When it comes to expanding operations internationally, making payments to sellers and vendors is often an uphill battle for cross-border marketplaces.
Entering a new market typically means setting up entirely new payout infrastructure. Companies need to partner with acquiring banks and a host of other vendors in the region, in addition to setting up a treasury operation for managing risk and keeping the business afloat. In doing so, marketplaces run the risk of creating a negative user experience and, according to Tomas Likar, VP of strategy and business development for Hyperwallet, hurting their brands.
In a recent interview, Likar discussed the need for speed in B2B transactions, as well as the pain points of cross-border marketplaces and the elements that go into building a seamless payout process. Likar told PYMNTS that the payout side of cross-border businesses — as it currently stands — remains fragmented, with the absence of standardized payment rails that are commonly used for domestic transactions.
Injecting speed into cross-border payments
According to a recent Hyperwallet study, one-third of eCommerce marketplaces operating out of the U.S. struggle to deal with the difficulties, inefficiencies and costs associated with international payment processes. These challenges often prevent companies from expanding to other markets.
But most of these issues, Likar pointed out, share a common element: They are each rooted in the marketplace payout process.
For marketplaces, a major contributor to the problem is the wide use of decidedly low-tech paper checks when making cross-border payments.
They “are really relying on the speed of the post service to deliver that check, and unsurprisingly, many of these checks get lost,” he said.
A number of marketplaces also partner with acquiring banks and make payments using wire transfers, which are typically delivered in three to six days but can take as long as two weeks in certain countries. Because the cost is unpredictable and wires are expensive to send, marketplaces usually wait until a payee has reached a minimum credit on their account before the company will make the payment.
Likar explained that making payments on a weekly or daily basis is a smarter way to handle working capital. Paying sellers in short intervals leads to more buying and selling, which can affect the marketplace’s bottom line.
Some marketplaces make faster payments by maintaining multiple accounts in different countries. As Likar noted, this enables them to quickly disburse funds to a local vendor without making a cross-border wire transfer. It's a viable strategy when operations are limited to a couple of international markets, but it can quickly become capital-intensive as marketplaces expand.
“It's difficult from the banking relationship standpoint because there are some banks that will get you into multiple countries,” Likar said, “but in most cases, you will have to find a new partner for each country.”
Creating the ideal cross-border payout process
Speed is a crucial element, but the key to building the perfect payout process is developing relationships with banking partners in different markets.
“You have to have a business partner who understands what you do and how you do it,” Likar explained. “That part takes the longest time.”
And though it’s relatively easy to set that up in the U.S. or across Europe, the process gets exponentially more difficult as a business enters its fifth or sixth new market, he said.
Aside from setting up the banking relationship, there are operational challenges that need to be taken care of, ranging from verifying the identity of sellers before a payment is processed to providing support in cases of delayed payments. To top it all off, Likar said, the payout needs to be transparent enough to let a seller know when and how they are getting paid.
Meanwhile, on the seller’s side of the equation, expectations are continuing to change with the growth in popularity of P2P payment apps.
“Sellers are used to apps like Venmo and PayPal for their consumer needs. The same expectations are now transferring to the business side, where everyone wants to get paid by the next business day and doesn't want to pay more than a dollar or two for the service,” Likar explained. “That's nearly impossible to achieve if you don't have the scale as a marketplace.”
Another imperative aspect of extending a seamless user experience to sellers on a marketplace platform is developing more efficient methods of data collection. Many marketplaces, Likar pointed out, collect quite a bit of data during onboarding, such as a seller’s bank account information or details for identity verification.
“This can lead to a half-hour signup process. It’s not surprising that most sellers never finish,” he said. To decrease this churn, marketplaces need to reduce the friction in their systems by asking for information at different points in the process.
“It's more about collecting the right data points at the right time.”
Making payments, X-border, into the future
While Likar pointed out that progress has been made in improving the speed of cross-border payments, there’s been an increasing demand for transparency in foreign exchange rates and transaction fees. And although there may be an expectation for a Venmo-like experience in cross-border B2B and B2C transactions, offering it is not an easy feat, particularly with the risk of money laundering associated with international transactions. However, Likar is confident that the industry is headed in that direction.
“Sellers will be able to log in, and within 30 seconds they will be able to complete their cross-border transaction,” he said, adding that the procedure will let sellers know when the funds hit their bank accounts. It will also help ensure that they are receiving the exact amount of money that was agreed upon and are not being charged undisclosed intermediary fees and foreign exchange rates.
However, there’s still more work to be done.
“It's not the same experience in 200 countries. We'll keep adding to our platform so that we can deliver a consistent experience no matter where you are,” Likar said.
Marketplaces are pushing to provide a faster and simplified user experience, but it may be a while before improvements become industry-wide, as Likar pointed out. Nonetheless, the increasing demand for a more user-friendly experience may well drive development of cross-border payment solutions in the future.
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About the Tracker
The PYMNTS X-Border Payments Optimization Tracker™ is the framework for evaluating players in the cross-border payments landscape, and the quarterly index tests the readiness of the companies to serve a global audience.