As the world becomes increasingly connected, there is enormous potential for small and medium businesses (SMBs) and enterprises (SMEs) to reach new markets and sell to international customers. However, trading globally poses numerous problems, even for online-only companies, due to issues with cross-border payments.
Companies like Wise and Rapyd have implemented some novel solutions for P2P and B2B payments, but SMBs remain largely neglected - and this is not a small segment of the economy. According to The World Bank, SMEs account for 90% of businesses and 50% of employment worldwide. In addition, cross-border payments are on the rise, with a report by Juniper Research estimating $35 trillion by 2022 for B2B payments alone.
What are the problems faced by SMBs?
The main issue for SMBs is that P2P solutions aren't applicable, as they are making business payments. Corporate B2B platforms such as Mastercard and Visa are also likely to reject SMBs due to low Gross Transaction Volumes (GTV). But even if a business passes the required thresholds, the fixed costs charged by the platforms can be crippling for those on tight margins. Consequently, a lot of SMBs rely on banks, which poses several other problems.
First, there are the extra costs. High fixed transaction costs, unfavorable rates, and credit card fees can seriously eat into profits, especially if there are multiple payments.
Chargeback risks, when a customer disputes a transaction with a bank, can be costly. Sometimes this can be innocent, such as someone not recognizing a business's name, but credit card fraud is incredibly common. There can also be quite lengthy delays before the money is transferred to the vendor.
Another significant issue is that processing times for international transactions can sometimes take weeks, especially in emerging economies. This causes unnecessary stress and complications for a small business, often exacerbated by a lack of transparency. Frequently, when the payment has been made, the merchant might be left in the dark as to when the money will arrive.
Technology is finally catching up, and cryptocurrencies might be the answer
Solutions have been a long time coming. However, a fintech company called XanPool has created a platform called XanPay that is designed to fill this gap and make cross-border payments for SMBs easier and cheaper. While the services it offers appear similar to those provided by traditional merchant platforms like Visa, Mastercard, or SWIFT, it has a crucial difference - it uses cryptocurrency.
Jeffery Liu, the founder and CEO of XanPay, explains, "I have been working in Fintech for a long time, and there was a clear need for a payment solution for smaller businesses with international clients. The traditional platforms cost too much, are slow to process payments, and face a lot of issues like fraud. Using cryptocurrency avoids all these issues.
"One of the advantages we have with XanPay is that we can leverage XanPool's existing decentralized network of local currency and cryptocurrency liquidity providers to enable faster and cheaper cross-border transactions between merchants and their customers.
"By using crypto to route transactions, the process bypasses traditional intermediaries like Visa or SWIFT, which can take days or even weeks to clear payments between businesses and customers. Instead, the technology allows partners to route and settle payments almost instantly."
Processing transactions this way can also be cheaper. Liu says, "Having no financial intermediaries, like credit cards or a clearing house, means businesses using XanPay can also avoid the usual high charges associated with routing money - such as the traditional 3% merchant fee and foreign exchange charges. The only costs with us are those related to the liquidity provider, which is at most 1 per cent per transaction, and the cryptocurrency network fee, which is negligible. As a result, merchants using our platform have seen a reduction in payment processing costs of over 40 per cent."
XanPay is designed for small and medium businesses, micro-business, and freelancers. As it is a network of individuals and companies, there is no reliance on banks or payment partners. Furthermore, operating outside the limitations of traditional finance networks means it can work with any legal business. Consequently, this also benefits high-risk merchants who cannot work with traditional platforms like Visa and Mastercard.
At present, XanPay is focusing on Asia, where it is based. Liu says, "We are currently integrated with more than 25 payment methods and services across Asia. We're used in over 20 APAC countries and currencies and connected to around 500 banks across local regions."
"We're trying to make things easier for SMBs in Asia. Our routing technology is cheaper, faster, avoids common frauds, and is a much simpler process. We've created customizable widgets, full-page checkouts, and eCommerce plugins for merchant websites. Also, our Application Programming Interface (API) uses REST, a protocol designed for flexibility and ease of use."
Liu adds, "What all this means is that, for example, a merchant in India can accept payment from a purchaser in Thailand - who is using 'PromptPay' and Thai Baht - and will receive Rupees in their Indian bank account minutes later."
Small or risky businesses have long been held back by traditional payment platforms. Solutions for cross-border money transfers exist but have thus far catered for other segments of the economy. It is still relatively early days for XanPay, but the underlying structure and scalability of the platform are promising.
The market potential of smaller businesses in the Asia Pacific region is vast. Local payment platforms are becoming increasingly ubiquitous, and having them integrated with XanPay means merchants can receive money from over half the planet. The solution has been a long time coming, but the technology needed has only recently been invented. It will be interesting to see how this develops.
