Asking The Right Questions In Cross-Border Payments


B2B corporations that conduct business overseas and across borders probably don’t know all the nuts and bolts behind how their money gets to a faraway recipient. But according to Greg Leven, maybe they should find out.

Leven, vice president of global payments at payments company INTL FCStone, knows that while most companies depend on their banks to handle their cross-border payments needs, corporate treasurers and money managers aren’t asking the right questions about how money moves, and it’s costing them.

“A lot of folks think that their current payment provider, whether it be a company or a financial institution, does a payment directly with everyone in all countries,” Leven recently told PYMNTS. “And that’s not the case.”

He pointed to other misunderstandings that many businesses have when it comes to their international payments needs and how confusion leads to friction.

For example, companies and banks will often send U.S. dollars when they pay someone overseas and let the local bank handle currency conversions. “That poses a couple of problems,” Leven said, “because local banks will convert funds from U.S. dollars to the local currency at the rate of that day. That U.S. or European corporation is captive to that bank as their sole currency provider.”

Companies will stick to what they know, Leven added: paper checks, paying in USD across borders, letting someone else handle the movement of cash.

“A lot of people — banks, corporations, nonprofits — don’t understand the ‘last mile’ of the payment,” Leven said, attributing this “last mile” phrase to Ben Bianchino, Store Financial’s director of business development. “A lack of transparency in the B2B payments space is critical, and a lot of times, people are shocked at how many correspondents actually touch the funds before they’re delivered to the ultimate beneficiary.”

[bctt tweet=”A lack of transparency in the B2B payments space is critical.”]

When working with banks, Leven said that if he were a corporate treasurer, the first thing he would ask a financial institution is whether they have direct relationships with the countries with which a business needs to conduct trade. Much of the time, a corporate money manager might be surprised to find out that they don’t; instead, banks work with other banks, sometimes several, to get money where it needs to be.

The same goes for payments companies, he said. Understanding that a “payments company” or even a bank doesn’t necessarily conduct a transaction directly is critical for businesses to understand, Leven explained. He pointed to the recent influx of payments companies on the market, a segment that generates a lot of confusion for businesses.

For instance, Leven said that while some payment companies say they can work with 150 currencies, the company itself is not the one dealing with that foreign exchange process behind the scenes.

“Do they provide payment software?” Leven asked of the broad community of payment companies today. “Or are they actually registered, regulated, do compliance? Are they actually moving the money like a bank or a financial institution would?”

The key to sorting out all of this confusion and misinformation, Leven said, is education.

“If businesses open their eyes and open their ears and actually figure out how a payment gets from Point A to Point B and knows how many correspondents it touches, then they are going to figure out that maybe their traditional method is not the most efficient process to make a payment in a foreign country,” Leven said.

Understanding how many middlemen handle a payment between payer and payee, for example, can encourage a business to do a bit more research on the best payments companies or banks to work with. This type of knowledge can mean choosing the right partner that works directly with banks in various nations, directly with local currency, leading to faster and cheaper payments for a business, Leven said.

Asking the right questions helps, but new industry events, like the recent Money20/20 conference, are pushing businesses to take a closer look at their payments service providers.

“I think it’s created awareness on the other options available,” Leven said of Money20/20, adding that he believes, in the next few years, the market will see consolidation of the payments services space, making it easier for companies to figure out exactly how a payments company does what it does.