The financial sector is entering a new phase in its evolution, as shifting banking methods herald a change in the way businesses send, receive, and process payments. The accelerated advancements of financial technology in recent years have given rise to lower operational fees, API-enabled tools, and accessible cross-border payment, helping SMBs around the world gain midmarket velocity, without midmarket headcount and expenditure.
Over 66 percent of bank executives now believe financial technology will impact wallets and payments on a global scale, and with the fintech sector predicted to experience a compound annual growth rate of 25 percent this year, the opportunity for fintech growth has never been greater. As businesses acclimatize to the capabilities afforded through increased automation and back-end efficiency, the decreased dependency on legacy systems spells a period of integration and adaptation for a sector in perpetual flux.
The Challenges Facing Traditional Banking Methods
The worldwide average time it takes to pay a supplier has reached 66 days. These extended processing periods for international buyers and sellers can have a severe financial and operational impact on a business, often denying them the chance to break into lucrative global marketplaces. Costly foreign exchange fees, wire charges, elaborate local legislation, and manual taxation processes can pose barriers to entry for businesses looking to expand their offering, and companies are finding it hard to streamline their operations using the existing banking infrastructure.
Traditionally, legacy banking methods arranged cross-border payments through slower local accounts in each new market before enterprises can begin trading there. But the eCommerce industry has proven mercurial in the last decade, adapting to the needs of rapidly growing businesses at a faster rate than banks, allowing fintech payments providers to meet the ever-changing requirements for funding suppliers and securing supply chains.
The acceleration of globalization is making our world more interconnected than ever, with global cross-border flows expected to reach $156 trillion in 2022. However, businesses can’t capitalize on this market using static processes designed for a bygone era – in the banking sector, a bad workman blames his tools is less accurate than ‘a bad workman isn’t using the right ones.
The importance of an efficient payments infrastructure
Failing to prepare is preparing to fail, and without an efficient, transparent payments infrastructure, buyers and sellers aren’t adequately equipping themselves. The advent of automated cross-border payment solutions has changed the payments ecosystem irrevocably, developing a host of features that curb the often expensive and slow processes offered by big banks.
Setting up a virtual bank through an automated payments provider can be done in minutes, providing instant reconciliation capabilities that allow for real-time payment transfer anywhere in the world, mitigating the effects of delays in shipping due to slow invoicing, consequently increasing trust in seller-supplier relationships. All-in-one payments providers can offer a frictionless, paperless virtual banking experience with platforms that automate VAT, taxation, and payroll processes. These added capabilities arm businesses with operational savings that can be reinvested into their global expansion plans, boosting profitability and reducing stagnation.
We live in a culture of convenience that traditional banking means are struggling to cater to in 2022. Businesses, entrepreneurs, and vendors seeking to grow internationally are adapting to modern methods of transaction, viewing financial technology as an enabling partner rather than a disruptive force. Although virtual bank accounts are moving the sector forward, the real test of time will be how these automated, tech-enabled methods of banking, and traditional methods, work harmoniously together for the benefit of the community.