The Time for Progress is Now

On-Demand Liquidity for Corporate Enterprises: International Trade Finance

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Little did E.C. Segar know that when his comic strip character Wimpy first uttered the catchphrase “I would gladly pay you Tuesday for a hamburger today” in 1932, that he would be describing the state of today’s cross-border payments system. 

Waiting for an international payment to clear can often feel like agreeing to Wimpy’s proposition: money sent today regularly arrives days later, creating cash flow challenges and injecting cost and uncertainty into a critical business transaction. Banks and other financial institutions still currently operate on a Monday-Friday schedule despite the always-on, 24/7/365 world we live in, creating a major discrepancy between customer demand and businesses being able to meet those needs.

In many cases, it would be faster, cheaper and more reliable to complete a transaction by flying a suitcase full of cash to its destination. And yet, this slow, expensive and opaque process is still relied upon to power payment methods and finance for international trade, underpin complex global supply chains, enable corporate treasury flows and fund the operations of non-governmental organizations. 

Blockchain-based solutions present a better way for both small-medium sized businesses and enterprises alike to conduct cross-border transactions—introducing speed, affordability, transparency and certainty into the equation. 

Transaction Costs and Delays are Inhibiting Growth  

The world’s money transfer system is made up of a patchwork quilt of country-specific financial networks. Different currencies, rules and regulations, and technologies essentially require money to pause and then restart its journey every time it encounters a national border. 

To surmount these barriers, even high-value payments like trade finance transactions that are critical to global business operations must turn to a small number of correspondent banks and payment companies that offer transaction toll roads. These add layers of time, expense and opacity that inhibit business operations and the potential for growth elsewhere. 

To provide the liquidity necessary for companies to complete cross-border fiat payouts in real time—particularly in complex corridors—banks and other payment providers are subject to reserving funds in settlement accounts in various countries. While this enables the payout partner to make the last mile payment to the end beneficiary (i.e. customer) in local currency, it also simultaneously ties up working capital in nostro accounts—capital that is becoming increasingly scarce. As a result, banks and other financial institutions are forced to pass on the cost of that tied up capital to their corporate customers, often in the form of high fees.

Time is another hurdle, with most transactions usually requiring 3-5 days to fully settle – placing added strain on cash flow. And since bankers’ hours hold, companies must often race to beat “cut-off” times for same day processing or to work around holidays and weekends. 

What This Means for Multinational Businesses Today

Consider a large multinational with teams and offices in numerous countries. To handle vendor payments, manage payroll, and balance accounts across the enterprise, it must maintain multiple banking relationships around the world and continually top-off high dollar value pre-funded accounts in each country within which it operates. 

The company would likely also employ a forecasting team to predict where funds will be needed and by when, so they are not caught flat-footed for payroll or other financial obligations by delays or holidays. All these time and financial commitments add up, dragging on a company’s bottom line and restricting opportunities for investment and new growth. 

Removing Hurdles and Unleashing Growth 

With blockchain-based cross-border payment solutions, companies can shift away from legacy correspondent banking relationships to eliminate unnecessary hindrances and unlock new growth and innovation opportunities.

Ripple’s On-Demand Liquidity (ODL) solution is custom-built for streamlined, more efficient cross-border transactions. Operating 24/7 – even on weekends and holidays – it eliminates pre-funding, shortens transaction time to fractions of a second, dramatically reduces costs and introduces pricing transparency. 

In addition to these inherent time, cost and availability advantages, for trade finance organizations, ODL means greater flexibility with capital, new opportunities to scale business operations and less time managing accounts and partners. 

As a result, ODL continues to build momentum globally, having just launched in Brazil through a partnership with Travelex while maintaining strong Q3 growth in other markets around the world. New and existing ODL customers like Lemonway in France and FOMO Pay in Singapore also recently announced their use of ODL for treasury flows. By powering same-day settlement and freeing up time and capital that would otherwise be committed to pre-funded accounts, companies across the globe are realizing the benefits of real-time global payments, backed by crypto solutions for business.

The Way Forward for Modern Businesses

All in all, the world’s traditional cross-border payments setup is not built for modern business. Better alternatives for trade financing and methods of payment exist—powered by blockchain and crypto. Companies using ODL can overcome the frictions in these legacy solutions to optimize their operations and unlock new areas of growth. 

To learn more about how to fund real-time cross-border transactions without sacrificing working capital, contact our team today.

The availability of Ripple’s products and services and their respective features varies by jurisdiction.

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