Currencycloud Blog September 13, 2021

How Fintechs are levelling the playing field for corporate remittance

The world’s getting smaller and more interconnected. We’re way past the point where we can reasonably expect businesses to remain competitive while only operating within their home markets, and digital tools have evolved to support these new expectations. Video conferencing, cloud-native business software, enterprise resource planning platforms — we expect these things to work well no matter where we are in the world and no matter where our colleagues are. 

So why hasn’t corporate remittance kept pace with all of these other tools? Why does it still take upwards of a week and a slew of fees just to carry out one of the most essential functions of a business — the payment and collection of money?

The traditional approach to corporate remittance

According to the World Bank, banks are the most expensive type of service provider, with an average cost of 10.66 percent per transaction. Meanwhile, the global average for all approaches to remittance is just 6.38 percent. 

Why the discrepancy? Since banks are the oldest players in the remittance ecosystem, they’re often stuck with legacy technologies. These systems have their own inertia, and updating them risks putting banks out of compliance and disrupting proven business processes. Furthermore, these systems are highly opaque, and make it difficult to quantify the real cost of FX. 

Because updating these systems is so challenging and risky, many banks are stuck between a rock and a hard place. On the one hand, they know that customers want a more transparent, faster and lower cost FX solution. On the other, they don’t want to invest in a disruptive upgrade that — if it were to fail — could lose them customers and put them out of compliance.

So, the question arises: Why have businesses relied on banks at all?

For a long time, businesses haven’t had much choice but to rely on banks to process payments. There just weren’t organizations with the necessary regulatory coverage to comply with know-your-customer (KYC) and anti-money laundering (AML) requirements. Because banks were the only ones with the necessary regulatory cover, they were also the only ones able to collect foreign payments from fourth parties they had never met — that is, from the many anonymous customers of their business clients.

Before, any new player in the remittance industry would need to onboard each and every one of their business clients’ customers in order to facilitate FX transactions. But now, sophisticated, corporate remittance Fintechs are offering FX transactions at a fraction of the price and time as banks. What’s changed?

Fintechs: democratizing corporate remittance

Today, Fintechs like TranSwap, Remitr and others enable businesses to send money across borders at increasingly lower cost. Where once only banks had the necessary infrastructure to enable fourth party collections and cross-border payments, now, the barrier to entry has been significantly lowered. New technologies and new approaches to compliance are making it easier than ever for digital-first institutions to deliver fast and inexpensive FX transactions with a transparent user experience.

As a prime example of the kind of technological innovation enabling this change, we can look at Currencycloud Spark. 

Currencycloud Spark is a product that enables corporate remittance Fintechs to provide their business customers with a single multi-currency account in their name. Using unique account details, customers can collect and payout funds in different currencies to anyone, anywhere within the supported Currencycloud ecosystem. With access to over 38 currencies and the ability to make payments in 180+ countries, Currencycloud Spark enables corporate remittance Fintechs to streamline costs and transaction processing, removing the need for multiple partners. 

New solutions also offer more transparency when it comes to moving money across borders. FX transactions sent via banks are notoriously opaque, forcing businesses to check with their beneficiary to see if a transaction has gone through. But using SWIFT gpi (SWIFT global payments initiative), unique tracking codes can be applied to any gpi-enabled SWIFT payment, providing visibility of the entire payment journey.

For corporate remittance Fintechs, this means that they can provide their customers with: 

  • Speedy confirmation of delivery
  • Insight into where they’re accruing unnecessary fees along the payments journey
  • Faster troubleshooting 

All of this works together to enable businesses to move faster and to address new opportunities as soon as they arise.

More than just FX

Even more than just providing lower cost FX transactions, corporate remittance Fintechs that offer these additional capabilities, like payment tracking and multi-currency e-wallets, are giving banks a run for their money. 

Some businesses are willing to tolerate banks’ higher fees due to brand recognition alone. Or, if they’re just looking to cut costs, they’ll go with the cheapest corporate remittance Fintech around. But when they’re presented with a low-cost solution that also offers a multicurrency e-wallet as well as total visibility into the payments journey, businesses come to two conclusions:

  1. Banks’ higher costs aren’t being invested into better FX experience.
  2. Innovative Fintechs can provide them with value-add capabilities to their FX transactions that enables them to be more strategic.

Altogether, this represents an exciting new opportunity for corporate remittance Fintechs to generate new revenue streams while simultaneously providing a sleeker, lower cost experience for their business customers. 

We dive into more detail on how Fintechs can turn their international payments into a profit center in our eBook, Transform your payments from cost-center to profit-center. For Fintechs that want to know more about how Currencycloud can help their business and their business customers conduct FX transactions, learn more about Currencycloud Spark.

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