The internet has radically changed commerce and opportunities for entrepreneurs and small and medium enterprises (SMEs) globally. The ability for smaller merchants and businesses to operate internationally has been a game-changer. However, numerous payment problems have arisen resulting from the rapidity of the change, and financial services are struggling to keep up.

It is frustrating for many SMEs that they can now operate across borders, but legacy banking infrastructure often labels smaller businesses as ‘high-risk’. This can make transactions difficult, risky, slow, and expensive.

For example, a business receiving an international payment will probably use SWIFT and won’t receive the money for between one and five days, on average. There is no transparency in the process, there will be fees attached and, probably, an unfavorable exchange rate.

Then there are the risks for the merchant that arise from credit card fraud. The recent 2021 Chargeback Field report found that between 2018 and 2021, there was a 21 percent increase in criminal fraud.

There are solutions available for P2P transactions and larger companies, but SMEs have been largely excluded. As smaller businesses often operate on very tight margins, this is holding back a lot of enterprises. Fortunately, solutions have been appearing thanks to nimbler fintech companies, innovative new platforms, and the adoption of cryptocurrencies.

Companies are generally labelled ‘high risk’ for a couple of reasons. First, the type of industry is one of the broader and often more arbitrary ones. These can include online pharmacies, VoIP providers, and even subscription services to things like magazines.

Some industries deemed high risk are vast. The online gaming industry, for example, was worth US$37.65 billion in 2019 and is expected to be worth US$122.05 billion in 2025. Cryptocurrencies and related businesses are similarly deemed risky, yet Bitcoin alone is valued at $1.03 trillion (as of 26th November 2021).

Secondly, SMEs are frequently labeled high risk as they tend to have low sales and transaction volumes. Also, smaller companies operating outside of wealthier countries or blocks – such as the US, Canada, Japan, Australia, and the EU – are grouped into this ‘risky’ category. However, this is incredibly limiting, especially given that SMEs account for 90% of all businesses worldwide.

The internet is still expanding, and smaller merchants are suddenly able to reach global markets. Unfortunately, the legacy banking infrastructure has fallen behind in how it labels risk and penalizes SMEs making cross-border transactions. However, fintech is finding solutions, and the banks are being forced to play catchup.

Ironically, given its frequent labelling as ‘high risk’, it seems that cryptocurrency might be a solution. Fintech companies like XanPool, and its platform XanPay, have developed infrastructures that bypass legacy banking networks.

XanPool’s founder and CEO, Jeffery Liu, explains how his company’s cross-border payment solution came about. “As an entrepreneur, I am also on the lookout for problems people are having, and I then set out to try and provide a solution,” he says.

“XanPool was founded in 2019 because there was a problem onboarding and offboarding from fiat currencies to crypto. The issue was that to buy and sell crypto with local currency, you had to go through the legacy banking infrastructure with all its fees, delays, and risks. Given that Bitcoin was invented to bypass traditional systems, the situation was crazy. So, we designed a way around that.”

XanPool is essentially a market-making software that lets buyers and sellers – liquidity providers – trade crypto using various digital wallets or bank accounts. “We have cryptocurrency and a network of local currency liquidity providers that allows users to bypass traditional banking systems. This means they can also avoid the extra fees and exchange rate problems and, as transactions are instant, there aren’t days of delays and risks of chargebacks and fraud,” Liu says.

Once XanPool was up and running, Liu saw another problem that could be fixed. By leveraging XanPool’s existing cryptocurrency and liquidity pool, cross-border payments could also bypass traditional international banking infrastructure.

“We knew SMEs had been largely ignored by the banking system, with regards to making international payments. This was especially true in countries and industry sectors that established finance deemed risky. This includes most online businesses and nearly all of the Asia Pacific region countries,” Liu says.

Given that there are an estimated 213 million SMEs globally and almost 132 million of them are in the Asia Pacific region, there are a lot of enterprises being deemed ‘high risk’ and excluded from easy cross-border transactions.

“To solve this problem, we created XanPay,” Liu explains. “It’s a payment platform that every high-risk business from SMEs to eSports can use. As it works with local existing payment platforms, it is straightforward to implement and use. Furthermore, because it is built on XanPool’s infrastructure, these enterprises benefit from instant international payments with no risk of chargebacks or credit fraud. Having transactions that are 40 per cent cheaper and are instant decreases the risk that got them penalized in the first place.”

The advantage of fintech solutions like XanPay is that they were able to start with a fresh slate. Banks are struggling to adapt their systems and make them more efficient, but newer companies can start from scratch and incorporate advances like eWallets and cryptocurrency.

As more SMEs in developing countries move online, the number of businesses labeled ‘risky’ will continue to rise. Even a few years ago, this was a significant issue. Now, thankfully, there are several fintech solutions – and if the banks don’t catch up, they will be left behind.

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