Cross-border payments: How friction and fraud can stifle your business

As the global economy becomes increasingly interconnected and the necessity for business FX and cross-border payments increases, there’s an emerging ‘expectancy gap’.

Cross-border payments How friction and fraud can stifle your business

October 15 2021

The payments industry is almost unrecognisable compared to just a few years ago. Improvements in digital payment options have enabled both businesses and consumers to save, invest, transfer and manage their money in new and dynamic ways. 

These technological advancements have combined with new regulatory freedoms such as PSD2 and Open Banking, increasing access to payment services and giving customers more control and insight into their finances. 

However, one area which has been slower to mature is business FX and cross-border payments. This is not to suggest nothing is being done - P2P overseas payments have been improving steadily and in 2020 the G20 made improving cross-border payments one of its key priorities. 

But many businesses are still experiencing points of friction when processing cross-border transactions. This friction is not only responsible for substantial operational overheads, but also rising hidden costs which can often go unnoticed

What’s more, the unwillingness or inability of traditional banking partners to innovate is not only slowing businesses down, it is making them more susceptible to fraud. International business payments are often the most likely to suffer fraudulent attacks (for reasons we’ll explain later) and businesses are falling into common traps which make this type of activity more prevalent. 

Fortunately, these problems are fixable today. We just need to get smarter in our approach to cross-border payments. 

But first, let’s take a closer look at the problem. 

Friction within cross-border payments and business FX 

As domestic payments have become increasingly quick and simple for both businesses and consumers, sending money overseas is still an inconsistent, cumbersome and often costly process. 

The central cause of this friction is the differences in regulations and standards that exist across countries and territories. With multiple organisations involved in every payment or exchange, certain issues become commonplace: 

  1. Time: Most domestic payments in the UK now occur within a matter of seconds or minutes, or are at the very least reconciled at the end of the day in the case of card payments. Cross-border payments can take days to be received, transferred through multiple banks and/or third party providers which may be operating in completely different time zones.

  2. Cost: Fees can be incurred at various stages of cross-border transactions and frustratingly, these fees are often well hidden. Your bank may charge you a fee simply for receiving an international payment, known as a cross-border commercial payment fee, as well as a transaction fee which depends on which foreign currencies are involved. Chargeback fees are also likely if payments fail.All of these fees need to be paid on top of an exchange rate, and while some payment service providers may claim they charge no transaction fees, be vigilant. Many that make this kind of offer just incorporate additional fees into a much higher exchange rate, meaning you are still paying an equally high amount. 

As the global economy becomes increasingly interconnected and the necessity for business FX and cross-border payments increases, there’s an emerging ‘expectancy gap’. Consumers/end users are coming to expect an international payment experience that is as simple and seamless as their domestic payment experience. 

Addressing this gap has become a race: as soon as any competitor in your space is able to bridge the void - making the payments journey painless for the consumer - their offering becomes far more valuable. Those that don’t will be playing catch up. 

Fraud within cross-border payments and business FX

It’s not just operational and logistical issues that plague business FX and cross-border payments, fraud is also far more likely in this area of finance. This is down to a number of reasons. 

  1. Increased number of payment paths: As an organisation grows over time, it’s likely to increase its number of international payments. These may be in the form of overseas suppliers, contractors or international subsidiaries. Each of these partners may well request to be paid in a different way - cheque, eMoney account, wire transfer etc. As these payment paths add up, it becomes far more difficult to retain the same level of control over each payment method. With so many points to manage, weak spots begin to appear and fraud becomes increasingly more likely.

  2. The problem with cheques: Many businesses may have aims of creating a singular payment flow. But in order to do so, they frequently need to chase down the payee for particular information, allowing them to pass through required due diligence checks and receive funds. This back and forth, leads many firms to just resort to cheques when invoices come through. They shouldn’t, however, as cheques are subjected to the highest rate of fraud by a considerable margin. Not only this, but cheques don’t reach recipients when addresses change, which means they need to get recut and sent out again, all costing the business money and creating further operational overhead.

  3. Wire fraud: Not far behind cheques, wiring money (another common form of cross-border transactions) is the second most frequently targeted form of payment by fraudsters. Wire transfers are most commonly susceptible to what’s known as ‘Business Email Compromise’ (BECs) which describe fake emails that appear to be from a colleague or someone working within the same organisation. Without a centralised approach to payments, a business is never fully protected against this type of behaviour. One case of human error, which can never be fully eliminated, can cost a business dearly - and that likelihood of error is only increased when cross-border payments are not being handled efficiently.

What are banks doing to address this?

Traditional banks are aware that this is a problem they need to address and various methods have been suggested to reduce both friction and fraud. 

These vary from more internal processes such as reducing the reliance on emails in managing workflows to incorporating new payment technologies such as AI and machine learning to key areas of their operations. 

However, this will always be difficult for established banks and payment institutions. As organisations they are monoliths of industry and are, by their very nature, slow moving. Bound not just by legacy technology but legacy thinking, and with giant global customer bases with trillions of pounds to manage, the space for innovation is limited. 

It is therefore younger fintechs which are far better placed to address these issues - inherently more flexible and built tech-first with the future in mind. Payment providers such as OpenPayd can provide a solution to this exact issue. 

How can my business make cross border payments without fees and fraud?

The most elegant and comprehensive solution to this problem is to open a multi-currency business account. Using a specialist business FX provider such as OpenPayd, payments are settled locally and at real-time wholesale FX rates - usually only available to large enterprise organisations or banks (though, as discussed, this doesn’t mean that’s the rate the bank will give you). 

With over 100 currencies available, this enables your business to pay overseas suppliers, corporate clients and individual customers within one platform. So how does this approach solve our problem? 

  1. Saving time: The friction that comes through long wait times for payments to be processed is completely alleviated when payments are being reconciled locally. Instead of the payment going through multiple touchpoints and needing to adhere to particular regulations when entering a new territory, the ‘cross-border payment’ does not actually cross borders at all. OpenPayd makes the payout through an account in that territory and currency, meaning average payout times are far closer to domestic payments.Not only does this make day-to-day operations easier and your business’s offering more attractive, it also means that new companies can get to market faster, without establishing relationships with providers in multiple countries.

  2. Cutting costs: The OpenPayd multi-currency account removes many of the costs associated with business FX. 

In fact, OpenPayd offers the real-time wholesale conversion rate, meaning that you are getting the best price possible. We pride ourselves on transparency and we communicate these costs to you up front so there are no surprises.

  1. Fraud prevention/reduction: As for fraud protection, the weakness that comes through multiple payment paths is removed with OpenPayd’s singular payment solution. No matter how many businesses or individuals you are paying, in however many different currencies, everything is handled under one secure platform. This makes attacks less likely to occur, as well as mistakes due to a convoluted payment approach far less common. Payouts via cheques and wire transfer become obsolete as payments can be made without collecting the large amount of data needed for cross-border payments. With payments being reconciled locally, only standard payment information is required. We are experts in compliance and online security and give your business the peace of mind it deserves when it comes to making payments safely. 

Additional benefits

Partnering with a multi-currency account provider such as OpenPayd not only solves the issues of today, but future-proofs your business for what’s to come. We are in an era of payments innovation and you should feel confident that when regulations or technology are next updated, you are partnered with a payments provider that is equipped to take advantage of that change. 

OpenPayd’s supports over 150 clients operating across Europe and the UK giving them access to multi currency accounts, FX, and domestic and international payments . OpenPayd has become an established and trusted figure in business FX and cross-border payments. 

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Switching payment providers can be daunting - when it comes to you and your customers’ money, there really can’t be any margin for error.

As multi-currency accounts become even more established, your overseas suppliers, commercial partners and individual customers will start to notice how much easier it is doing business with your competitors. By tackling the issue of fraud and friction head on, you are improving your offering and cementing a firm base for your future to be built on. 

If you’d like to hear more about how our multi-currency accounts work, please don’t hesitate to get in touch with us today. 

FX

Posted on 15th October 2021

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