Brexit threatens chaos for cross-border payments—and that's how this fintech likes it

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Companies are scrambling to shore up Brexit strategies to ensure their payment systems work, a difficult if not impossible task given the political uncertainty. But it’s also an unavoidable complication, which Tipalti hopes will provide a boost for its service, which is built to expect uncertainty.

“Brexit is a major change, but there’s regulations breaking every month in some jurisdiction that we have to respond to,” said Chen Amit, CEO of Tipalti. “It’s usually smaller and tactical, but part of what we have to do is to make a response quickly.”

The San Mateo, Calif.-based Tipalti just released a new FX product that funds an account in a single currency, then converts those funds to local currencies before the payout occurs. The product is designed for use cases such as a company that’s headquartered in one country, but may have small staffs or dispersed employees in one or more distant markets.

“If you have 500 people here and just a couple in Canada or the U.K. you don’t have to have financial relationships in those countries,” Amit said. Tipalti provides its clients an estimate of how much to fund as part of its service. The payer funds this additional money into their Tipalti account to cover exchange rates and related fees.

Tipalti relies on its scale—it processes $4 billion in payments annually for more than 2 million suppliers —and a cloud-hosted system to manage tax rules and regulatory compliance. It also relies on products such as the FX dashboard and digital payments tool to reside alongside other heavy lifts such as tax regulations and local banking rules. Tipalti uses a conbination of bank relationships and the banks' trading partners to execute the FX trades.

Companies are relying on international suppliers and workers to establish global businesses with less overhead, requiring more cross-border payments for supplies and payroll. At the same time, Brexit, the trade war and other political forces are complicating the rules for businesses that operate internationally.

Tipalti didn't release uptake for its new FX product. But it sees an opportunity in the controversies that have caused worry and hedging among companies that have to competitively respond to the growing cross-border payments market while bracing for a split in the EU or a spike in supplier costs. For example, there has been a rush of fintechs and banks to receive licenses ahead of the March 29 Brexit deadline.

Amit uses the constant state of flux for international tax laws or FX rules or general banking regulations as a sort of couch to suggest change is already happening ahead of the Brexit deadline.

“At the moment I don’t know what will happen; there’s a lot of uncertainty that is causing people to be worried,” said Amit. “But that uncertainty is always there with other regulations.”

Beyond Brexit and trade battles between the U.S. and China, there are dozens of payment processing rule changes easy year in almost all jurisdictions, according to the World Payment Report. For the “mass payout” or gig economy market, the American Bar Association tracked dozens of rule changes in all continents in 2018 alone.

Tipalti and Censuswide estimate about two-thirds of companies have supply chain-related concerns over tariffs, Brexit and other changes to laws such as NAFTA.

“What we try to do is say we can help them whenever there is a curveball,” Amit said.

Other companies are using blockchain to streamline international payments. Artificial intelligence is also seen as a way to quickly upgrade rules-based transactions or smart contracts as tax laws or financial regulations change or are impacted by other factors.

“There is always a good market for services that remove complexity from doing business across border. It is difficult to do and requires manpower to keep up which makes it a great opportunity to aggregating the effort across multiple clients vs. going at it alone,” said Rick Oglesby, president of AZ Payments Group.

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Compliance Brexit Cross border payments B-to-B payments