As the trade war ramps up, some cross-border payment companies are steering into the storm by selling lower-cost automated processing as a way to offset expensive supply chains.
The argument is the tariffs are a sign it's finally time to change paper and manual processing for international payments to mitigate a business expense that can fluctuate based on the political climate.
"Many organizations consider the high fees and manual processing to manage cross-border payments as simply part of the process," said Lucy Yueting Liu, co-founder and COO of Airwallex, a Melbourne-based fintech. "Without being aware that a simple, better alternative exists, it's unsurprising that adoption rates [for automated B2B payments] are lower compared to P2P technology."
The three-year-old company executes international payments for small to medium sized enterprises, and earlier in July raised $80 million from a mix of investors including Tencent, Sequoia and Square Peg. Mastercard is an existing backer and uses Airwallex to power its Send product.
Airwallex's international strategy places it directly in the crosshairs of the trade war. It is using its new funding to expand deeper into Asia and Europe, and also plans to expand in North America. By having potential clients in both China and the U.S., Airwallex would be doing business with companies that face rising supply costs from expanding tariffs.
"The trade war just adds to the benefit of the product. Higher tariffs mean businesses need to cut costs elsewhere to remain competitive," Liu said. "Starting with foreign exchange and payment costs is a quick in."
Payment companies have had several months to prepare for the trade war, which began with verbal threats between the Trump administration and the Chinese government, followed by incremental tariffs through the summer months. Airwallex predicts that being a nimble startup will give it an edge.
"One of the advantages of having a lean team and being a young organization is that we can respond quickly to changes in the market," Liu said. "The nature of the Airwallex business being highly automated and tech-led means that in a way we are always prepared for sudden impacts."
Airwallex uses partnerships with local companies to remove third parties for international payments. It also offers an API that embeds in a business' existing payment systems and assess a transaction fee based on API usage. The company's platform uses auto-routing technology that determines the best cost and speed for a transaction.
"Organizations can integrate with Airwallex and make or receive payments without other parties being required to use our system," Liu said.
Another mass payout international payment company, Tipalti, has researched U.S. businesses and found 69% are concerned about trade disputes between the U.S. and China, and 71% are concerned about the impact of renegotiations of NAFTA and other trade agreements.
"Given that only 12% of companies say they are ready for the complexities of global expansion, companies like Tipalti are able to help finance teams scale cross-border payment operations efficiently," said Chen Amit, CEO of the Palo Alto-based Tipalti. Amit has argued emerging payments technology of all kinds can help businesses achieve processing scale to overcome political hurdles.
Airwallex and Tipalti exist in an ongoing battle to bring more automation to cross-border payments. New processing technology such as blockchain and cloud hosted processing have taken costs out of P2P transfers, though B2B payments are automating slower, a lag Liu attributes to the complexity of the internal systems in place that run finance departments at businesses.
Marketing lower processing as a way to manage tariff costs could be a challenge, though there is at least some space to make the argument.
Suppliers and consumers of goods or raw materials are both going to want improve efficiencies and cost-cutting measures to maintain at least some continued trade, according to Sarah Grotta, director of the Debit and Alternative Products Advisory Service at Mercator. "Perhaps economic cross-border payment solutions are getting a second look," Grotta said.