The future of cross-border payments

Thu 13 Oct 2016

Most multi-national businesses need to make regular cross-border payments, for everything from supplier costs and insurance to local tax payments and staff salaries.

This presents a host of challenges, with currency volatility and the need to maintain constant visibility of FX prices at the top of the list, and the requirement to conform to local compliance issues and regulations close behind.

The practice of making cross-border payments is further complicated by the different banking models that can be involved, which often lead to lengthy and costly delays between payments being sent and arriving.

Yet even more so than the delays and extra costs that can be accrued when making cross-border payments, crossing from one banking model to another can lead to information that is essential for bank reconciliation to go missing, and significant difficulties arising in even tracking the progress and current whereabouts of a payment.

Given the challenging nature of cross-border payments, it is little wonder that Financial Technology - or Fintech - is doing its best to streamline the process.

A number of peer-to-peer websites and Apps have now appeared, which purport to not just speed up but also reduce the cost of more traditional cross-border payment routes.

Yet while they offer speed and transparency, there are a number of question marks over the certainty and stability they can offer to multi-national businesses.

The Trade-Off Between Margins and Peace of Mind

As noted above, not only are there a number of complexities to the making of cross-border payments, new FinTech players are beginning to enter the market with a promise of bringing new time- and cost efficiencies.

However, it is important to differentiate between simple Money Transfers - as promised by the plethora of new software platforms and Apps we are now seeing - and Money Payments.

Money Transfer is a relatively simple process, whereby a sum of money in one currency is sent to a financial institution in another country, appearing in another currency. Charges will have been applied, as will the exchange rate offered at the time the transfer was instituted.

Money Payments, on the other hand, generally involve more complex - not to mention crucial - processes such as payroll runs for high volumes of overseas staff; where a high degree of accuracy and efficiency is essential in order to ensure that staff are paid exactly the right amount, and on the expected day.

International payment provision therefore, is all about certainty: about getting every payment right first time, and also being able to follow the regulations of multiple tax jurisdictions and banking models.

For that reason, while the face of cross-border payments may change a little over time, assured international payments for large businesses are likely to remain the preserve of specialist providers such as Equiniti International Payments for the foreseeable future.