Certainly one of the most daunting aspects of cross-border payments is the complexity inherent in the fact that different countries have different payment systems. Many payment systems require data specific to the local processing environment. Sort codes, IBANs (International Bank Account Number), SWIFT codes, and ISO country codes are prime examples of data not typically used in the U.S. environment, but often required elsewhere.
If your business or bank sends lots of payments to specific destination countries on a regular basis, your staff becomes familiar with these details and generally, everything works smoothly. On the other hand, when your staff is not accustomed to this, or when the destinations vary regularly, it’s a huge headache, if not a liability. This is the situation facing companies that need to send large volumes of “payouts” –payments to large groups of app developers, affiliates, ad network participants (such as bloggers and other content providers), or other groups that reside outside the United States. The same problem exists for companies that need to compensate freelance employees, send rebates or royalty payments, or fund participants in clinical trials.
While companies focusing on collecting payments from overseas have been common for some time, we now see companies specializing in sending funds to other countries. This new group of companies is stepping in to fill a void in the global B2B or B2C space.
I spoke recently with Tipalti CEO Chen Amit. Tipalti has announced a white-label functionality that integrates to a company’s web environment and steps payees through the process of providing all the data and other forms necessary to receive funds successfully in the destination country. (Payees may also be required to provide tax forms or other documentation.) Tipalti adds another interesting bit of functionality, by screening payments against anti-money laundering and terrorism/compliance lists. (Of course, this may be just a courtesy, as the paying entity is ultimately remains responsible for not making payments to bad guys).
One element that distinguishes Tipalti from other providers in the space is the broad range of payment options that the payee can choose from – which includes global ACH, paper check, wire transfer, PayPal, Western Union, and Payoneer. And for those companies that need to make payments in the United States there is the option of the U.S. ACH network. The majority of payments via Tipalti are paid into the United States and Asia.
Amit thinks the threshold for the number of payments when businesses need additional global payout support is around 100 per month. The first company to use Tipalti was infolinks (in fact, they suggested the need in the market for mass payout providers to Tipalti founders), a company that facilitates ad placement on websites. As a result, infolinks needs to make several thousand payments per month to websites and bloggers around the world that host the ads. Founded in Israel, the word Tipalti is Hebrew for “I took care of it.”
Some of the payment options supported by Tipalti themselves focus on different preferences or channels that receivers can choose from. Payoneer, for example, specializes in payouts to pre-paid cards. PayPal and Western Union have their own, better-known set of options for receivers of funds.
Tipalti competes in the “payout” space with a number of companies, including some of their partners (PayPal, for example). Some companies in this space focus on industry specific needs in shaping their offerings. Ixaris, for example, which provides payments via Visa, MasterCard, or SWIFT, targets the travel industry. Plimus specializes in the needs for digital goods/eCommerce players.
The business models of these companies vary widely. Sometimes the payor is required or chooses to pay all the fees up front. Sometimes the payor absorbs the fees for more economical options like ACH but requires the payee to absorb the cost if they choose a more expensive payment option. The global payout payment company may also charge a monthly minimum or service fee. The payout provider may also get some revenue from foreign exchange spreads.
The question of payment funding is interesting. Tipalti, for example, requires the company making the payments to fund the channel partner. So if a payee opts for delivery by Western Union, the payor must fund Western Union directly before the payment can be completed. Similarly, the company may need to fund a local bank partner via wire or domestic funding account. Tipalti takes care of the messaging but does not take in any funds. Some businesses prefer this method because it centralizes accounting; others will not like having to maintain multiple bank accounts. For Tipalti, this method keeps its cost base low and minimizes complexity because it does not have to become a licensed money service business.
On some level it’s hard to fathom that there is room in the market for so many specialized cross-border payments companies. Certainly some will fail and others will be bought out and their technology incorporated into bigger platforms. On another level, it makes perfect sense that these more specialized companies are present precisely because they are better at narrowly focused solutions. Not every payment is like every other payment.
Certainly these options make it easier for businesses to serve a global market place with out making investments in new systems or staff. In this sense, lets take note of this rare occasion when the words cross-border payment and efficiency can meaningfully be used together in the same sentence!