Cross-border payment volumes may be back to pre-pandemic levels, but rising interest rates pose a significant threat to present and future growth.
In our last post, we explored how banks were being impacted by higher rates and the ways that crypto-enabled cross-border payment solutions could help overcome those challenges. Now, we’ll turn our focus to the impact on global businesses.
Ripple’s 2023 New Value Report found that nearly half of enterprise respondents cited high interest rates as a top challenge for cross-border payments. While the degree of impact may vary country-to-country, it’s obvious that companies around the world are feeling the pressure.
Let’s explore three ways higher interest rates are putting the squeeze on businesses and close with tangible steps businesses can take to strengthen their payments stack and shield the effects of a possible economic recession.
1. Currency Fluctuations Impair Growth
Cross-border payments often require local currency conversions, so any volatility in currency exchange rates can lead to fluctuating, unpredictable transaction costs.
As interest rates increase, so do the odds of pricing instability and the difficulty of predicting the cost of sending money internationally. Businesses planning to avoid or account for these escalating expenses need real-time knowledge and may even rely on expanded headcount to provide this knowledge. But many businesses lack the resources needed to hire and retain a dedicated team, leaving them at the mercy of currency fluctuations and frequently surprised by additional fees.
This potential for greater losses can deter investment activity and economic growth, but savvy business owners understand the importance of flexibility during times of economic uncertainty. In fact, diversifying your business can help mitigate the risks of keeping all your eggs in one basket, especially when that basket may be on the brink of a recession. This can include offering new products or services, enhancing your cross-border payments stack, or expanding your reach to include customers in new markets.
2. Costly Credit, Reduced Liquidity
According to a 2022 C2FO survey, a line of credit or term loan from a bank is the top source of working capital for most businesses. Greater access to liquid capital helps facilitate cross-border transactions and can give business-to-business (B2B) international payments greater agility around when and how to provide B2B receivers the fastest access to funds. However, as interest rates rise, so does the cost of borrowing, resulting in reduced overall liquidity in the financial system and higher cross-border transaction expenses.
Historically, businesses have turned to a regional liquidity provider in the destination market for notional cash pooling to mitigate expensive cross-border fees. But banks under pressure from Basel III requirements, which dictate how much cash they must keep on hand, have begun to demonstrate a lending preference for larger businesses, leaving out many small- to medium-sized enterprises (SMEs).
Taking on these increases in fees then, coupled with an overall lack of liquidity, can make for stringent cash management and increased operational overhead. That’s why finding the right partner to help streamline global payments for your business is key to alleviating these pressures and gaining a substantial competitive advantage—in any economy.
3. Uneven Access to Financial Services
Finally, high interest rates can exacerbate existing inequalities in access to financial services like cross-border payments for smaller businesses or those in emerging markets.
Companies in regions with higher interest rates may face greater challenges finding and affording cross-border transactions, limiting their ability to participate in global trade or enter international markets. The International Monetary Fund further warns that “high sovereign debt vulnerabilities are pressuring many lower-rated emerging market and frontier economies, with potential spillover effects to their banking sectors”.
In truth, legacy payment rails are failing businesses worldwide. SMEs continuously face diminished access to financial services as the correspondent banking system becomes more concentrated, not to mention cross-border payments are expensive, slow, and prone to error.
However, blockchain has proven to be the technology of choice for more reliable, efficient, and accessible global payments. By debunking common crypto myths and exploring the capabilities of blockchain-enabled payments, your business can offset liquidity challenges posed by rising rates and streamline global treasury payments, global B2B payments, payroll and supplier payments and more.
Unlocking Growth with Crypto-Enabled Payments
With Ripple Payments, customers can access greater working capital with reduced pre-funding requirements, upfront pricing and no hidden fees. Businesses that enhance their payments stack with Ripple Payments are primed to save costs (a top value proposition for incorporating crypto into cross-border payments) as transactions settle in seconds at a near-zero failure rate.
Beyond cutting costs and improving efficiency, Ripple solutions can also enhance business growth opportunities, counteracting the burden of additional operational overhead and capital required to enter into a new market. Using a single API integration to tap a payout network that represents more than 90% of the foreign exchange market makes it easy for companies to enter new payment corridors — even in hard-to-reach regions. The result is a more diversified base of customers, team members and suppliers.
This ability to pay into multiple markets is becoming especially crucial in the growing gig economy, in which disbursements are expected to reach $298 billion globally in 2023. With 915 million people earning a freelance income, micro-payouts and geographical reach are critical for sustained growth in this industry. Companies can leverage Ripple Payments to support cost-effective, high-volume, smaller payments to their labor force and unlock access to international markets.
For businesses seeking sustainable growth even amidst a rising interest rate environment, Ripple can be the bridge to success. With white-glove service, single API integration and dedicated customer support partners — combined with the simple, intuitive nature of Ripple solutions — it’s easy for any company to realize the benefits of crypto-enabled cross-border transactions, even those with minimal crypto experience.
Learn more about how Ripple Payments can unlock growth for your cross-border B2B payments business.