As part of our review of the past 12 months in fintech, bobsguide is revisiting some of the standout interviews we have conducted in the past 12 months.
In August bobsguide sat down with Anders La Cour, CEO of Saxo Payments, to discuss the key takeaways from the company's whitepaper Cross Border Payments for Cross Border Merchants – An Internationally ‘Local’ Future, which was published at Money20/20 Europe.
What were the key takeaways from the report for you?
A major stumbling block for small businesses trading internationally is the lack of a global account infrastructure that they can access quickly and cost-effectively and this is exacerbated by the need to manage multiple banking and supplier relationships. Our research suggests that merchants are opting for one partner for all their banking needs, locally and internationally but I wonder if this could be simply because it is too time-consuming to manage multiple relationships.
Was there anything in the report that surprised you?
The fact that a significant number of merchants (39%) claim they have been stopped from expanding into new international markets due to the concerns they have around transaction fees, the FX rate and the risk of fraud.
Were you surprised that 87% of merchants currently use a traditional bank to complete cross border payments?
No – this has really been the only option for many years. But the good news is that alternative providers have begun picking up the slack. For example, 13% of the merchants who responded to our survey use a merchant acquirer; 14% use FX specialists for cross-border payments and 9% use a dedicated payment services provider (PSP).
In your opinion, what are the major pain points for small businesses when making international payments?
The biggest concern for merchants when it comes to cross-border payments is transaction fees (50%). 40% are concerned with getting the best FX rate, and 37% worry about the risk of fraud. FX fees and the speed of processing payments are also significant areas of concern, for 29% and 27% respectively.
Over a third (39%) stated that these concerns have undeniably put a stop to any international expansion plans, thus preventing them from reaching their full potential and maximum customer base.
What is clear is that if the current limitations in cross border payments are allowed to perpetuate, there could be a real risk of businesses operating in the international marketplace finding themselves underbanked, thereby seriously limiting the growth potential of the global economy as a whole.
Are there solutions to these issues already in the market? If not what will these solutions look like and when will they be available to the market?
Access to fast, low cost FX rates is no longer the preserve of big, multinationals, as online trading opens the door to smaller businesses that need to be able to make and receive international payments. However, our research shows that too many businesses are unable to grow into new markets and reach their potential due to slow, expensive services that put too high a burden on smaller firms and start-ups.
The majority of respondents still use a bank to manage FX payments, with 64% turning to these traditional organisations. Over a quarter (27%) uses a specialist FX provider, whilst 13% use a financial technology company. This shows the continued dominance of banks, but also demonstrates a move towards alternative providers, such as FinTechs.
Banking Circle Virtual IBAN from Saxo Payments addresses the challenges identified by the research, enabling FX and Payments businesses to have access to IBAN accounts in any currency and in any country, and to create virtual IBANs for their clients. It means one FX business can have accounts in a number of markets and crucially, the onboarding process is quick. Payments businesses can also open accounts for their own customers very quickly, delivering a vital level of added value.
How will the impact of Brexit affect cross-border payments within the EU? Should UK merchants be concerned about the consequences of Brexit on receiving (and making) payments?
As yet we can only speculate on the outcomes and how these will affect businesses. Our research showed an almost even split in confidence due to the ‘Brexit’ vote – 33% are now more confident about the future of their company, but 35% are less confident, and 32% do not feel the referendum result changed the level of confidence they have in their business.
This lack of a clear majority reflects the high level of uncertainty still prevalent in UK businesses, and which is likely to remain throughout the negotiations with EU and until we have firm agreements in place.
Speed of settlement and low FX fees seem to be the current key criteria for SMEs looking to partner with a bank for cross border payments, will these criteria change? Will other factors such as range of payments supported become more of a factor as technologies such as e-wallets and cryptocurrencies become more popular?
I think focus on customer service and responsiveness is what SMEs will look for in their service providers – of course still influenced by value for money. So the new generation of banking platforms need to enable FX and payments providers to trade foreign exchange more efficiently as well as make international payments on behalf of their clients. This will give them the competitive advantage. These solutions are here now and are already helping businesses and their clients make significant costs savings, as well as helping them expand into new markets.
Payments are, of course, not the only service merchants require from their banking providers. Another service that is essential to many companies, is financing. 48% of respondents have had issues in obtaining finance quickly from their current day-to-day bank, and the main problems came down to speed. 44% said the bank didn’t respond quickly enough to the request for finance, and 52% reported that the bank was not able to facilitate the finance quickly enough.
Should banks be concerned about SMEs looking to alternative providers for credit, and the reasons for this given in the survey?
In the future, the new digital battleground will feature banks and a whole host of other players competing for business and consumer clients. And they will all be focused on the overall customer relationship.
By 2020, the banking industry is likely to be more fragmented, but the different ways of delivering “banking services” will be broader than we see today. And, crucially, the unbundling of the banks and increased innovation will ultimately benefit customers, making them the real winners.
It’s impossible to predict who will win the digitalisation battle – technology moves too quickly. But I think banks will need to use the many tools at their disposal if they are to come out on top. In particular tier two and tier three banks will become more relationship driven and focused on the customer relationship. And outsourcing non-core functions such as lending, FX and cross border payments to “financial utilities” like Saxo Payments will help them compete with the FinTechs that are providing an alternative.
Do you think you would see much change if you ran the same survey again next year, and if so where?
There will undoubtedly be different attitudes about Brexit because so much more will be known. But whether that increases or decreases confidence – it’s hard to know at this stage!
When it comes to the pain points in relation to payments processes, I think the pace of change in the FinTech arena will mean there’s a greater uptake of alternative solutions that fit the needs of small businesses. And should mean that we see more positive responses in terms of how payments service providers are supporting these enterprises.