With technology and regulations shifting the global business landscape today, companies seeking to broaden their reach and expand to new geographies require a payments infrastructure capable of meeting local guidelines and customer preferences while keeping transaction costs low and revenues high.
Of course, creating that infrastructure—let alone scaling it—is no easy feat.
Companies pursuing a “borderless” strategy must address a number of logistical and strategic challenges if they hope to thrive in new markets and edge out global competitors.
Analyzing Costs Against Opportunities
The first thing many stakeholders experience when plotting global payment plans is sticker shock: The costs of domestic transactions have been dropping for years, but the same can’t be said of cross-border payments. Although expenses vary widely across countries and institutions, the operational cost for international payments continues to average well above $20 per transaction.
It is essential, then, that companies weigh the size and scope of payment amounts—and volumes—against the fees involved in each geography.
The high costs can affect how soon companies see ROI on expansion plans – especially for those hoping to profit from high numbers of small-dollar international transactions. Companies tend to see faster financial success with B2B transactions, where the fees are relatively negligible compared to purchase prices: A $15k to $20k transaction, for example, usually incurs a fee of $30 to $40.
Considering Foreign Currency Risks
Without proper planning, foreign exchange (FX) volatility can also have an adverse effect on ROI. This year, the impact of currency fluctuations has been particularly severe: Nearly two-thirds of CFOs surveyed in July 2018 said their earnings were negatively affected by FX volatility exposure, which is no surprise given rising inflationary pressures. (The Chinese yuan recently reached a one-year low against the U.S. dollar, for example, and the euro’s value has gone down 2.5 percent against the dollar over the course of 2018 so far.)
When entering new markets, companies need to consider how currency volatility—coupled with the spread and exchange fees charged by their FX provider—can cut into margins. Establishing foreign currency accounts can minimize the need for companies to convert currencies, but they need support to understand the full impact of exchange rates on their revenues.
Working with a financial institution helps expanding organizations understand the transactional and translational risks of accepting different currencies in new geographies. Commercial banks can equip mid-markets with tailored research into market trends and economic pressures in new geographies, and help them develop strategies to hedge against volatility.
Leading banks also offer online platforms for executing and confirming foreign exchange trades. This helps mid-market stakeholders enjoy clear visibility into exchange rates as they make both day-to-day decisions and long-term investments.
Covering All Compliance Bases
Hovering over the global payments process is a web of domestic and international regulation. It isn’t just a matter of meeting compliance standards for today, but also staying abreast of future developments.
Exemptions and reporting requirements in new geographies can be incredibly complex—especially in restrictive markets such as China—and subject to various certificates, renewal guidelines, and qualification criteria that may change without warning. Fail to remain aware of changes in international payment locations and you could see fines or legal penalties from local authorities (potentially blocking your ability to transact in-country).
Further, most US withholding guidelines for cross-border payments are fairly straightforward, but demand highly robust documentation around the tax residency of foreign vendors and the nature of services they render. Failure to comply with programs like FATCA, the BEATS tax, and others can lead to IRS audits, fines and legal costs.
E-commerce creates new considerations on the compliance front, as well—such as factoring in sales tax from international purchasers or completing e-remittance paperwork like India’s FIRC.
Companies should secure expert tax help as they broaden operations to keep liabilities to a minimum.
Aligning Experience to Expectations
At its core, designing a global payments infrastructure is really about securing the support and flexibility to address idiosyncrasies and preferences per country. Applying the same expectations to every country equally isn’t feasible—even when it comes to “standardized” payment methods like credit or debit.
Banks in the United Arab Emirates, for example, impose restrictions on newly issued cards; failure to account for that can lead to costly transaction denials or delays.
In other words, earning and retaining customers’ loyalty in new geographies requires that companies meet the local expectations of consumers, businesses, or both.
And as expectations for user experience grow ever more sophisticated, the technology supporting your transactions predictably becomes that much more essential to your success. Though Americans may still be warming to mobile wallets, smartphone payments are already the norm in China, the UAE, and many emerging-market countries.
Even if your company is focused on B2B payments, delivering a consumer-friendly payment experience via mobile or desktop minimizes friction, helping drive transaction activity.
Innovating at Global Scale
More broadly, minimizing payments friction means adapting to continual change—and finding the right partners.
As a baseline consideration, companies must assure that the financial institutions or payment service providers they work with have appropriate security and information management processes in place to comply with changing regulations and integrate with their existing solutions without increasing risk.
As the space rapidly evolves, banks and PSPs are also adapting existing infrastructures to support a more flexible future for global payments. The sooner companies explore these opportunities, the sooner the subsequent benefits can help drive ROI and profitability in their international operations.
What does that flexible future look like?
- Digital technologies, automated processes, and always-on data collection are deeply infiltrating payments – supporting smarter analytics and helping companies use resources more effectively
- Real-time payments innovation is accelerating in the US, which will ultimately help speed up lagging transaction times internationally
- Cryptocurrencies are becoming an accepted form of payment in some geographies – with countries like Japan, Switzerland, and Malta innovating heavily in the space
- Blockchain pilot programs are bringing international transaction partners together through decentralized platforms – creating new models for more efficient, trackable money movement
Partnering for the Future of Payments
Borderless business is ultimately the future of commerce. Companies, however, require payment solutions that will serve business needs both now and during the scaling process.
It comes down to finding the right relationships to support global growth with security, stability, and customer experience in mind. In the increasingly competitive cross-border world of business, a seasoned commercial banking partner can be the key to unlocking international payment success.