E-commerce's global growth creates a fragmented payment ecosystem
In a new digitally themed global economy, where technology connects once-distant societies, the opportunity to expand one’s business into a new geographic market is more accessible than ever before.
Take e-commerce, where the internet and its integration of payment channels have created an avenue for marketplaces like eBay, Amazon and Etsy to thrive.
At the same time, the large operational infrastructures of these leading retailers are now available to smaller independent sellers as a service that increases their visibility, provides guaranteed receipt of payment and accesses a global market with generous financial opportunity.
While the route to global expansion is open, however, a fragmented and complex cross-border payment industry is difficult to navigate.
Many diverse choices exist for sending payouts to global suppliers, remote workers, and business partners across different countries and currencies.
Each method comes with its share of pros and cons at a time when consumer experience is king, and data control is paramount to business growth and regulatory compliance. Incumbent bank wires and checks, for example, carry slow settlement times and poor exchanges rates, while some newer fintech alternatives lack the interoperability with one another to scale and sometimes prioritize speed over security, for example, waiving certain authentication mechanisms to create a faster customer action.
At the same time, both banks and fintechs are not without their high transaction costs, which the World Bank has estimated can reach as high as 10.9% of the cross-border transfer’s principal. A lack of transparency into what an enterprise actually pays out can hurt accurate P&L forecasting and disadvantage end recipients.
Ultimately, global businesses require a payouts channel that provides tracking, compliance, and convenience at fair cost to all parties involved. At a time when Payvision predicts a 17% compound annual growth rate for cross-border e-commerce over the next three years and Juniper Research projects that cross-border B2B transactions will exceed $218 trillion by 2022 (up 31.2% from $150 trillion in 2017), selecting the right payouts partner is a first step towards creating a competitive overseas payment offering.
Whether your business is expanding overseas for the first time or entering a new market with different conditions, there are a few key things to consider when selecting your international payouts provider to ensure each candidate has the best interests of your business and its payees at heart.
To properly support your business’ long-term growth, you will need a payouts provider that can move payments into a range of other countries. This should not be limited to the countries in your immediate sights, but should also include the nations that represent potential future markets for your business to access for talent or clientele.
"Reach" in this sense does not just mean having a license to operate in different countries, or owning relationships with banks in those regions. An optimal B2B or B2C payouts provider must recognize the need to reach beyond the 3 billion people worldwide who have a bank account, the 2 billion people with Visa and Mastercard issued cards and the 200 million individuals who hold PayPal accounts. A staggering 2.8 billion people worldwide remain unbanked or underbanked, representing a significant workforce/customer pool to tap into, whether you’re compensating a self-employed driver, engaging a local research specialist or sending an independent merchant their revenue from making a sale on your platform.
To reach this population, consider a payouts solution that connects recipients to cash pickup locations.
You should select a provider that is capable of a) holding funds in the currency of your choice and b) converting them into the currency of your recipient’s choosing. For example, if your U.S. enterprise is seeking data scientists who are proficient in artificial intelligence and needs to tap into overseas talent, can the provider accommodate your need to pay a remote employee in France with euros, or an Israeli-based contractor in Israeli new shekel?
This can be the difference-maker to securing best-in-class talent. While the constituents of certain countries, like Vietnam or Russia, prefer to receive payment in U.S. dollars, appeasing those who prefer local currency is both a convenient retention tool for partners and a way to minimize the number of currency conversations your capital must make before reaching its recipient.
Confirming this capability in a payouts provider not only brings down the transaction costs that eat into the original payment, it also mitigates exposure to foreign-exchange price volatility that can occur when multiple exchanges are made.