In many ways, eCommerce has dissolved borders, creating new expectations for business to be conducted between countries with different currencies, languages and regulations. And as the ability to send payments electronically becomes faster and cheaper with innovation, it seems like doing business globally should no longer be a big deal.
Indeed, this borderless economy has made it easier for consumers to buy what they want on giant marketplaces like Amazon and Alibaba from global sellers they otherwise never would have met. It’s also made it easier for freelancers to find work matched to their skills, anywhere in the world.
None of this would be possible without the ability to complete payments in these marketplaces – or the ability for buyers to conveniently pay sellers.
Yet merchants and marketplaces on the front lines know it’s never that simple. Eliminating friction on the acceptance side is only half the battle. It’s not just about getting payments from buyers to sellers; it’s also about ensuring that those sellers can pay their suppliers, manufacturers and the workers who provide services through the marketplace.
A lot of innovation has focused on accounts receivable for businesses on marketplace platforms with a global reach. Now, innovators are turning their focus to accounts payable so that suppliers, too, can be paid quickly in their own currency. However, it’s most efficient for them to be paid – because, after all, they too play a critical role in operations and supply chain.
In a recent webinar with Karen Webster, Peter Shore, GM at Transpay, outlined the five things marketplace merchants must consider when making international payouts to a global partner base.
This is not a space where it pays to focus on the “next big thing,” said Shore. Emerging markets are wary of adopting anything too cutting-edge, so focusing on new technologies like blockchain could jeopardize relationships with the banks in those markets.
Instead, he said merchants should think about more traditional payout methods – ones that have been around for 10 years or longer (besides cash). Each one will have its pros and cons; each merchant must decide for itself which methods will best serve its suppliers.
Checks may be slow and come bundled with conversion costs, but people do still accept them, so that’s an option. Wire transfers, or traditional correspondent banking, are another, although they do lose money at each hop – which is why many companies have been developing proprietary methods to take a more direct-to-bank approach.
The direct-to-bank account, Shore said, is what is typically preferred by suppliers and trading partners.
Prepaid cards enable customers to access physical fiat via ATMs, but they only work with an eWallet or some store of value to back them up, and there can be fees associated with their use. There will also be tax liability and compliance challenges around the base currency where funds are being held.
Although eWallets are an instant way for sellers to get transactions off the merchant’s books, they can limit the use of funds on the receiving end.
Shore said that most of the time, offering two or three of these methods will satisfy suppliers – the important thing is to give them a choice.
In payout coverage, the number of countries “served” is moot if the payment method lacks access, Shore noted. It’s about reach and depth.
For example, a merchant using direct-to-bank must ensure that it’s connected to the market’s key banks rather than leaving some of them unsupported. A merchant that wants to use prepaid cards should consider how far customers must drive to an ATM to access their money. Just because customers can use the prepaid card at one ATM in Togo doesn’t mean the merchant has “solved for Togo,” Shore said.
These challenges are compounded by the fact that many local central banks don’t understand, or have yet to even contemplate, the freelance marketplace model. Their rules and regulations were not built for this type of economy, so merchants who wish to do business there must play by the local rules.
For instance, some banks limit transaction size or frequency for prepaid cards. If the central bank only allows individuals to receive 30 transactions a year, then weekly payments will only reach suppliers through the first half of the year, leaving them unable collect their wages on weeks 31 through 52.
“Select payout methods that play within the rules,” advised Shore – and be flexible. “Maybe you pay out less often. Maybe you use a wire transfer because the bank is exempt. Maybe you skip the prepaid cards because of the limit. Do what you have to do to serve 80 percent of the people you’re trying to reach.”
What type of currency is the merchant holding and ready to pay out, and what type of currency does the supplier need on the receiving end? Whatever the answer, merchants must choose a provider that deals in both, said Shore.
But merchants must know even more than that. Where will payments take multiple hops to reach their destination? What fees are associated with that? Does the provider guarantee rates, even for volatile currencies? Do they apply a volatility index to cover long weekends and after-hours trading?
One important question that many forget to ask is, “What base currency (or currencies) does the supplier deal in?” Many, said Shore, only deal in one or two. Merchants should make sure they know which ones they are.
For example, if the merchant accepts euros and needs to pay out in Germany, which uses euros, this transaction appears to be like for like. But if the supplier only deals in U.S. dollars as a base currency, then the payment will be converted from euros to USD and back to euros before reaching the supplier.
Shore said merchants should map out the entire flow of funds from beginning to end and assess for any potential challenges or fees.
At each point of handoff, he said merchants must understand whether there is a fee and, if so, how much. Ideally, merchants should have a clear view of where the money is at all times rather than losing sight of it at the handoff, only to regain visibility when it reaches its destination. Additionally, they must consider whether there are out-of-network, ATM or monthly maintenance fees on the supplier’s end.
“You have a bill to pay, and you want to pay it as close to in-full as possible,” Shore said. “Take the guesswork out for yourself. If I owe you as my supplier, I need to pay you, and if what shows up in your account shows up even $5 short, that’s a pain point neither of us should have to deal with. It distracts from [the] core relationship.”
The rules and regulations around risk and compliance vary by country, and are often in flux.
Europe’s GDPR is top of mind as merchants prepare to bring themselves and their suppliers into compliance. Europe has also already cracked down on many U.S. companies for what regulators view as tax avoidance, whereas the merchant feels it has done its accounts payable diligence and the liability has shifted to the payment provider.
OFAC can be another big challenge, especially since different countries each have their own lists, and it’s difficult for merchants to know whether their suppliers have looked at all the lists, or just the OFAC one (assuming the supplier is U.S. based).
It falls on the merchant to ensure that rules and regulations are met, said Shore. If a supplier gets an OFAC hit or otherwise breaks the rules, it’s the merchant, not the supplier, that will find itself in media headlines, thus damaging the brand.
Conclusion
The fundamentals of cross-border payments haven’t changed, said Shore. The top concerns still boil down to costs, relationships, compliance and risk.
But in a world that has gone beyond checks and wire transfers, there’s a lot more vetting to be done on the merchant’s side to ensure that a solution will work for suppliers while also meeting the merchant’s corporate goals.
“Do your homework,” Shore said. “Understand today’s methods as well as emerging ones. Evaluate your customer base from an accounts payable position and really try to understand the pain you’re putting on your partners when you send them a payment.”
Ultimately, he said, global businesses require a payments partner that is experienced, flexible, transparent, cost-efficient and compliant, and it doesn’t take futuristic technology to deliver that – just a solid understanding of the options available and how they will play out in each market.
“The real innovation,” said Shore, “is ensuring that depth and breadth of reach across these global geographies to ensure no customer is left without a method.”
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