't have much time. They want full visibility. It's about providing that service as opposed to a one-off product.

Bailey Reutzel (24:23):
We only have a few minutes. Are there questions in the audience?

Audience One (24:32):
What was your process like for the integration with JPMorgan?

Saujin Yi (24:44):
We have two parts to our business. We have the backside where we need the infrastructure for payments to ride their rails to get the money out, pay in, hold it, and pay out to customers around the world. That integration took a long time and we had to pass a lot of checks. I've learned a lot about patience. Then we were servicing small businesses directly for a long time. Now we are shifting that to embed our product right into the bill pay section of small business platforms. We're in the middle of that right now with several banks. We are going through it as a normal vendor onboarding process, which is also character-building.

John Gardiner (25:43):
To add to that, we're actually completing an agreement with Liquid Trust to provide their payment platform for the buyers and sellers on our marketplaces. Our platform connects buyers and sellers; it's B2B, not B2C. The values are much higher and you want a level of security. Liquid Trust offers an escrow. A key thing for us was JPMorgan Chase. We've had a lot of companies approach us to offer similar escrow or blockchain services, but if their bank is the Bank of Mauritius, I'm skeptical and my customers will be skeptical. Having that backing is a very good thing. I'm sure it's like pulling teeth to negotiate a deal with Dimon's bank and to go through all the KYC and regulatory efforts, which is why we would not enter into this business ourselves.

Bailey Reutzel (26:47):
John, what are the practical things that small and medium-sized businesses need? We talk a lot about innovation, but what is practically there? On our payments panel earlier, we noted that you don't know what you don't know, so if they don't have the tech, they might not know it's useful.

John Gardiner (27:11):
The key thing is not to be fooled: if you build it, they will not necessarily come. SMBs need a lot of handholding. Even if a platform is easy to use, it still takes a lot of offline effort to get them to understand the benefits. If it's offered through a bank and accessible within a trusted app the company is already using, that really helps. Otherwise, from a cross-border perspective, small businesses are looking for what any other importer-exporter wants: good pricing on freight and payment transactions. Protection is key. Up to a certain amount, we encourage clients to use a credit card because it gives them protection, or even PayPal, but that's only up to a certain amount.

(28:25):
Beyond that, they are often unable to do standby letters of credit or LCs. They have to take a risk and negotiate the transaction in a way that protects the buyer. From the seller's standpoint, it's the same thing. If you're tying payment to delivery, you're worried about getting paid at the end of the day. Payments are the most important aspect once you get past the initial negotiation and confirmation of the product. It can kill deals; it's killed several deals we've intermediated.

Saujin Yi (29:06):
In 2022, we started to see customers suddenly come to us from Uruguay and India asking if we could send their US customers to collections or sue them because there's no recourse in cross-border payments for these small businesses. We looked at why they were stuck with this risk. We looked into LCs and realized they are priced out for them and don't make sense.

John Gardiner (29:51):
Nor are they able to get LCs.

Saujin Yi (29:52):
They can't even get them easily. They use credit cards for some protection, but there are limits and some people don't take them. The best quote I heard was someone saying they only work with people they've known for 20 years or they sleep with their shipment, because they're so worried. They want to grow, but they're afraid. What is the product or solution that goes with that? We provide one micro-escrow product as a solution, but to be innovative in solving a problem like that is key. Right now things are very focused on the commercial and retail sides. I'm glad there's a small business banking platform and hopefully you can think about a need like that and come up with a solution. There are probably 10 solutions out there and I hope you can build purposefully designed solutions that really help small businesses. They don't even know they need a micro-escrow; they just know they need more protection.

Bailey Reutzel (31:00):
Any other questions?

Audience One (31:02):
I love the Liquid Trust model because it's "LC for everyone." Small businesses in the US certainly deserve protection when trying to grow. Regarding adoption: how do you mobilize bankers to be able to talk about the value-add? And how are the banks quantifying the ROI and payback period for this kind of investment?

Saujin Yi (31:51):
I'm a product person by trade. I think about where I can meet the customer when it's a new product, because it's hard to educate them unless they see it in action. When you buy a plane ticket and see the insurance checkbox, you might not check it, but you've seen it over and over. At some point, for a trip where you feel you need protection, you're going to check that box. For me, it is important to sit next to something they're already doing—the wires. As an alternative, I might not be sure if I need this, but it seems like something I could use for a new larger transaction or a new vendor. That's one part of the education. On the ROI side, we're not a cost center. We've been doing it as a rev-share deal because you can make money from us like you would on an LC.

Vlatka Puljic (33:11):
From a banking perspective, 30% of small businesses would switch banks if the bank doesn't have a good cross-border solution. Since 90% of small businesses import goods, it's clearly important to them. They're doing it on an ongoing basis. Especially with tariffs, they're probably buying smaller shipments because they don't know what's going to happen in the next couple of months. It can be measured through retention—what are we retaining from the customer base because we have integrated solutions? But I agree that it needs to be part of the conversation. I bypass the insurance click button when buying a plane ticket too.

(34:06):
But if a travel agent called me and explained the specific value of that travel insurance for my trip, I might have clicked that box. We shouldn't underestimate the human component and the holistic conversation. That's where bankers come in. They need to be able to explain the value, the fraud protection, and all those things.

Bailey Reutzel (34:42):
That's an interesting point because the client can ask questions too, like whether it covers them if their cat dies or whatever.

Vlatka Puljic (34:56):
Exactly.

Bailey Reutzel (34:58):
We have gone three minutes over. Gold star again, you guys have done so well. Thank you so much.

Holly Sraeel (35:13):
Our deep gratitude to everybody who stayed to the bitter end. We hope you have enjoyed Small Business Banking. It is one of many live media programs we bring to the industry every year. Last week we did five events in three days recognizing the Most Powerful Women in Banking, and then we jumped a plane 36 hours later to be with you. You've been an amazing audience. Everything we do in live media is difficult and involves so many people and details. We have production, marketing, and sales, but the core people who make this happen are the editorial and live media team. I'd like to announce everybody for a round of applause: American Banker Senior Director Mary Ellen Egan, American Banker Senior Director Bailey Reutzel, and American Banker Editor Alyssa Klein.

(36:19):
Join me in thanking them; they've worked so hard on the program.