In today’s world of complex supply chains, and with the pandemic increasing the importance of e-commerce, even local companies look to their lenders for smoother global payments processing solutions.
From companies with global supply chains to small businesses using e-commerce, the growth in international business activities has affected payments processing, making it an important issue for even community banks to grapple with, researchers say.
“The pandemic is forcing many companies to move into e-commerce as an option to increase their reach,” said Enrico Camerinelli, a senior research analyst at Aite Group. “Your clients, or even suppliers, are around the world, and in that case, cross-border payments become even more important.”
Source of an Efficiency Boost
With the pandemic accelerating the use of digital payments, many businesses see payments systems as important to the success of their business. A survey of midsize and large businesses with at least 20 employees conducted by Aite Group earlier this year found that 86 percent of respondents said improving the process for making payments was either somewhat a priority or a high priority, while improving the process for receiving payments was a priority for 91 percent of respondents.
In a recent report based on the survey, Aite Group senior research analyst Erika Baumann wrote that businesses that focus on a robust and comprehensive payments strategy can experience short- and long-term benefits that make them more competitive and contribute positively to the bottom line.
“There is no denying that the electronification of payments is a trend that is helping to accelerate innovation and modernize the payments industry,” Baumann said in the report. “Businesses that are not at least starting to optimize the mix of payments they are disbursing and receiving will surely find themselves at a disadvantage in the market – and arguably already are and may not realize it.”
Chief financial officers and other finance professionals find that making and especially receiving payments across borders present challenges that affect profitability and the ability to expand, according to another survey this year commissioned by Flywire, a Boston-based financial technology company that focuses on global payments.
Flywire’s survey found that 55 percent of finance professionals reported losing 4 to 5 percent in monthly revenue because of operational inefficiencies in their current payment processing system, while 23 percent said they lose 6 to 10 percent of monthly revenue.
Ryan Frere, Flywire’s executive vice president and general manager of business-to-business products, said cross-border payments are inherently complex, often involving uncertainties around costs and fees associated with foreign payments, transparency around the process, and whether invoices will reconcile, as well as concerns about fraud.
Flywire offers a global payments service through regional and large banks, and Frere said improving the cross-border payments process helps businesses operate more efficiently.
“Not only is it important to know where the funds are, but it can enable them … to be able to forecast much better from a cash flow point of view,” Frere said.
Local Firms Have Global Needs
Community banks are also seeing the effects of global businesses’ demands on their operations.
“There is a definite increase in the need for banks to provide those services for businesses to be able to transact across U.S. borders, whether that’s going to be to Canada or Mexico or if it’s going to be overseas,” said Robert DiGiovanni, director of cash management and municipal banking at Weymouth-based South Shore Bank.
Most U.S. community banks send cross-border payments by wiring the funds, while incoming foreign payments can be made through the automated clearing house.
Those payments have increased in recent years. DiGiovanni, who joined South Shore Bank earlier this year, said the bank saw cross-border ACH payments increase from 2018 to 2020 by 29 percent, while cross-border wires increased by 91 percent. He said the majority of those payments involved business transactions.
Even small local companies can have complex global payments needs. DiGiovanni recently spoke to a prospective client who owned a seafood wholesale business with just a couple of employees – and a supply chain involving the Russian and Chinese fishing industries.
DiGiovanni said community banks with customers who need better cross-border payments solutions have an incentive to tackle the problem in order to remain competitive with large banks.
“If you have a customer, you don’t want to tell them that you can’t do something, because then they are going to have to look outside your bank, which isn’t good,” DiGiovanni said. “They also have a comfort level working with a bank rather than another business, so we would prefer to be able to offer those types of products and services, and our customers really would like to be able to do those transactions with us because they trust us.”
Camerinelli, with Aite Group, said distributed ledger technology – like that which underlies cryptocurrencies – could offer a solution to help smaller banks offer competitive cross-border payment services. While the technology has not reached maturity, Camerinelli said, the process of exchanging digital tokens could simplify the payments problem in the coming years.
