With international trade increasing rapidly, payments processes need to keep up to ensure they do not hold businesses back from their full potential. Traditional cross border bank transfers are no longer the only solution, but research commissioned by Saxo Payments released at Money2020 Europe shows that companies often lack the time and resources to investigate the alternatives. This leaves them simply putting up with paying high fees for poor foreign exchange rates and slow transfers, which could seriously affect the ability of companies to compete in a global market.
Whilst banks will continue to play an important role, there is undoubtedly a place, alongside them, for new payment entrants and financial services providers. With many banks investing in fintech start-ups, as well as creating their own, dedicated fintech teams, they clearly see fintech as part of the payments industry in the future.
The research reveals that business is a long way from this future vision. Companies are focused on day-to-day tasks and this makes it hard for them to see – or make the time to consider – the bigger picture and realise they could get a better payments service themselves.
Acquirers accepting slow payments
In their role facilitating payments between card issuers and merchants, acquirers depend upon fast and efficient transfers between parties. If a merchant doesn’t receive its payment quickly enough, they could simply employ a different acquirer.
Although local payments can occur instantly or within hours, acquirers, generally expect a cross border payment to take between two and three days, despite 53% not being satisfied with these timescales. Only 20% have looked for other payment options, with 70% saying they lack the resources to implement a new process or supplier.
Challenges for PSPs and Issuers
Similarly, Payment Service Providers (PSPs) need to deliver fast payments, but only 32% expect cross border payments to arrive on the same day. Yet over a third haven’t investigated alternatives because they don’t have time to shop around.
Card issuers unaware of costs
When it comes to card issuers, a lack of awareness is costing them dear, as nearly a third don’t know what fees their bank charges for international payments. In addition, 31% pay 3% or more for international payments, meaning they have to charge their customers unnecessarily high rates, making them less competitive, in a crowded market.
Whether trading entirely online or also instore, payment efficiency is extremely important to merchants, especially those trading internationally. And they are heavily dependent on their payment partners, including issuers, acquirers and PSPs, to ensure payments are delivered quickly and cost-effectively.
However, over half of merchants have come to expect payments to take between one and three days to arrive even though they are not satisfied with these timescales. And, yet again, lack of time is the barrier to researching better alternatives, as well as a lack of resources to implement changes. In addition to slow payments, merchants also suffer from poor FX rates, with only 32% believing they get a competitive rate.
If PSPs and acquirers could provide a more efficient and cost-effective payments solution, they could use this opportunity to meet merchant demand for improved payments.
Payments are often seen as an insignificant detail in setting up a business, and as a low priority, they can be overlooked even when they are not performing as well as they should be. Whilst the product and customer service should, of course, be the main focus for any company, ensuring the business does not waste money unnecessarily every time it sends or receives a payment could make a meaningful difference to profitability.
Not only would a more efficient and cheaper solution benefit the business while it trades locally and nationally, but it could also make it possible to trade internationally much earlier in a business’ life, increasing the size of its market and subsequently its profits. In addition, improvements could be passed on to customers, providing them with a better service at more competitive prices, ultimately improving retention and helping the business grow to its full potential.
It has long been said that the world is becoming a smaller place, and in terms of buying, selling and providing services, that is undoubtedly true. Unfortunately many businesses, particularly start-ups and smaller firms, are unable to accept international customers due to high transfer fees and poor FX rates making it unviable.
In the Saxo Payments research, almost 80% of respondents from all types of business (acquirers, PSPs, issuers and merchants) stated that if they found a solution which cost less, they would change payment provider. Nearly two thirds said that a service providing faster transactions would push them to make the move.
This appetite for a better service needs to translate into action sooner rather than later. Too many businesses are continuing to sleepwalk through high fees, poor FX rates and slow transfer times for their cross border payments, simply because it is what they have come to accept as the norm, and they don’t have time to look around and see that better options are now available.
Another element of the problem is priorities. In the consumer marketplace, change happens rapidly, as savvy consumers demand better services for lower rates, increasing market competition and forcing providers to offer higher quality services. Sadly, businesses are simply too busy running day to day operations to invest time in researching payments solutions, meaning change does not usually happen rapidly in the B2B payments market. Our research shows this is a real issue, with a high proportion not making a change, despite being dissatisfied.
Waking Up to New Opportunities
According to a McKinsey report, global trade flows could reach up to $85 trillion by 2025, tripling the current scale. The report also states that one in three goods is sold across borders, and over 33% of financial investments are international transactions. In addition, the B2B international payments sector is estimated to be 10 times larger than the B2C sector in transaction volume and three to four times larger in dollar volume.
By Anders la Cour, Chief Executive Officer, Saxo Payments.