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International payments. Have you ever had to make one? Always unsure if you’re getting the best currency rate, with time zones creating supply-chain difficulties, and how do you ensure the payment is always settled on time?
This episode on the Payments Podcast features a special guest from Currency Cloud discussing how international payments can be a lot easier than you think, if you do it the right way.
We present today's episode in the midst of the global coronavirus pandemic. And as businesses all over take measures to contain and minimise the spread of this disease, we will, therefore, be recording over the phone today. Listeners may, therefore, notice a drop in quality, but hopefully not in content.
On with the show.
International payments. Have you ever had to make one? There are so many things to consider. Are you often unsure if you're getting the best currency rate, or worried about different time zones creating supply chain difficulties? How do you ensure the payment's always settled on time?
Today we're demonstrating how international payments can be made a lot easier than you might think. If you do it the right way, of course. With me is Chris Spalding, International Payments Lead at Bottomline; and Steve Lemon, co-founder of Currencycloud, who provide enterprise-class international payment solutions.
Hello to you both.
Chris: Hello, Rich, good morning.
Steve: Hi, Rich morning.
Rich: So, Bottomline's a payment solutions provider for businesses worldwide, and has partnered with Currencycloud recently to use its payment technology to add international payments to its existing UK platform. To kick-off, could you give me an example of how a business might be making international payments today?
Chris: Yes, happy to do that Rich, thank you. Great opportunity, this one.
So we were speaking to a client this week who import medical equipment from abroad. Quite topical. And they're identifying how their international payment processes work today. They have identified that they receive currency in the course of their business, and therefore have currency accounts.
They also buy currency from a specialist currency provider to top those accounts up. Those accounts are held with Barclays, so that's two parties already. And then, of course, they've got their own ERP system, where they were generating the payments and outputting those payments. Then manually keying those into their bank account.
So you can see a lot of elements in that, and really gives us a flavour of what customers- people making international payments are having to deal with.
Steve: Yes. Just building on that, actually. We see a lot of organisations with multiple vendors, multiple providers, which has got to be a really frustrating and fragmented day to day use case for the people involved at the company. Every organisation will have a number of banking partners, and they'll pick and choose which components of the payment services and foreign exchange services they'll take from those banks.
As you mentioned Chris, a lot of organisations have specialist FX providers. But you can't just have one relationship- typically you can't just have one relationship with a specialist FX provider, because there's such disparity in the FX pricing that what you tend to find is that most organisations have a handful of these FX providers and will play one off against the other to make sure they're keeping them honest and getting the best price.
Then when you layer into that, certainly on larger organisations, not just the SMEs, but the mid-caps and corporates, we have a range of different needs for the payment. So you've got overseas payroll, day to day operating expenses, repatriation of revenues, as well as obviously supplier payments.
Every one of those functions may be overseen by different individuals, or different entities within the business. They might all have different relationships, as well. So you can quite quickly see that it gets quite fragmented and messy.
Rich: Thanks, Steve. As part of the introduction, I mentioned a couple of the things that people should consider and some of the problems they might face when making a payment overseas. Expanding on this in more detail, and getting into the nitty-gritty, what other problems do companies have when they're trying to make international payments today?
Steve: I alluded to this just now. So the main thing is the exchange rate, and how- one of the biggest challenges, one of the biggest frustrations that a user, an organisation would have, is how do they ensure that the exchange rate they're getting is fair, that the pricing is fair? How do they know what the rate is in relation to the market? How do they get a transparent FX rate?
More importantly, how do they know it's consistent? It's just not practical for organisations to be playing provider off against provider to keep their supply base honest. So really, they need a provider that gives them a structured pricing plan that's fair, consistent, and transparent.
The other challenge is, when making the payment, is capturing the right information, the right payment details. Depending on where you're making the payment to, and how you're making that payment, whether it's a SWIFT payment or an ACH payment for example. You've got different types of banking details to capture.
Finally, when the payment is actually released, the beneficiary needs to be able to reconcile where the money's coming from and the reason for the payment. So you'll need to be able to include suitable references with the payment, just so the recipient knows who it's from, what it's for, and what it's in relation to.
There's another thing that a lot of organisations overlook, actually. When you're making a payment via SWIFT or correspondent banking, that's great because it's efficient, it's fast, the payment gets to where it's going to be getting to as quickly as it can. But what you tend to find is, you often see the beneficiary receiving what we call short delivery, which is basically the principle amount that was sent doesn't necessarily arrive in its entirety.
That is because there are hidden fees deducted along the way through the correspondent chain. So a lot of people are moving away from making SWIFT their primary payment mechanism, and using local payment networks, and just distributing payments on SEPA, for example. Or ACH in the US, for example. And the equivalent in-country equivalents around the world.
It perhaps adds a day to the delivery, but it does guarantee that the final amount received is the amount that was sent, and there's no hidden fees along the way. And also has the happy side effect of being a little bit cheaper to originate as well.
Chris: I think that's a great shout on the hidden fees of those short deliveries. I remember going back to my dim and distant past where I used to run a little tour operation, and the amount that sent was short by $20. And therefore the account wasn't settled and the hotel would try and charge my customers when they arrived at the door.
So great shout on that, but in addition to the fees and the pricing and keeping that FX honest, as you say. I mentioned about the example of that medical company and those fragmented systems. It's easy to see when you just start looking at the systems involved that managing the workflow becomes a big problem for the business.
You can see that you've got various different staff who will be using- one will be using- there'll be a team potentially administering the finance, the accounts payable system. Staff will have access to the bank account and nothing else; and staff that are managing the FX provision.
So that all becomes spread out, difficult to manage, workloads fragmented. It's open to fraud, you've got so many different people involved. There is a risk that figures could be adjusted, or another beneficiary entered into the process along the way. Data rekeying is a big one, as well. And again, many of our customers are making bulk payments.
You mentioned payroll. We had a customer who is involved with international film crew payroll and setting up bulk international payments is a very difficult process. Often banks providing international payments services, and even third parties, don't have that ability to make bulk payments.
So rekeying is not only error prone, but also time consuming.
Another one that we come across quite a lot is where a company receives currency in the course of their business, and therefore run their own bank accounts, which is great. They can therefore obviously take in euros, for example, and pay out directly in euros. But what it means is, they are beholden then to the disbursement processes that their banks provide. As Steve mentioned, that can be costly and inadequate where we are talking about things like short delivery.
So there are lots of elements in this, Rich. It's the pricing, and for us we're often seeing it's the platform that allows that efficiency and brings all these payment systems together.
Rich: Thanks, Chris. We often talk about consolidation and efficiency on the podcast. Is there, or rather are there, considerable advantages to be had if there is a consolidation of these platforms into one core platform? What difference does this make in terms of visibility of these payments?
Chris: As I say, Rich, having talked about those fragmented processes, and that really was just in the context of international payments. Obviously, a business will be making domestic payments as well as their cross-border payments. They actually not only break up the international payment system elements, then to also have the domestic payments separate to that again just further complicates and aggravates the processes.
If you start thinking about a business managing cash flow and their own kind of treasury, again to look at currency commitments in one set of systems and have domestic payments in another system, just adds layer upon layer of complexity, control difficulties, and workflow management.
So for us, we see it as a key part of corporate efficiency, to be able to provide access to all this information in one platform, in one system. And that's what we- as you mentioned, we try and do that in the- in all of our systems and processes through a one platform approach.
Rich: Thanks Chris.
Steve: I don't really know how to build on that, actually. I think there is a huge premium to having just one platform used throughout the whole organisation from a control point of view and a convenience point of view.
Of course the challenge is masking the complexity underneath that, because as Chris is saying, if you've got all the different types of domestic payments you can make caters for. But when you start adding in the different types of payment schemes and banking requirements on the global payment networks, is gets quite complex.
Again, if you can just bring that all in house into one platform, that does add a huge value to the end user.
Chris: Yes Steve, I think we're all trying to be swan-like on the outside, aren't we? And we're working closely with you to do the frantic stuff behind, and we're doing likewise to bring the domestic payments as well as the international payments into one platform.
I do see that as a difficulty. As I mentioned, just to reiterate really. If we've got those separate banking systems, so the banks are very good at running their platform themselves, if you like, for the payments. But by doing so, you are wedded to the pricing and infrastructure that's available.
To actually optimise those processes may not be in the bank's capability on the basis that all the legacy systems and such that they're working with today, which has really given birth to all the third party providers that exist today. But as you say, that medical example yet again, all the right reasons to optimise their workflow by using different parties. But to bring all those together under one umbrella is obviously the aim and the best solution.
Rich: Thanks both.
Steve, this is probably one for you. You mentioned earlier on about the problems caused by a lack of transparency on the exchange rate. And actually, I opened up with that in the introduction. So how do companies actually know they're getting the best rate available?
Steve: That's a good question. I heard a statistic the other day that UK businesses suffer an estimated £4 billion a year in hidden fees, with many banks or FX providers profiting from offering poor exchange rates. What you tend to see happen is, without the requirement for fixed pricing structures, you'll often have one of these specialist approach companies offering attractive exchange rates or honeymoon exchange rates, as their referred to in the industry, whereby they're consistently bank beating.
But then obviously as the relationship matures and time progresses, they start increasing their profitability on a transaction to transaction basis.
Organisations like Bottomline through the partnership with Currencycloud, we offer competitive and consistently priced transactions in a broad range of currencies, 29 I think we're offering. And the availability and visibility of the live exchange rate in comparison to the mid-market rate is essential. That's how organisations can be comfortable they're constantly getting the best rate available.
Chris: Yes Steve, I think that's why we're working so closely on this. We learnt very early on that customers are often not able to preview that live rate, as you say, until effectively the conversion is almost committed. So we're very keen that we provide that live rate upfront.
In addition to the rate itself, as I mentioned we've got the concept of businesses with their own currency accounts. And the fact that on that basis, they're beholden to the disbursement rails, typically that come with those accounts.
What we're doing is, and you mentioned Steve, the different routing options, whether you'd use the local routing through ACH or SWIFT. So again, to provide some degree of flexibility in forms of routing. If it's a priority payment and it needs to be there as soon as possible, or as you say Steve, using ACH may slow it down a little bit, but it's quite a lot cheaper.
So I think it's quite important to offer that degree of flexibility in the routing, and therefore the disbursement fees.
Of course, as you mentioned before and I had my little anecdote, the intermediary bank fees and how those- the need to ensure that the invoices aren't delivered short, and therefore are not reconcilable, and therefore remain outstanding. So that, to me, is part of the cost element as well, that fees are deducted from the transaction whilst it's in flight. Those need to be understood and managed at the same time.
What we're trying to do, I think in the technical terms it's known as BEN share or OUR. But the idea is that when a payment is sent, that those inflight costs that were maybe deducted along the way, we're covering those in the upfront fee that the customer might be paying for disbursement.
So not only are the disbursement fees competitive, but they're also as inclusive as possible to make sure that the full amount arrives reconciled, and the invoice and debt is cleared and the business can carry on.
Steve: Yes, absolutely-
Rich: Yes, we're living a more and more immediate and real-time landscape now. And people expect things to happen instantly.
So if we move on to the topic of how long international payments may typically take, how can a company be assured that anything they're sending is actually being settled on time?
Steve: That depends on a number of factors, actually. It depends on…
First thing's first. It depends on the currency you're buying. So if you're buying something like- if you're a UK business and you're looking to make a payment in euros, US dollars or Canadian dollars, you can buy any one of those currencies on what's called a same day basis. So the transaction settles on the day you make it.
Then if you initiate the payment at the right time during the day, you can also get the payment landed with the beneficiary on that day. But that's not always possible. Certainly if you were buying an against the sun currency, so for example an Aussie dollar or…
Aussie dollars, Kiwi dollars, or say Japanese yen, by the time the European business day is getting started, their business day is finished. So you'll never be able to get a currency purchase settled on the same day. And certainly not a payment.
So you need to take into account where the payment's going to, the day and time that you're making the transaction. And obviously as we've touched on already, the mechanism which you're making the payment. Generally, SWIFT and correspondent payments are faster than ACH equivalents.
There are some markets where ACH equivalents are just as quick. And with the euro zone, you've got seperance as well. But yes, it depends on the mechanism.
So it's all a case of just being aware of what those considerations are and working backwards. If you've got an absolute deadline for making the payment to arrive with the beneficiary, then just work backwards. If you know it's going to take a day for the payment to arrive from origination, and you know it's going to take a day for the currency transaction to settle, you need to allow at least two days.
Of course, the one thing you can't legislate for in certain markets, is the speed at which the recipient bank actually responds to the incoming payment and allocates it to the underlying client account. So that's something to bear in mind. And making sure that you've got things like correct beneficiary details.
I know between Currencycloud and Bottomline, we've got fantastic beneficiary validation software. So payment errors are almost a thing of the past, effectively. But making sure that you don't put details of a bank account that's since been closed, for example. That's always going to throw a spanner in the works.
Of course, the other thing that people often overlook actually, if you're making payments to a new beneficiary, there are things in the background on international payments from a compliance and AML point of view. Such a thing as sanction screening. We certainly screen every payment before it goes.
And typically, that just happens in the background real-time, and there's no issue. But obviously if a transaction does get caught up in the sanction filters, it's often for a reason, and that can slow payments down. If it's a false positive, for example.
If it's a real match, if there's a real catch in the sanction filters and the payment gets held up, it gets held up more long term. But that's obviously for a specific reason.
Chris: Yes, I think that that's…
The automated nature of that is great. But if there are some dodgy transactions going on, then we'll certainly be stopping those ones.
Chris: I think that the…
From I guess the planning nature, if we're talking about ensuring things are settled on time, Rich, when you're- we talked about the banks providing services and third party sort of non-bank specialist services, wanting to bear in mind that both have their pros and cons. But once you're using a non-bank specialist service, which is what we are doing, then there are great benefits to be gained from that.
As I say, we've talked about bulk payments, visibility of FX rates, and security, straight through processing, etc, etc. But what comes with that is, it's separate to your bank account. So there is a step involved, which is transferring funds from the bank account into the platform, to the specialist service provider. That's the same for any specialist provider. They just have to allow for that in the setup of the payment.
So as Steve said, there's steps involved. If FX conversion is required, then that can be done the same day, and if that meets the cut off then that will all flow through nicely. But the starting point of that is obviously to make sure that funds are available. That can be subject to the bank which is being used to transfer the funds into the platform.
It is made simpler by having that one platform approach. But it's one of those benefits that comes with a step, which is not quite the same as if you were managing it all through a one-stop shop of a bank account. We're a one-stop shop adding all sorts of additional layers and benefits on top of that, but we need to kick the process off with some funds on account.
Those funds, they don't have to be held. They can be funded on demand. We don't have to keep a float on the account or anything like that. But it is a step which is common to any specialist provider.
Rich: On the subject of best practise, and aside from making validation checks as you alluded to earlier, what else do you think companies should consider, to make sure they reduce their operational risks?
Chris: Yes, that's a great one, Rich. Thanks. We talked about all the features, if you like, of optimising the payment itself. We talked about the platform. So again, mentioned from the outset was this example of this medical company split across systems. One of the key aspects of an internal process for managing all these systems are ideally on one platform, is the segregation of duties of staff.
There's a risk of internal fraud and also privacy of corporate sensitive information, be it the balance on the corporate bank account. So segregation of duties allows a proper, a robust workflow to be created. What we're meaning by that is, just distinguishing between the activities that a staff member can do.
The same person who sets up a new beneficiary can't make a payment to that beneficiary. So segregating the back-office setup to the payments and the payments authorisation removes that risk of internal fraud.
We talked again about all these fragmented systems and the rekeying of data. So a solution which offers the ability to bulk or batch pay- make payments in batches, but also manage beneficiaries in batches as well, removes that risk of errors in rekeying information.
As Steve mentioned, obviously getting the accuracy is key. Getting the account details right. Verification and validation. So as you mentioned, in the UK today we can verify the owner of a bank account against the bank account details. So that verification is great in the UK, but it doesn't work on overseas bank accounts. The information just isn't there.
What we do is ensure that the number formats are valid. So if an IBAN number has the correct number of digits and information in it for the destination. But that's validation, and it's not verification. So there's really not much that we can do if all the details are correct, but it's gone to the wrong beneficiary.
If it does go astray, then to reduce that risk you just need to get on top of that as soon as possible. Just vital that if it's known that it's gone to the wrong person, then the business responds quickly, and we can get a track and trace process initiated.
So in the end, with all these things, it's about getting…
Getting it to the right beneficiary is obviously the essential part and making sure it's setup in the right way.
Rich: Thank you, Chris. Steve, anything to add there?
Steve: No. The only thing I think is to just really drive home the point. One of the intangible benefits of the one platform mentality - I really like this - it's much easier to have in place a set control function, and a set policy in terms of who is empowered to do what in the platform.
Most organisations you talk to, you don't have one individual empowered to input beneficiary details, edit beneficiary details, set up a payment and authorise a payment. If you've got one platform, you could have all sorts of control functionalities, and it's much easier to take control of those roles and responsibilities and permission levels. Whereas if you're deploying that across a number of platforms, it's obviously…
More opportunity for the system to be gamed, effectively, within an organisation. And it opens up an exposure to fraud. So one platform is a more secure proposition.
Chris: I think to build on that further, we're talking here today about international payments. But people who listen to these podcasts in the past know that we do other things.
So to actually be able to manage the domestic and the international on the same platform means that segregation of staff duties, as opposed to being managed in a separate international payment fragmented workflow. You can have obviously the same duty of segregation for managing the setup of beneficiaries, if you like, for domestic payments, as well as your international payments.
So it brings it all together; domestic and international onto the one platform.
Rich: Thank you Chris, and thank you Steve, for joining us today.
I suppose to summarise and to round up, there's a lot to consider when making non-domestic payments. Probably the best way of trying to tackle those head on is to reach out to a provider who's making savvy partnerships and is trying to take a lot of that headache away from you and make things as simple and streamlined as possible.
So once again, thanks both for your time today. On behalf of Bottomline, we really do hope that everyone out there who's listening is safe and well, and you're all washing your hands correctly.
Unfortunately, that's all we have time for on today's podcast, but in the meantime, you can listen to more episodes on all things payments at the touch of a button, using your preferred provider. And we'll see you all next time
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This guide gives you insight into payment routing, timescales and making bulk payments - so you can become more efficient when making payments overseas.
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