As tariffs and Brexit weigh on cross-border trade, fintechs offer stability
The uncertainty of the modern political climate has created a number of business issues — and a few opportunities for the companies that can guide others through difficult times.
Veem, for example, has launched an incentive program that reimburses companies up to $1,000 in a year for tariff costs for goods imported from China and paid through Veem's gateway. That follows quickly on Tipalti’s approach to use its ability to make quick compliance updates to position itself for Brexit.
In Veem’s case, its Tariff Relief program follows an internal study that found average payment sizes fell 57 percent from the U.S. to China from 2017 to 2018 and 50 percent from 2018 to the first two months of 2019. The San Francisco-based Veem based its reporting on its own data and external sources.
The company, which is a Venmo-style service for small business sourcing, is targeting businesses that may lack the resources to absorb fluctuations in supply pricing—particularly for goods from China.
“What happens is people are still conducting commerce to manage relationships with suppliers because it’s not easy to switch suppliers overnight,” said Marwan Forzley, founder and CEO of Veem. “But the size of the transactions are declining.”
Companies pay employees and suppliers through Veem, which recently launched a more general rewards program to drive more frequent usage. The tariff program is a longer-term incentive than the other programs the company regularly runes, Forzley said. Veem uses an API and connections to programs like Quickbooks, Zero and Netsuite to power its service. In September Veem received a $25 million investment from Goldman Sachs, Google Ventures, Silicon Valley Bank and Kleiner Perkins.
Veem bases eligibility for its tariff relief incentive on codes that accompany purchases, which reveal if the product is of international origin and falls under the tariff declarations. Construction supplies, electronics, cosmetics and clothing are the main categories of goods subject to tariffs.
There are 818 goods from China that qualify under the Veem rebate program. Veem pays the tariff one year after the initial purchase, and the customer has to remain an active Veem user (a payment sent or received in six month intervals) for at least that year.
“These companies are worried about the competitiveness of their business,” Forzley said. “If the cost of their supplies goes up, they have to pass that onto their consumers and may be less able to compete on price.”
The tariffs were introduced in 2018, and have been considered a threat to cross-border partnerships between fintechs and suppliers.
While negotiations between the U.S. and China continue, the impact is one of several political issues the have hung over the international payments market for most of the past three years, along with Brexit, the U.S. government shutdown and earlier mostly verbal threats from the 2016 Trump campaign to cut off remittance corridors to get Mexico to pay for a border wall.
These battles pose headwinds for the global payments market, which has otherwise enjoyed a period of dramatic expansion and innovation. It's enough of a challenge that Visa CEO Alfred Kelly said the card network's financial performance could be hurt if these political issues are not resolved.
The estimated costs of the tariff battle vary widely, and are also subject to political perspective, but CNBC, citing research from Koch Industries, reports tariffs could cost $2,400 per household. And writing for PaymentsSource's PayThink opinion section, Intrepid Ventures principal Eric Grover argues political disputes are on balance harmful to the payments industry.
Tipalti CEO Chen Amit, also writing for PayThink, argued payment companies and fintechs need to look beyond the political headwinds to take advantage of the substantial opportunities that exist in international digital commerce.
“The businesses want to transact, but there is some anxiety,” Forzley said. “That is what we’re trying to address.”