How to Optimize Your Global Payment Strategy
The global B2B payment amount was valued at USD 72.30 trillion in 2022, while the daily global business-to-consumer and consumer-to-consumer market size is currently standing at USD 1,670.90 billion. While B2C and C2C transactions barely surpass 1% of the worldwide foreign currency market, global B2B transactions account for 4.4% of it. This is why effective international payment management has become essential in today's globalized economy.
You require an effective and reliable way to send and receive money across international borders, whether you are growing your company in foreign markets or conducting business with foreign suppliers. However, handling and managing foreign payments has its challenges. Companies frequently find themselves negotiating challenging terrain, from high expenses and limited pace to a lack of open communication and sophisticated currency management.
Let's talk about the challenges in more detail and come up with solutions that can make things easier and help businesses operate more profitably and efficiently.
What Makes Up The International Payments Ecosystem?
The international payments ecosystem is an intricate network of interconnected businesses and systems that facilitate the transfer of funds across borders.
At the core are the payment networks like Visa, Mastercard, and American Express, which provide the infrastructure for card-based transactions. Then there are the issuing banks that create and manage payment cards for consumers and businesses. On the other hand, acquiring banks process transactions on behalf of merchants.
Payment processors act as intermediaries, handling the technical aspects of transactions, from authorization to settlement. Payment gateways serve as the virtual point of sale, connecting merchants to payment processors.
To complete the picture, sales agents, value-added resellers, and payment facilitators often play supportive roles, offering services like merchant onboarding, fraud prevention, and customer support.
What Makes Managing International Payments so Challenging?
Expanding into global markets is a dream for many small and medium-sized businesses. However, the reality is often a complex and costly nightmare. Hidden fees and labyrinthine processes surrounding international payments have become major stumbling blocks. In fact, American SMBs alone lost a staggering $800 million to these unexpected charges in 2023. It's clear that navigating the world of cross-border payments requires more than just a passport – it demands a strategic approach.
High Costs
International payment processing can incur high costs considering all the processes it has to go through and for each of the processes the bank charges a processing fee.
When transactions are conducted in currencies other than the euro, businesses must also take the cost of currency exchange into account. The interbank exchange rate is frequently subject to a margin by banks and other financial service providers, which raises the overall cost of doing business internationally.
Takes Time
For companies that operate globally, another key problem is the speed of foreign transactions. The international payments processing time takes three to five working days. This depends on the country of origin and the country to which it is sent.
This delay can result in problems with cash flow and may cause challenges for a business's financial plans. The reason for the large disparities in business accounting is not cash flow but the lengthy time that it takes to process compared to a domestic transaction.
Limited Transparency
Another challenge faced by companies is not having enough knowledge or information related to the costs and fees associated with international transfers. For example, the exchange rates and fees may not be disclosed till the transaction is complete.
This lack of transparency causes higher costs and makes the overall management of international payments difficult.
Foreign Exchange Risk
In international transactions, managing currencies continues to be a significant hurdle.
Changes in foreign exchange can impact the overall processes of a business. For instance, if a business deals in a specific currency and that currency depreciates against the dollar, the rate of exchange for that business will ultimately go up. This is why it is important to control the currency exchange, regardless of your business.
Can Automation Overcome Global Payment Challenges?
Since automation is taking over the world, why not leverage that into our day-to-day global payment procedures? With the help of automated technology, the process gets streamlined, improving efficiency, speed, and accuracy. Below are some of the ways automation can help tackle these challenges and overcome them.
Real-time conversion: Most businesses find managing the rate of exchange tricky. By automating this process, you can ensure exchange rate management and accurate currency conversion.
Automates payment processes: An automated payment process streamlines the payment of international funds. This allows for efficient and faster global transactions. With the help of automation, the fastest and most effective payment method is selected, while also making sure it goes through securely. It carries out all the functions until the final settlement.
Tackles regulation complexities: The global payment process is pretty complex with different regulations. Automation helps cater to these complexities and comes up with the most effective solutions while complying with the guidelines. Some duties it carries out are,
Screens transactions automatically
Identity verification
Monitors for security threats
This way, the chances of not complying with regulations are extremely low, facilitating a smooth payment procedure.
Optimizes workflow: With the use of automated workflows, a business can optimize the payout process from start to finish, from payment initiation to reconciliation. Automation lowers errors, increases operational efficiency, and decreases the need for manual intervention.
Everything is approved on time, and reports are made accordingly, which improves accountability and transparency.
E-commerce integrations: Automation helps e-commerce sellers and providers receive their payments on time through mechanized acceptance procedures.
Here Are Some Global Payment Platform Solutions For Your Businesses
Adopting tactical and effective international payment solutions is necessary to overcome the difficulties faced by businesses. Below are some highlighted solutions that can make international transactions smooth and efficient for businesses that run contractor payroll and vendor payments.
Fintech Solutions
Traditional banking systems often grapple with slow processing times, high fees, and complex procedures for cross-border transactions. Fintechs, on the other hand, have streamlined these processes, providing businesses with faster, more cost-effective, and transparent alternatives.
Currency Risk Management
Currency fluctuations can significantly impact a business's bottom line. Unpredictable exchange rates can erode profit margins and create financial uncertainty. To mitigate these risks, companies must implement effective currency risk management strategies.
SLAs
By entering into an SLA ( Service Level Agreement) with a payment service provider, you can ensure a specific level of performance, like transaction speed and charge transparency. SLAs can assist companies in obtaining a more consistent and dependable service.
Systems for real-time payments (RTPs)
Money may be moved almost instantly between bank accounts thanks to real-time payment technologies. These technologies can greatly speed up international transactions, and they are being deployed in several nations.
Open Bank Data
This gives companies the security to exchange their banking information with approved outside parties. This can make it easier to integrate global payment options and give companies access to more effective, customized payment services.
Utilize a Global Payment Platform
A global payment platform is the most efficient way to manage complex international payments. By consolidating multiple payment systems into a single, unified platform, businesses can streamline operations, reduce costs, and improve visibility over their financial transactions.
Mural is a leading global payments platform that simplifies the management of contractor payroll and vendor payments. With our platform, you can seamlessly process payments in over 40 currencies across 170 countries.
Tips for Optimizing Payment Efficiency
After you and a vendor or supplier have collaborated, you need to talk about the payment terms. The following are some of the elements that influence the payment method choice:
Cash flow requirements (How soon can the payment be made?)
The economic situation of the country in both the countries you are importing from and the one you are exporting to.
The kind of product you are sourcing
The complexities of the banking system
The currency exchange rate
Which is the most secure means of payment
Your demand for the product.
Find out about the costs before sending in a payment. If you are on a tight budget, you might want to consider sending a payment that takes a little longer to process. Additionally, before sending the payment, you must ensure the provider is real. You might get assistance from a worldwide payment operator to verify vendors.
How Are Global Payments Done?
An important aspect of global payment is supporting different currencies and languages. These options can help you stand out and retain business partners, even in financially challenged countries.
International payments create opportunities for financial relationships, trade, and international business operations. However, there are many different forms of global payments.
Wire Transfers Internationally
This allows you to electronically transfer your funds from one bank to a bank in another country. Sometimes, these transfers require a correspondent bank to follow certain protocols.
Electronic Transfers
This refers to the transferring of money electronically from one country to another. Despite the fact that it is similar to wire transfers, electronic fund transfers or EFTs use local/regional currency payment methods and facilities to make a transaction. This is commonly used for cross-border transactions.
Mobile Payment
This platform just got popular over the past couple of years and there is a reason for that. Mobile payment services are commonly used in areas with limited financial infrastructure. With the help of this platform, you can transfer money globally with something as simple as a mobile. This is an easy and efficient option for global payments in areas that do not have other payment facilities.
Online Platforms
The world of e-commerce is growing globally, and mainly because of this, online payment methods have become common. These platforms enable smaller transactions like commissions to take place conveniently, and they enable businesses to receive and send money internationally securely.
Remittance
If you want to send international money overseas to your family, remittance providers specialize in doing so. Remittance providers offer services at competitive exchange rates and a convenient payment process. The flow of remittances is only forecasted to increase with the upcoming years and the global payments system plays a big role in it.
Trade
Global payments also cater to trade finance securities like bank guarantees, such as bonds, letters of credit, etc. This facility helps global trade take place efficiently, ensuring financial security for both buyer and seller.
Let’s differentiate two closely related concepts. This will give us a better and deeper understanding of our topic.
Global vs Cross Border Payments
Cross Border Payments
Covers a wider range of international transactions.
Cross-border payments are done keeping in mind the law and regulations. This ensures no illegal activities like money laundering or so are performed.
Requires a local bank to carry out transfer of funds.
Global Payments
It is a type of cross-border payment related to a specific transfer of funds.
It requires currency exchange and fees and even incurs a rate of exchange.
Different Ways in Which You Can Pay International Contractors
Some of the most common ways in which you can pay international contractors. However, each has its pros and cons.
You can send the money directly from your bank to their bank known as bank transfer. This is also the most secure way to pay them. However, this method may be expensive. There can be additional fees and exchange rates, even if it is a one-time payment. Thus, when the money reaches the client it is less than the agreed amount.
Even Though this method is considered outdated, some countries still rely on it. Locally cashing a check does not take long. However, for an international contractor, this method can take pretty long. It can take approximately six to five weeks to reach the contractor.
Wire transfer used to be one of the fastest and safest methods of international payment. However, today it is outdated and incurs large fees. It also requires the contractor to physically deposit the payment, making it an inconvenient method.
Another method is physically depositing the money from where it was sent. This method is called international money orders. Most countries do not use this method at all, while some still do. In countries with bank restrictions, this method is still in use.
There are platforms that act as middle banks where one person sends them money, which they then send to another. The platform does a verification check, deducts the fees, does currency conversion if required, and then sends the money to the receiver. This platform allows transfers in bulk. However, there are some drawbacks. The platform is not supported worldwide and is also known to be informal as it does not create any documents as proof.
How Important Is Global Payments in 2024?
In 2024, most businesses have gone digital and the use of global payments is increasing. When a company grows or expands, it requires a secure and efficient global payment platform. The main reasons why global payment platforms are becoming increasingly popular. Study shows that online payments are preferred over cash payments in the international payment system.
Remote Employees or Workforce: Remote companies are growing in popularity and the need to hire international talent and freelancers has also increased. Thus, payments and salaries need to be sent internationally.
Several studies also predict that the number of remote employees will continue to increase over the years, which in turn means more global payments to be made.
Global Expansion: Most e-commerce and online businesses grow their reach globally. When they expand they require global payments to pay vendors and contractors to help them carry out day-to-day operations overseas.
Inclusive Finance: One of the major roles of global payments is providing inclusive finance. This enables people from underdeveloped countries to benefit from these financial services. Global payments also allow these people to take part in trade and be a part of the international economy. According to research, financial inclusion gives financial access to people with no banking, insurance, or investment to finally do something about their future.
Increased Marketplace: Platforms: Buyers and sellers connect with each other internationally through various marketplaces. Therefore, an efficient payment platform must handle multiple currency transactions, timely payments, etc., across different countries.
Positive experience: The world has gone global, and businesses have become digital. Thus, ensuring a positive experience for our customers is crucial. That means quick disbursements, customer refunds, and so on. Everything requires an efficient and secure payment process.
Security and Efficiency: Companies are concerned about the risks associated with international payment regulations. This is why they work with global payment providers who can tackle the complexities associated with international payments and protect them against security risks.
In short, global payment is considered important today because businesses want to expand operations overseas, remote work demands international talent and freelancers, and e-commerce is growing. By utilizing global payment platforms, businesses can ensure a smooth transactional experience while not having to worry about security threats.
Are Global Payment Platforms Secure?
Security is a given for global payment platforms. When a user fills in the required information and hits send, these platforms monitor the funds every step of the way. It will even send timely notifications to the user and will track the process till it has reached its destination.
However, are there ways you can check if this is actually secure? If your platform is cloud-based, tokens and encryption must be up to date so that your card details are safe.
Another way to check if the platform is secure, make sure it has records of every transaction, the place of purchase, location, etc. You can go through this and check. If it has all the essential details you’re good to go.
Conclusion
Managing international payments can be complex, but it's essential for businesses looking to grow globally. High costs, slow speeds, and currency fluctuations are common challenges. To overcome these, businesses can use tools like fintech solutions, currency risk management, and real-time payments. This blog also mentions the different methods by which global payments are made. Each has its pros and cons. One thing is for sure: if you carry out these processes through a global payment platform, you will get 100% security and an efficient payment process.
Lastly, the use of global payment will only increase over the years. As technology evolves and businesses become digital, usage of these platforms will only increase. Investing in a well-known and highly secure global payment platform must be your number one priority if your business demands international transactions for its day-to-day operations, such as hiring remote workers, paying contractors, and so on. The rest comes later.
