Cross-border payments are no longer just for major corporations. Small businesses routinely buy inventory from overseas, pay international contractors, sell through global marketplaces, and serve customers around the world. Yet, in part because of their origins in commercial banking, cross-border payments—both outgoing and incoming—can still be expensive and difficult to manage for smaller businesses.
In The Small Business Cross-Border Payments Opportunity report, Ian Benton, Senior Analyst of Digital Banking at Javelin Strategy & Research, looks at how small businesses are navigating this opportunity. They are turning to a wide range of options, including international wire transfers, PayPal, dedicated cross-border platforms such as Wise and Airwallex, and even remittance services such as MoneyGram and Western Union.
The Lay of the Land
The need for these services is growing as more U.S.-based businesses interact with customers, suppliers, and other partners overseas. According to Javelin, 26% of U.S.-based small businesses now use cross-border payments. That share increases with business size: more than half of businesses with more than $2.5 million in revenue are either sending or receiving payments across borders.
Still, international payments make up only a fraction of most businesses’ overall payment activity. Among businesses that send or receive international payments, only about a fifth of their transactions are cross-border.
“Even among those that are using cross-border payments, it’s still a limited capability,” said Benton. “That will increase as a capability becomes cheaper and people become more comfortable distributing their workforce and their contractors overseas. But today it’s still kind of a smaller portion.”
The Commercial Banking Option
Banks have long served this market through international wire transfers, but these can be expensive and hard to navigate for businesses without expertise in foreign exchange or managing multiple accounts.
“If you’re using cross-border payments, you’re typically going to use commercial banking,” Benton said. “That’s usually one of the best indicators that you need to move up into that next tier, in which case you’re a little bit more comfortable using international wires. You typically have a CFO or internal financial expertise, somebody who actually knows how to manage that stuff. Typically they don’t offer it to a ton of small business platforms because people are using them typically have been larger businesses.”
For businesses sending only a few international payments each month, an international wire through their bank may be sufficient. These firms may be better served by banks that offer cross-border services to individuals and smaller businesses, rather than requiring them to become commercial banking customers.
Fintechs like Wise, Revolut and PayPal have stepped into the gap, offering smaller enterprises a more customer-friendly way to send money overseas. They have gained traction by making cross-border payments more accessible, transparent, and, in many cases, less expensive.
But cost isn’t part of the appeal. Perhaps the biggest advantage is transparency. These platforms can show customers when their money is expected to arrive, exactly how much the transaction will cost, and what exchange rate will be applied.
Sending vs. Receiving
For most businesses, receiving international payments is relatively straightforward. Many already use e-commerce platforms with international payments built in, while others may invoice customers through services such as PayPal and receive funds through the same platform. In other words, the ability to accept payments is often embedded in systems they are already using.
Sending money across borders is a different story. B2B payments can be more complicated, and businesses often turn to international wires to pay overseas suppliers and vendors. While these transactions can be expensive, some of the associated costs may fall on the receiving counterparty.
“Sending out a payment is a much greater burden,” said Benton. “It requires businesses to figure out how much it’s going to cost, when it’s going to arrive, what the currency implications are, and whether or not their counterparty on the other end can actually receive it.”
Stablecoins Will Broaden Access
As the industry develops more stablecoin-based infrastructure for cross-border payments, smaller banks and credit unions will likely gain a new way to meet their business customers’ needs.
By reducing reliance on traditional correspondent banking arrangements, stablecoins could potentially lower costs and accelerate settlement. Access through digital banking providers and other payments partners could also make it easier for smaller financial institutions to offer cross-border services directly through the banking platforms their business customers already use.
“In the past they often had to go through a correspondent banking network, and interface with somebody like Chase,” said Benton. “Now they’ll be able to go through their digital banking provider, like a Jack Henry or FIS, and get the benefit of an infrastructure that’s enabled by stablecoins. It’s cheaper than the traditional international wire infrastructure.”
The Bottom Line
For now, many small businesses continue to rely on familiar, consumer-oriented services such as MoneyGram, Western Union, or PayPal consumer accounts. For business owners who are not payment experts, these services can provide a straightforward way to move money across borders.
“I don’t know how good of a business practice that is from the standpoint of being able to have records and reconcile it and things like that for a small business,” Benton said. “It’s not really designed for a small business.
As businesses become more globally connected, the gap between consumer-oriented solutions and traditional commercial banking becomes more apparent. Businesses that have outgrown consumer accounts but are not yet large or sophisticated enough for commercial banking services represent an important opportunity.
“I would look toward something like Wise or Revolut, which is coming to the U.S. fairly soon,” Benton said. “They’re really going to make a splash with that. That’s where I would look if cross-border payments were a major piece of a small business.”
