Filling In The Technology Gap In B2B Cross-Border Payments

November 30, 2017 Payment Week

By: Jason Mugford

Cross-border B2B payments are expected to grow by 7% through to 2019, according to McKinsey & Co yet expanding into new, international markets can be difficult for most businesses where their payment operations requires a special process for international suppliers. Each country has its own requirements for sending payments and it is a challenge for businesses to navigate the different governing bodies and pass with flying colours.  In fact, businesses experience a disproportionate number of payment delays and returned payments that then require additional resources that many cannot afford to take on. As trade across borders continues to be a common practice to adopt, businesses are recognizing the value of international payments knowledge and experience.

The byzantine process of sending payments internationally   

When companies sign up for an international account, they  undergo a typical process where they are asked questions including but not limited to the currencies, volumes, and purpose of payment. This information forms the basis of account monitoring where additional questions may be asked before the payment is transmitted, depending on the currency, amount and the country the payment is going to.

Due to the growth in cross-border transactions, banks are faced with higher risks of suspicious transaction activity, and it puts the onus on the sending and the receiving financial institution to diligently capture information required by regulators and government bodies around the world.  Required compliance information can be as basic as a beneficiary phone number and a reason for payment to a tax identification number.  There are also instances where the beneficiary must physically come to the bank to claim his or her payment.

Equally important as satisfying compliance requirements is the need for the banking instructions to be in the correct format for delivery. Countries have their own naming conventions and account number formats and the correct format must be known to ensure payment can reach its destination on time.  For example, an IBAN number is required for many European countries which is an alphanumeric account number that contains banks codes and account numbers.  However, an IFSC code is required when sending money to India.  To make matters more complicated, the information and formats required is not only different by country, but also by currency and even payment method such as ACH and Wire. Sending an ACH instead of a wire will require different information from the receiving bank. For smaller, regional banks as well as credit unions who often serve local businesses in the community, they are also recognizing the need to service enterprises in sending international payment on time and accurately the first time.

The devil is in the beneficiary details

The majority of cancelled payments are the result of invalid beneficiary details, such as invalid account number and/or account name.  By not providing the correct information, payments can be delayed, returned and cancelled. Returned wires generally take a disproportionate amount of time to resolve.    Impacts to businesses can be substantial with payroll not paid, goods not shipped, tuition not paid, etc.

When a payment does not reach its destination when anticipated, an investigation is launched.  These investigations are costly and time-consuming with time frames for resolution varying from days up to months. There are many contributing factors towards the length of time it takes to receive a response to an investigation request: the country of destination, the currency (e.g. Rate of Execution Currency (ROE), the beneficiary bank not being on the main SWIFT network, and the relationships between originating and destination banks.

A new wave of payment platforms

Larger banks have not been able to transfer their knowledge into a format that their customers can easily interpret.  While the information may be available, it requires the customer to do research as opposed to it being right at their fingertips when entering in payment details. Larger banks have competing priorities and innovative focus on international payments is often lagging ,leading to many large companies  migrating this portion of their business over to fintech companies that can provide a solution to help make international payments more efficient.

Fintech companies are realizing that this knowledge gap is significant and are providing tools for companies to navigate this complicated process through technology and service.  There are now systems that have the ability to identify what information is required at the outset, so companies can collect the correct information before a payment is sent.  Collecting payment information proactively is saving companies valuable time with returned or stalled payments.  Technology companies that truly understand this space are converting years of payment experience into platforms that customers can access directly. The challenges fintech companies face is that they are still reliant on a bank to transmit a payment.

Technology-based payment platforms can help businesses in minimizing payment delays and returns in cross-border B2B transactions.

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