Cross-border payments are financial transactions where the payer and the recipient are based in separate countries. Use cases for the need to make cross-border transactions are plentiful and cover both B2B and B2C scenarios. In the retail/consumer segment, the largest use case tends to be money remittances, whereby one member of a family or community sends money back home from a country where they work or live. But there are also various other use cases ranging from paying gig workers for doing some contract work in a different country or making payments for owning and maintaining a property abroad, for medical tourism or for studying abroad. Many specialist providers offer cross-border solutions by claiming to be faster, cheaper or more transparent than the traditional financial institutions. In the wholesale or B2B segment, payments are really driven by international trade. EDC has done some extensive market sizing research in this area and the total numbers are quite staggering. For 2021, EDC has estimated the total size of cross-border payments to be roughly $30tr. The B2B segment makes up 85-90% of the total volume. With such huge volumes come huge revenue opportunities. We have estimated a revenue pool of somewhere between $310bn-$330bn, with the retail segment taking a larger share due to higher margins.

Given the size of this opportunity, it is no surprise that more and more payment companies have recognised the potential of B2B. From full-service processing companies like Worldline to payment card schemes such as Visa and Mastercard, all the way to specialist providers of B2B solutions like Coupa, Ripple, C2FO or Tradeshift and new-start fintech such as Playter or Crezco; the list of companies competing to serve this segment is large. But as most of the readers of this article will know, payments are in many ways still domestic, with local regulations, local payment preferences and most importantly local rails and infrastructures in place. Some companies try and solve this localisation issue by applying new technologies to cross-border payments (e.g. blockchain), while others are looking for geographical expansion via the M&A route.

Last month saw the announcement that Fleetcor, a global business payments company listed on the New York stock exchange for more than 10 years, signed a definitive agreement to acquire Global Reach, a UK-based cross-border payments provider. Last year, Fleetcor generated GAAP-related revenues of approx. $2.8bn, a 19% increase from the previous year. It offers a range of corporate card products (fuel cards, lodge cards, T&E cards etc.) that issuing banks or issuers sell to corporates. Fleetcor will take a cut every time one of these cards is being used. But Fleetcor also offers non-physical card solutions via its e-payables unit, where the cross-border payments unit sits.

Global Reach, which was private equity-backed, has a consumer proposition that possibly competes more with the likes of Wise or Currency Cloud but also has strong foreign exchange solutions for corporates and institutions. According to its website, it processed approx. $7bn in cross-border payments last year and would therefore be much smaller than Fleetcor in terms of processed volumes.

At first look, there is nothing ‘revolutionary’ about this deal. There appears to be a strong overlap in terms of geographical coverage and the additional volume is sure of some benefit to Fleetcor. There is no immediate evidence that the deal is addressing any of the above-mentioned localisation issues but having the ability to leverage sophisticated foreign exchange solutions, using dashboards and getting the best rates possible and therefore provide a financially attractive cross-border payment solution to corporates and individual customers is a real benefit in the increasingly competitive cross-border business. This can drive additional scale. A low-risk acquisition with good upside potential.

The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).

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