Local banking for global trading – an impossible goal?

Anders La Cour, Saxo Payments: local banking for global trading

Anders la Cour, CEO of ground-breaking payments utility Saxo Payments Banking Circle, which is underpinning the service propositions of a growing number of payments businesses, reports on the payment pain points currently faced by merchants who have ambitions to trade globally.

Consumer demand for fast, frictionless and low cost international transactions has necessitated an increasingly global payments landscape. But, until recently, this has been a difficult market for small and medium-sized merchants to capitalise upon. According to research we commissioned amongst merchants trading internationally, speed is the big barrier. Any delay can cause a merchant to falter.

Making global “local”

At the heart of the challenges facing merchants is having to manage multiple banking and supplier relationships and our research suggests that merchants are opting for one partner for all their banking needs, locally and internationally. Could this be simply because it’s too time-consuming to manage multiple relationships? Over half (58%) of respondents said they have just one banking relationship; just over a third (35%) have one provider to handle all international payments and another for local payments; 7% have one provider for each country in which their business trades.

Of course, if one provider is offering the best service and the most competitive rates, then there’s nothing wrong with that approach. But our research amongst merchants seems to suggest otherwise.

The biggest concern merchants have with regard to making and accepting cross border payments is the transaction fees (50%). 40% are concerned about getting the best FX rate, and 37% are worried about the risk of fraud. FX fees and the speed of processing payments are also significant areas of concern, for 29% and 27%, respectively.

Encouragingly, 54% have not let these concerns stop them expanding into new regions. But 39% stated that these have undeniably put a stop to any international expansion plans, thus preventing them from reaching their full potential and maximum customer base.

A perfect opportunity

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. But this is actually the perfect opportunity for the burgeoning world of payments providers that are aiming to offer an alternative to the traditional banks. And with the emergence of financial utilities, such as Saxo Payments Banking Circle, PSPs, acquirers and fintechs can get access to a global account infrastructure to meet the needs of merchants trading internationally.

87% of merchants currently use a traditional bank to complete cross border payments. However, alternative providers have begun picking up the slack. 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 terms of currencies accepted and used to make payments, 18% only use one currency, 32% use two, 29% use three and 19% use four or more currencies to complete international transactions. 4% use more than ten currencies. 19% of merchants are satisfied with the number of currencies they currently use, but 41% would like to use more. However, the associated cost is stopping them. Uncertainty of exchange rates is also a deterrent, stopping 37%, and 25% have been hindered by a lack of flexibility from providers.

One day, hopefully not too far in the future, a company or individual will be able to purchase any item or pay for any service irrespective of where they and the supplier are based. We will look back, roll our eyes and laugh at how limited companies were in terms of where they could trade without losing huge amounts of money in fees and FX. Sadly this reality still seems some way off and it appears that the current model for cross border payments is much to blame for the chasm between today’s reality and the future local world.

To make international expansion possible, viable and even profitable, merchants need the right payment solution. A solution that removes barriers to international trade and provides cross-border payments as if they were local. Only then will merchants be able to reach their potential in all the markets within which they want to trade.

The findings of the research will be launched at Money2020 Europe in a new white paper, “Cross border payments for cross border merchants: an internationally ‘local’ future”. Click here to register for a copy of the full white paper.

This article is also included in the June 2017 edition of the Banking Technology magazine. Click here to read the issue online – the digital edition is free!