Research Results: Need for Faster, Easier Cross-Border Payments

by Erin McCune on April 4, 2011

in B2B Payments, Erin McCune, Foreign Exchange, Global Payments, Globalization, Research Round Up, Treasury & Cash Management

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New Glenbrook research, sponsored by Earthport, indicates that as companies do business with an increasing number of customers and suppliers over seas, they desire better cross-border payment systems.  Slow funds clearing, complicated reconciliation, and lack of transparency in foreign exchange fees make cross-border payments particularly challenging for businesses large and small.

These are among several key findings of our recent survey of Payments News and Payments Views readers. [Scroll to the bottom of this page to download the research brief.] We asked payments professionals to identify the biggest challenges that corporate users face when transacting payments across borders and currencies. More than 200 of you completed the questionnaire, providing both qualitative and quantitative input. Survey respondents included 173 banks and other payment service providers as well as 28 payments users, consultants, investors, or other participants in the payments industry. More than 50% of responses came from companies headquartered outside the US. We were particularly pleased by the depth of your qualitative answers, the broad range of payments companies that responded, and the relative seniority of respondents. Approximately 86% of the banks and service providers that responded offer foreign exchange and cross-border payment services for their customers.

These findings are timely because globalization, and relatively stagnant growth at home, is driving companies of all sizes to do business in other parts of the world. [The latest US International trade statistics are published here.] Our research found that existing cross-border payment solutions for large corporations work relatively well, and “low end” international payments (typically under $500) were well served by services such as PayPal and card networks. However, there is an unmet need for a mid-market payment solution (in the sub-$10,000 level) that is easy-to-use, highly reliable, and able to route payments globally at a reasonable cost. When asked what are  businesses’ biggest cross-border payment challenges, a majority of respondents said (in order of priority):

  1. The long time it takes funds to clear,
  2. Payment reconciliation,
  3. Tracking payment processing, and
  4. Lack of foreign exchange fee transparency.

Payment efficiency and pricing are also important concerns when selecting a cross-border payment system, according to the research. Respondents commented that pricing remains too high for cross-border payments. Specific areas of concern included: sending U.S.-dollar payments internationally, the number of currencies supported, and the cost of sending funds to destinations outside the primary international payment corridors. When asked which payment features are most valued by corporate payers, banks and payment professionals selected reliability, speed and security as the top three considerations, respectively.

Participants would like to move away from reliance on wire transfer systems, especially for mid-value international payments. They would like to see common standards applied via common channels and reachability, preferably instituted by the industry standards bodies (e.g., NACHA). However, there was some scepticism among survey respondents about whether banks would be willing to implement such solutions, particularly where they might cannibalize more lucrative revenue streams. It was suggested that perhaps “a group of vendors” might be able to offer the desired set of international payment attributes.

So what’s the solution? One approach that resonated with a majority of survey respondents was an ACH-enabled payment system. This approach links local, low-value ACH/EFT payment systems around the world to create a high-volume payment scheme. If it could scale and be reliable, 54% of respondents said they were “very interested” in this type of solution and 35% are “somewhat interested.”

The purpose of this brief survey was to develop hypotheses that will be explored in-depth in upcoming research that will poll corporate buyers and suppliers about their cross-border payment needs, challenges, and preferences. If you are interested in participating in the corporate study or would like to be notified when it is published, please let me know. Update: The revised and expanded report is available here.

Download the Research Report

Glenbrook Research Brief
Cross-Border Payments: Unmet Needs Drive Opportunities for New Payment Solutions
By Erin McCune
April 4, 2011

DOWNLOAD AVAILABLE HERE

 

Note: If you have any trouble with the download process, do not hesitate to contact me directly for a copy of the report.

{ 1 comment… read it below or add one }

Sean April 6, 2011 at 12:11 am

Great post Erin. We totally agree that the current Foreign Exchange / International Payments paradigm is ripe for disruption, which is why we have backed a startup called FX Capital Group:

“FX Capital is building a universal deliverable foreign exchange payments platform, bringing automation and efficiency to a market that has traditionally been opaque, expensive and fragmented. Built to scale and with interoperability in mind, FXCG is first and foremost a modern technology platform. By taking this approach, FXCG offers a robust service not only to direct customers (via it’s own channels/websites) but more importantly to any number of affiliates, from other FX brokers to corporates who want to offer multi-currency payment possibilities to their customers without having to manually manage currency and payments risk.”

If you are interested, check out http://www.thecurrencycloud.com where FXCG has built the first ever FXaaS platform.

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