The New Normal for International Payments

Written by: Mike Laven
Published on: April 02, 2012

The New Normal for International Payments

International payments are expensive, time consuming and inefficient. From lost payments to high transaction charges and the challenges associated with currency management, the international payment services offered by the major banks, be it directly to businesses engaged in international trade or to intermediaries that support these businesses in their cross currency requirements, are far from satisfactory.

Everyone has come to expect simple, effective, reliable and low cost local currency payment services, yet we continue to accept expensive and unreliable international payments. Firms particularly should not have to lose money through expensive transactions, lost payments and inefficient currency exchanges. 98% of international payments are still conducted directly through a bank, where direct fees can easily reach 9% of the amount being moved. The spreads charged by banks to convert from one currency to another are astonishing; primarily compensating for the inefficiencies of commercial banks themselves, who still fix conversion rates only once during the day and need to compensate for intraday volatility in rates.

With international trade opportunities clearly on the up, there is a pressing need not only for a more efficient, lower cost approach to international payments but also one that delivers true end to end transaction visibility.

The opportunity and need are significant. In the UK, firms are increasingly looking to trade outside national boundaries. International business continues to grow across the globe. €5.4 Trillion of goods and services were imported into the EU in 2011, representing a 59% increase over 2002. Exports have similarly grown by 57% over the same period standing at €5.5 Trillion in 2011. With increased internationalism, there has been a rise in firms locating offices abroad; the need to manage multi currency payroll has become more prominent. Ease of migration has led to rapid growth in the volume of annuity payments being made overseas over the past 10 years. Most starkly, the growth of the remittance market has been staggering; worldwide remittances are set to top $590 billion by 2014 according to the World Bank.

For the vast majority of firms, the expense and inefficiency of making international payments, be it for themselves of on behalf of their customers, remains a major burden. Aside for the high costs, the unacceptably high level of payment problems represent a significant business risk. According to research undertaken on behalf of Travelex Global Business Payments, 36% of all international business payments experience at least one problem and the average missing payment takes seven working days to notice and rectify.

Even worse, the onus is on the firm making the payments to discover what has happened to the payment; not the bank. Once the problem has been uncovered, the business will not only have to pay a second time for the payment to be made but may face a fine from the bank in the form of a hefty “repair” fee. It is estimated that these errant payments are costing UK businesses £100m each year – and that does not include the time spent rectifying problems. For the majority of small to medium sized businesses without a Treasury department, managing foreign exchange is clearly a major headache. Banks rarely offer competitive exchange rates, and Finance Directors spend far too much time attempting to mitigate foreign exchange risk.

 Currency Cloud presents a viable international payments alternative, one that supports global transactions. The service addresses the key concerns of accuracy, efficiency and cost while streamlining payments through full automation; reducing manual processes through online beneficiary management, management reporting and integration with ERP and accounting systems.

Critically, the Currency Cloud eliminates price uncertainty, lets companies manage risk more effectively, avoids the need for managing multiple currency accounts, and provides more competitive and transparent exchange rates and services. This electronic payment infrastructure does not require currency accounts and is completely transparent on the margins being earned.

For businesses that typically end up with a funds deficit or surplus in one or more currency accounts each month, this service provides considerable value while requiring less oversight and active management.  Currency Cloud addresses the problems that all firms dealing with international payments have, but have for so long been resigned to accepting as a cost of doing international business. The solution is principally targeted at intermediaries that facilitate international payments for their customers – be they currency brokers, remittance agents, Payment Service Providers, payment bureaus, IFAs, E and M payment services….the list goes on. By delivering vastly improved efficiency, lower cost and lower operational risk through automation and management tools,  Currency Cloud seeks to cement a vastly improved international payments framework for originators of payments – consumers and business – without disrupting their current behavior and method of access to services.

Finally, a solution that delivers real value to the international payment community.