Cost, Speed Of Cross-Border Payments Holding SMBs Back

As international expansion becomes more attractive to small businesses looking for new avenues of growth, SMEs are tasked with facing the challenges of entering new markets head-on. But that’s hardly an easy task.

Research released late last year by HSBC discovered that among the largest barriers to international expansion for SMEs is a “lack of international business experience and knowledge.” And as the services offered by banks and FinTechs for SMEs to go global, from cross-border payment solutions to supplier management platforms, are vast and numerous, HSBC’s report found that many SMEs are confused by their options.

Plus, the complexity of varying regulations and customs policy, coupled with fears that global trade taxes will rise, mean it’s more difficult to persuade a small business of the value of going global.

The latest report to uncover the challenges SMEs face when expanding into new markets was released this week. Saxo Payments Banking Circle published its newest white paper Tuesday (June 27). which dives into the financial challenges of global trade.

The report, Cross Border Payments For Cross Border Merchants – An Internationally ‘Local’ Future, surveyed 200 merchants that are already conducting international trade.

“The digital landscape is breaking down barriers between regions, opening up a global market and global customer base,” said Anders la Cour, CEO of Saxo Payments. “But the practicalities and costs of payments often stand in the way of this progress. Half of the merchants who responded to our survey said their biggest concern about making and accepting cross-border payments is the transaction fees. Forty percent are concerned about getting the best FX rate, and speed of processing payments is a concern for 29 percent.

“These are all issues emanating from the traditional correspondent banking infrastructure,” he added.

Specifically, Saxo Payments found, SMEs are struggling to access the speed and cost-efficiency they need in global transacting. Indeed, more than 47 percent of survey respondents said the speed of settlement is their top priority, aside from cost, when choosing a bank, payments provider or FX provider. That surpasses low FX fees (44.55 percent) and the range of currencies offered (40.59 percent).

Perhaps more interesting is what these businesses don’t prioritize when looking for financial service providers that can support their international dealings. Just 14.3 percent said their top priority is finding a provider that provides an opportunity to expand into new territories. Meanwhile, only about a fifth said fraud monitoring, chargeback management and similar support services are their main focus.

Small businesses seem to prefer a consolidated approach when accessing cross-border payment services. More than a third said they only use one financial services provider, while 36 percent said they use two. That’s compared to less than 16 percent that reported using three providers, and less than 5 percent that use four.

Nearly a third said they use two currencies to make payments, suggesting their international presence is limited – 18 percent still only use one currency. Those figures could change, though, with 41 percent of respondents saying they would like to increase the number of currencies they use but that the cost associated with this is stopping them. Uncertainty of exchange rates and a lack of flexibility from financial service providers are major barriers to adopting more currencies into their global supply chains, the report found.

Interestingly, the majority of SMEs said these challenges haven’t actually prevented them from expanding into a new country or region. But according to Saxo Payments’ La Cour, these hurdles aren’t just holding back growth for small businesses, they’re limiting the effect those companies can have on strengthening their local economies as well.

“Our research has shown that a major pain point for merchants who trade internationally is speed,” La Cour said. “Speed of settlement, speed with which banks are able to provide financing, speed of response from a bank or payment provider. A delay in any of these can cause a merchant to falter, which cannot be good for the global economy because these small businesses are key to the success of local economies and communities.”