Tackling The Two Rs Of X-Border Payments

Puppies and cute.

Dentists and dread.

Cross-border money transfer and murky.

That’s often — and unfortunately — the word that most businesses associate with the process of receiving money from a sender from another part of the world.

It’s a dimension of money transfer that is increasing in frequency and value as more people seek the services of institutions outside of their home country. These Global Citizens often invest in education for their kids or health care services for themselves or family members. So, making sure that the right amount of money hits the institution at the right time is essential and can be very stressful.

And stressful for the receiving institution, as well.

In the latest episode of Flywire’s podcast series on Global Citizens and what it takes to meet their cross-border payments needs, we dig into what has to be in place on the receiving end to make those murky waters clear.

Ryan Frere, VP of Global Payments at Flywire, explains that, for these types of payments — high-value — schools and hospitals often deal with getting an amount different from that which they expected, given FX and servicing fees. Further, truncated messaging — that is not at all standardized from country to country — makes it time-consuming and often highly manual to match the payment to the right student or patient.

Times thousands of payments a day that find their way into the institution’s bank account.

“When you start to extrapolate that out to thousands of payments on a daily basis, it becomes a pretty big problem,” Frere said.

And that’s just the payments side. There’s also the customer service side of the transaction that the receiver has to consider.

For the Global Citizen on the very anxious sender’s side, they may have questions for the institution along the way, and these questions can often go unanswered due to time differences or language barriers. When it’s 12 noon in Shanghai, it’s 12 a.m. in Boston. The customer service aspect, Frere noted, is something receiving institutions have to keep in mind as well.

At the end of the day, he added, as institutions look to receive global payments, they must consider the best possible ways to alleviate pain points for Global Citizens and make the experience as smooth and as simple as possible.

“It’s not just that one Global Citizen that’s impacted at the end of the day; it’s the entire network and people they are working with,” Frere explained.

The ‘Collection Network’ Eases The Stress

Imagine parents in China of a daughter who has just been admitted to MIT. What a thrilling moment for her and her family. Getting money to MIT is priority number one. That tuition payment — a tidy $60,000 — must be received by the deadline or else all bets are off. Off to the bank they go, and $60,000 is sent to the MIT account specified.

There is only one small problem.

Only $56,734 gets deposited into MIT’s account, with a truncated name that is unintelligible to the MIT accounting department.

This is a not a made-up scenario but one that Global Citizens encounter time after time.

But why?

As Frere pointed out, in many cases, the sender of funds doesn’t know how much it will cost them to convert their renminbi to dollars once they leave the bank. They typically are also unaware of all the corresponding banking fees that are assessed on the way from their local bank to MIT.

A collection network, Frere said, solves that by basically managing the movement of money from sender to receiving institution’s bank account.

When those parents in China send their $60,000 to MIT via Flywire’s platform, Frere explained, they are given a real-time rate based on current foreign exchange rates between their home country and where the money is being sent. Flywire then commits that the receiving institution will get that full amount; if there are fluctuations along the way, that’s risk Flywire assumes for both the parents and MIT.

They also agree not to “overpay.” There are strict regulatory rules that prevent more money to be sent to a receiving institution than is needed, and Flywire manages that aspect of compliance, too, on behalf of the receiving institution.

Being Prepared For What’s Next

It would be great if the world was a nice static place, devoid of big external shocks to the financial system, like Brexit, that have the potential to impact currency valuations — and sometimes even overnight. Frere said being ready for whatever comes next is the name of the game, putting a plan in place before that happens — both to blunt the risk to Flywire itself and its customers.

“For us, it’s a competitive advantage,” Frere said.

It’s also the sort of thing that, if not accounted for, can lead companies to completely shut down, since their ability to honor payments may be at risk.

When asked about Brexit, Frere remarked that not a single one of its payers was impacted. It had put a mitigation strategy in place anticipating the vote, which preempted any need to transfer market fluctuations or currency risk to its customers.