Unbundling banking to remove the friction from cross border transactions

Cross border trading with suppliers and customers is an ordinary process for a large number of businesses, however, dealing with non-domestic payments is not without its challenges. Along with cash flow problems stemming from delays in sending and receiving cross border payments, and unpredictable currency fluctuations, hefty transaction fees have the potential to impact a business’s bottom line.

With some banks charging transaction fees in excess of £30 per payment processed, these costs can quickly add up, especially for businesses that trade globally on a regular basis. Yet many businesses treat transaction fees as a ‘cost of business’ without realising the bottom line impact. And this is especially a concern for smaller businesses that process infrequent, low-value cross border payments.

Breaking down the barriers

There are alternatives to using conventional banks for cross border payments, which can reduce costs, and improve profit margins. Advances in technology coupled with increased demand has resulted in banking services becoming unbundled, and a new breed of FinTech specialists has emerged to exploit this - particularly in the payments sector.

There are plenty of larger payment specialists out there that will typically benefit from preferential transaction fees rates due to the high volume of payments they process.  But our research suggests that many businesses and merchants are unaware of these solutions and continue to rely on major banks to handle their cross border payments.

What is stopping businesses from seeking alternatives?

A recent white paper - 'Cross Border B2B Payments – Today’s landscape; Tomorrow’s opportunity'- revealed that almost 50 percent of businesses were dissatisfied with the rates associated with cross border payments, with 80 percent stating that they would consider changing supplier if it reduced costs. However, a lack of time and resource to research alternatives was cited as the main barrier to preventing businesses from switching suppliers.

27 percent of the businesses surveyed were unaware of alternative solutions, further highlighting how time and resource poor organisations when it comes to researching payment processing options. Despite not being aware of new providers, a high proportion of survey respondents stated that they would be willing to use a lesser known provider if it meant that they could streamline payment processing and reduce cost.

Businesses that invest the time in reassessing their priorities when it comes to payments are, in my view, very likely to get a better service at a lower cost than they are currently being offered by incumbent suppliers. The question is, how many will be prepared to shake up the status quo and unbundle existing services to be delivered by one or more specialist providers?

By switching to a specialist provider that focuses on providing cross border payments, transaction fees are reduced, and as payments are typically made instantly, the burden of reconciliation and cash flow management is also significantly reduced. Businesses who are willing to take the plunge and break away from ‘traditional’ models will reap the benefits, and it will be interesting to see how the landscape evolves as more and more companies take advantage.