CEO Reports – Managing International Payments – Equiniti

SPECIAL REPORT

Managing International Payments

International B2B Payments: A Global Growth Opportunity How Technology Has Transformed International Payments Making the Most of FinTech The New Payment Providers The Future of International Money Transfers

Published by Global Business Media

180 countries covered

130

currencies

99%

Payroll expertise

accuracy on payment delivery

and in-country requirements

Easy payment

Guaranteed exchange rates for

processing, fully compliant

24 hours

Equiniti International Payments is a complete international payments and foreign exchange solution for businesses, combining vast experience and specialist knowledge with powerful technology to simplify the payment process while reducing cost and resource.

For more information, contact a member of our team quoting CEO2016 international@equiniti.com 0844 776 1836

www.equinitiinternational.com

SPECIAL REPORT: MANAGING INTERNATIONAL PAYMENTS

SPECIAL REPORT

Managing International Payments

International B2B Payments: A Global Growth Opportunity

Contents

How Technology Has Transformed International Payments Making the Most of FinTech The New Payment Providers The Future of International Money Transfers

Foreword 2 Tom Cropper, Editor

International B2B Payments: 3 A Global Growth Opportunity Nick Pedersen, Managing Director, Equiniti International Payments

Published by Global Business Media

Published by Global Business Media Global Business Media Limited 62 The Street Ashtead Surrey KT21 1AT United Kingdom Switchboard: +44 (0)1737 850 939 Fax: +44 (0)1737 851 952 Email: info@globalbusinessmedia.org Website: www.globalbusinessmedia.org Publisher Kevin Bell Editor Tom Cropper Business Development Director Marie-Anne Brooks Senior Project Manager Steve Banks Advertising Executives Michael McCarthy Abigail Coombes Production Manager Paul Davies For further information visit: www.globalbusinessmedia.org The opinions and views expressed in the editorial content in this publication are those of the authors alone and do not necessarily represent the views of any organisation with which they may be associated.

Material in advertisements and promotional features may be considered to represent the views of the advertisers and promoters. The views and opinions expressed in this publication do not necessarily express the views of the Publishers or the Editor. While every care has been taken in the preparation of this publication, neither the Publishers nor the Editor are responsible for such opinions and views or for any inaccuracies in the articles.

Banks and FinTechs – What’s the Story?

The Challenges of Today The Global Opportunity A Cultural Shift

How Technology Has Transformed International Payments

8

Tom Cropper, Editor

The Age of FinTech Good for Small Businesses At a Crossroads

Making the Most of FinTech

10

Jo Roth, Staff Writer

So How Do They Work?

Trouble Ahead?

Choosing the Right Provider Rapid Change

The New Payment Providers

12

James Butler, Staff Writer

Suspicious Times Fast, Affordable and Efficient Fast, Affordable and Simple Developing into the Future

The Future of International Money Transfers 14 Tom Cropper, Editor

Rapid Growth Not Just for the Little Guys Greater Scrutiny

References 16

© 2016. The entire contents of this publication are protected by copyright. Full details are available from the Publishers. All rights reserved.

No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical photocopying, recording or otherwise, without the prior permission of the copyright owner.

WWW.CEOREPORTS.COM | 1

SPECIAL REPORT: MANAGING INTERNATIONAL PAYMENTS

Foreword W

ORKING INTERNATIONALLY has never

nature of global money transfer and opening up vast

been easier. Even an individual freelancer

new horizons for small businesses.

can make contact with a client on the other side

The trouble is, as James Butler investigates, this

of the world, produce work and receive payment

technology is new and, as such, has a lot of inertia

– all within 24 hours. If it’s not out of reach for

to overcome. He will look at some of the key factors

an individual, it’s certainly within the realms of

businesses should consider before making the leap.

possibility for all sizes of businesses, both large and small.

Jo Roth will then examine some of the cutting edge solutions that are driving innovation forward and

As our opening article from Andy Brown, Managing

will look at the key trends impacting development.

Director at Equiniti International Payments explains, the

Finally, we’ll cast our eyes to the future. With so much

age of globalisation brings with it a host of possibilities

change over the past decade, it’s never easy to be

and opportunities. Their PayFac solution provides a

certain where the market is heading next. We’ll round

secure cloud based platform where customers can

up this report by assessing where it is now, where

process payments in just a few clicks. With businesses

it is going to and what new technologies will shape

of all sizes working with individuals around the world,

the next ten years.

traditional foreign transaction methods are insufficient.

Elsewhere in this Report we will look at the evolving nature of the international payments landscape; we’ll examine how new technology is revolutionising the

Tom Cropper Editor

Tom Cropper has produced articles and reports on various aspects of global business over the past 15 years. He has also worked as a copywriter for some of the largest corporations in the world, including ING, KPMG and the World Wildlife Fund.

2 | WWW.CEOREPORTS.COM

SPECIAL REPORT: MANAGING INTERNATIONAL PAYMENTS

International B2B Payments: A Global Growth Opportunity Nick Pedersen, Managing Director, Equiniti International Payments How international payments are pivotal in the evolving landscape of globalisation

The back-end processing required to

I

N TODAY’S changeable global economy, more and more UK organisations are centralising their operations to ensure tighter control, leaner financial structures and a more streamlined business. While central functions are UK-centric, at the same time, global outsourcing and offshoring is increasing as businesses look for more cost-effective resources, products, services and suppliers to maximise profit margins.

A 2014 Deloitte reporta revealed that 60% of IT companies and 40% of payroll companies currently outsource globally, and the trend has only continued to rise. As organisations increasingly look beyond domestic boundaries, so the complexity of their payroll operations grow.

A PwC survey in 2015b revealed that 89% expect international employee mobility to increase.

The global expansion of UK businesses isn’t just limited to outsourcing of services and human resources, either. According to the British Chambers of Commerce 2015 International Trade Survey, one in five (23%) service sector firms currently export their services globally, with a further 17% on the verge of exportingc.

This, in itself, generates payments complications for UK organisations.

While this global growth trend isn’t necessarily new, it is certainly on the increase, and as a result of organisations both outsourcing and trading globally, it comes with some major considerations for organisations requiring international payments capabilities.

move money remains Global expansion comes with a wealth of opportunities – more cost-effective outsourcing, access to new markets, improved profit margins, and wider brand visibility. Yet, at the same time, there are risks. As businesses continue to grow their global reach, both in terms of utilising global workforces or suppliers and also in penetrating new markets, the payments process can become highly convoluted. Similarly, for businesses marketing their products and/or services to new global markets, the issue of global currency can generate a complicated revenue problem.

Historically, organisations would rely on their banks and traditional FX providers for their overseas payments services but, with the rise of nascent FinTech start-ups coming into the market, the diversity, complexity and effectiveness of payments services is becoming a major consideration and much more than a simple currency conversion service.

largely untouched – but the face of the payments process has changed as technology provides slicker and faster ways to process transactions

Banks and FinTechs – What’s the Story?

In a government report earlier this year, it’s estimated that the size of the UK FinTech market is £6.6bn, investment is at £524m and number of employees is around 61,000.d It’s safe to say that FinTech is leading the way, and this has caused some concern for traditional legacy banks.

While most businesses, historically, have utilised their existing banking infrastructure (along with an FX provider) for their international business payments, the problems can be multifaceted – WWW.CEOREPORTS.COM | 3

SPECIAL REPORT: MANAGING INTERNATIONAL PAYMENTS

As businesses continue to grow their global reach, both in terms of utilising global workforces or suppliers and also in penetrating new markets, the payments process can become highly convoluted

4 | WWW.CEOREPORTS.COM

including slow, delayed or failed payments, lack of transparency over fees and charges, and lack of local country knowledge which can lead to problems in the payment delivery – not to mention various issues around currency fluctuations affecting profit margins.

For businesses looking to expand, FinTech innovation is becoming a huge enabler, tackling many of the issues previously experienced across the payments landscape. Technology is changing the way people, companies and nations operate and communicate. For global finance, that means the expectation of immediacy, efficiency and accuracy in banking services and FinTech solutions alike, with far higher expectations for user experience and much less tolerance for errors and delays.

FinTechs have latched onto the market opportunity by offering swifter and more capable banking services, offering more competitive rates and higher transparency on transactions. While many new FinTech start-ups claim they can provide more superior services than banks, the banks are still required to move the credit behind all of these businesses, so most FinTechs largely rely on legacy banks anyway. Fundamentally, FinTechs are only changing the face of payments – implementing a layer of technology which makes the experience smoother, faster and with much higher user appeal.

As such, there is a behavioural change occurring – a new ethos of efficiency driven by technology, which predominantly sits in the front-end systems and across the consumer experience. The back-end processing required to move money remains largely untouched – but the face of the payments process has changed as technology provides slicker and faster ways to process transactions.

In spite of this, it still carries an element of risk.

FinTechs don’t have the heritage and sturdiness that legacy banks possess and, as much of the technology is new, it still requires more widespread operational proof before it really starts to dominate the industry. What’s more, FinTechs aren’t really financial experts at all – they are technology experts, and when it comes to the highly sensitive and complex nature of payments, they may not have enough knowledge and expertise to address the deep-rooted challenges of global payments.

The Challenges of Today While there is opportunity in abundance for businesses as the global gateways open up, the industry is still steeped in challenges. Largely, this simply comes down to the fact that, by their very nature, international payments are a complex process.

Not only that - payments are a sensitive issue. For organisations paying employees or suppliers around the globe, the knock-on effect of any payment issues can be significant – compromising relationships and trust, and even carrying the potential to put employee retention or supply chain reliability at risk.

The intricate nature of global payments means that accuracy is essential. Payments are a considerably important component of livelihood for both businesses and individuals and, as such, there are emotions attached to payments. Add in the complexities of the physical transaction itself, and suddenly it becomes even more of a challenge to pay the right person the right amount at the right time.

Any organisation operating globally is faced with a multitude of challenges around different time zones and the different jurisdictions of in-country

SPECIAL REPORT: MANAGING INTERNATIONAL PAYMENTS

banking infrastructure. Outside of the physical transaction itself, issues such as counter-terrorism financing and anti-money laundering need to be considered. As soon as the money crosses an international border there is legislation in place that is very different to that in place in the UK, such as legislative and compliance checks, which can cause unwanted delays and obstructions.

It’s a very different playing field to the national payments landscape. Many global payments are made by wire transfer which relies on banks to route the payments, often via other ‘correspondent’ banks which may not process the payments due to compliance barriers.

Companies also need to bear in mind the value of being paid the right amount at the right time, as expectations are higher than ever around speed and accuracy of payments. If there is an error, it’s not only at a cost to the company – it’s also a cost to reputation and customer experience.

For organisations centralising their HR and payroll functions, inputting high volumes of data in order to pay a wide global workforce is a considerable challenge and can involve a higher risk of human error. The transparency of the payment trail when processing global payments in bulk is essential, and unless there is validation of recipient bank details, the risk of errors and resulting returned payments is high. A PwC reporte in 2015 revealed that payroll errors cost the average FTSE100 company between £10m and £30m per annum – apply this on a global scale, and the costs are phenomenal.

There are similar challenges for online retailers – an organisation which is looking to expand globally and tap into new international markets is faced with the issue of local currency pricing.

Research reveals that 68% of consumers fail to complete a transactionf, and a significant

factor in this can be as a result of lack of local pricing options. The issue fundamentally comes down to transparency. If customers are to incur additional exchange fees and the upfront cost is not visible, or the currency exchange rate is not favourable, it will deter consumers from completing transactions. On a global scale, this can have a considerable negative impact on a businesses’ profit margin.

For smaller businesses, the profit risks are even higher. Many banks utilise a flat fee schedule, which means businesses that send smaller international transfers can be burdened with the same high cost as for larger transfers. A recent study revealed that small businesses in Britain which trade within the euro zone spend nearly £4 billion a year transferring money abroad, partly because a lack of transparency makes it tough for them to get the best deal from banks.

The Global Opportunity While complications with international payments are aplenty, it’s not a bleak landscape for businesses. More options are now available than ever before, with complete solutions which take into account the end-to-end payment process rather than just the physical transaction – this means higher accuracy, greater efficiency, and a better experience for both the remitter and the recipient.

Much of this is being driven by technology – and rather than FinTechs posing a threat to legacy banks, banks and FinTechs are joining forces to offer complete, reliable and highly efficient new banking infrastructures – and businesses and consumers alike are adapting to this new culture change.

An industry report revealed that, in 2015, 68% of people had never used a technology provider

Utilising the right combination of specialist payments knowledge and innovative technology, organisations can expect to see huge benefits as a result of greater technological capability, improved efficiency and greater accuracy across international payments

WWW.CEOREPORTS.COM | 5

SPECIAL REPORT: MANAGING INTERNATIONAL PAYMENTS

There is a cultural transition taking place, as both individuals and businesses recognise the value that technology can bring to the payments industry

6 | WWW.CEOREPORTS.COM

for financial services such as in-store payments, international money transfers, lending, wealth management and property investment. In five years’ time, half (48%) expect to use a technology provider for at least one financial service - and a third (32%) expect to use a technology provider for 50% or more of their financial needs. In ten years’ time, 20% of consumers anticipate they will trust technology providers for all financial services from credit cards to mortgages.

There is a cultural transition taking place, as both individuals and businesses recognise the value that technology can bring to the payments industry.

For global payroll payments, FinTech is assisting with volume and delivery. Technology is enabling more efficient methods of data uploading by providing bulk upload capabilities and automation. Ultimately, in order to pay employees in different currencies and countries across the globe, the speed and accuracy at which FinTech can identify and validate payment details, convert currency and process the transaction with a completely transparent audit trail is leagues ahead of traditional global payroll processes.

This is enabling organisations to cut down on resource costs and dramatically reduce the risk of error. Errors are costly for organisations and, as technology opens up new opportunities around automation and verification processes, it can virtually eliminate the risk of payment mishaps. By identifying errors or anomalies much earlier during the payment process, before the bank rejects the payment and incurs costly charges, new technology-based solutions can identify and rectify problems prior to the payment actually leaving the remitter’s bank.

Overall accuracy on payment delivery, therefore, is improved significantly.

As global payments become more and more prevalent, specialist payments knowledge deepens, which is further helping to improve accuracy on payment delivery. A richer understanding of the requirements around different country’s banking jurisdictions means that specialist international payments providers can prevent potential mishaps relating to complicated foreign banking procedures and compliance issues.

For organisations marketing their goods around the globe, the evolution of FinTech is also enabling eCommerce retailers to benefit.

By offering multi-currency pricing tools, online retailers can offer pricing to consumers in local currencies in real-time, thereby reducing the risk of incomplete transactions and improving the profit margin of the organisation. What’s more, pricing transparency is a huge factor in enabling global trade and, while it is gradually materialising in the payments landscape, there is still room for improvement, especially when it comes to foreign exchange.

A Cultural Shift While the payments industry is evolving, many are still concerned that foreign exchange is one of the few areas left in financial services where organisations are not required to be as transparent in their pricing as they are in some of the other areas in the service they provide.

Ultimately, this lack of transparency needs to improve, and because more and more international payments providers are combining payments expertise with foreign exchange services rolled into one complete service, the transparency issue is coming to light.

The shifting global landscape is seeing phenomenal investment into foreign exchange

SPECIAL REPORT: MANAGING INTERNATIONAL PAYMENTS

businesses, and with $5.3 trillion moving around the world in currency exchange every day, it’s easy to see the attraction for such investment.

However, there is a fundamental difference between simply transferring foreign currency and the certainty of delivery for international payments.

What has to come as part of this cultural shift around global payables and receivables is transparency around pricing – upfront costs to the point of order and pricing the cost to make a transaction. Transaction fees and exchange rates should be rolled into one so there is no ambiguity around how much of a charge is being incurred as part of a transaction.

Globalisation is certainly shaping the international payments industry, and with technology having a considerable influence on the evolution of the industry, it’s an opportune time for organisations who are undergoing restructuring due to centralisation and global expansion.

Utilising the right combination of specialist payments knowledge and innovative technology, organisations can expect to see huge benefits as a result of greater technological capability, improved efficiency and greater accuracy across international payments, opening doors to new global growth opportunities while contributing to leaner, more efficient internal processes.

For more information about Equiniti International Payments, visit www.equinitiinternational.com.

The shifting global Contact Equiniti International Payments international@equiniti.com 0844 776 1836 www.equinitiinternational.com

landscape is seeing phenomenal investment into foreign exchange businesses, and with $5.3 trillion moving

References: a Deloitte’s 2014 Global Outsourcing and Insourcing Survey: 2014 and beyond

http://www2.deloitte.com/content/dam/Deloitte/us/Documents/strategy/us-2014-global-outsourcing-insourcing-survey-report-123114.pdf

b PwC: Making payroll pay - Managing risk and compliance in an unprecedented era of change https://www.pwc.co.uk/audit-assurance/assets/makingpayrollpay-v2.pdf c British Chambers of Commerce 2015 International Trade Survey http://www.britishchambers.org.uk/15-07-29%20ITS_Services%20FINAL.PDF

around the world in currency exchange every day, it’s easy to see the attraction for such investment

d UK’s world-leading FinTech industry to be given new government boost https://www.gov.uk/government/news/uks-world-leading-FinTech-industry-to-be-given-new-government-boost e PWC: Making payroll pay - Managing risk and compliance in an unprecedented era of change https://www.pwc.co.uk/audit-assurance/assets/makingpayrollpay-v2.pdf f Baymard Institute: Cart Abandonment Rate Statistics http://baymard.com/lists/cart-abandonment-rate

WWW.CEOREPORTS.COM | 7

SPECIAL REPORT: MANAGING INTERNATIONAL PAYMENTS

How Technology Has Transformed International Payments Tom Cropper, Editor How technology and a new wave of start-ups is transforming the way businesses work across borders.

I The launch of PayPal in 1998 represented a breakthrough moment for FinTech in the way that we think of it today, but it has only been over the past few years that the boom has truly taken off

T’S SEPTEMBER 2008 and, as the employees of Lehman Brothers leave their offices – belongings stuffed into boxes – the world is waking up to the full reality of the banking crisis. It’s a moment which dented the banking system’s aura of immortality and created an opportunity for a new wave of entrepreneurial services to take their place.

The implications for businesses operating across borders has been profound.

As so often, a weakness for one sector created an opportunity for another. In the aftermath of the crisis, banks found their market position compromised; they were burdened with increased scrutiny and regulation while their customers became more open than ever to alternative ways of doing business. In the years since then, a new wave of FinTech start-ups have grasped that opportunity with both hands and in doing so are revolutionising the global payments landscape.

The Age of FinTech Financial technology, in one form or another, has been with us for decades; indeed, you could argue it’s always been with us right back to the invention of the abacus. At every point it’s played a crucial role in transforming key aspects of our personal and business lives, whether it’s the arrival of credit cards in the fifties, ATMs in the sixties, electronic stock trading in the 70s or the more recent rise of ecommerce.

The launch of PayPal in 1998 represented a breakthrough moment for FinTech in the way that we think of it today, but it has only been over the past few years that the boom has truly taken off. FinTech investment has been growing at 74% every year since 20081. Moreover, a recent report from Massolution predicted crowdfunding – also a product of the FinTech revolution – to overtake venture capital as the 8 | WWW.CEOREPORTS.COM

major source of investment in the industry.

Investment had exploded from only $880 million in 2010 to $16bn in 2014 and an estimated $34bn in 20152.

This highlights a key strength of the FinTech movement – it’s something people want and are willing to buy into. As its supporters suggest, it has managed to democratise finance and significantly improve access to financial services for the unbanked and underbanked of the world, especially in developing countries.

For example, in Nigeria new ID cards can also be used as payment cards with the backing of Mastercard and, as such, have the potential to increase access to financial services for millions of Nigerians. MFS Africa, meanwhile, has connected 80 million mobile wallets across the continent creating an entirely new infrastructure for international cross border payments.

Good for Small Businesses Small businesses are also set to benefit. As a paper on FinTech by the World Economic Forum acknowledges, small businesses are the ‘beating heart’ of the global economy. They account for more than half of the world’s GDP but suffer from a funding gap of more than $2trillion in emerging markets. FinTech, argues the paper, could be a game changer.

“Because FinTech solutions are efficient and effective at lower scale, small businesses will be one of the main beneficiaries of FinTech’s disruptive power,” it states3.

Nowhere is this more important than in money transfer. International trade is growing, especially for smaller enterprises. Businesses which might previously have considered cross border sales to be beyond their reach are increasingly doing business overseas.

International trade for UK SMEs is worth £700bn4 and that figure is likely to grow. Research

SPECIAL REPORT: MANAGING INTERNATIONAL PAYMENTS

from Oxford Economics says SMEs expect international revenues to grow from 40% to 66%5 within the next three years while the number of companies doing business in six countries or more will rise by 129%.

SMEs are spending billions on foreign transactions and, what’s more, are likely to spend a higher proportion of each transaction than a larger company. Because traditional methods often have a flat fee associated with them, the cost (in percentage terms) of making a transaction is that much higher. Equally, as a report from Lexoo suggests, awareness is lacking among SMEs about exactly how much they are paying. Companies typically only advertise their flat fee, whereas more than 90% of their profit comes through the spread – namely the difference between what they buy from the customer and what they sell on6.

The new generation of international money transfer services offer lower cost, greater transparency, more simplicity and a faster turnaround than traditional financial services.

They promise to reduce a company’s expenses per transaction and exposure to foreign exchange volatility, allowing them to price overseas goods more competitively. Those which can deliver can indeed change the game for small businesses.

At a Crossroads The recent FinTech boom is still new and in its early stages. Awareness and trust among business owners is still relatively low, with significant room for development. It’s growth in recent years is remarkable, but there is much more to come.

However, there are some clouds on the horizon, which will be discussed in further detail elsewhere in this Report. Many of these new services are unproven and don’t have the solid backing, heritage or financial expertise of larger and more established institutions. With so many start-ups entering the market, there is wide variation in quality and reliability. The next ten years could see the playing field thin out, but those that do remain will be tried, tested and capable of providing real and lasting value.

The big take away for small businesses is that the doors are open to international trade like never before. The internet allows even a tiny company to extend its reach nationally and, indeed, globally. Logistics and payment methods are becoming smoothed out eliminating the barriers to expansion. The last big one that remains is awareness of the technology, what it can do and how it can help a company move into new and uncharted territories.

The new generation of international money transfer services offer lower cost, greater transparency, more simplicity and a faster turnaround than traditional financial services

WWW.CEOREPORTS.COM | 9

SPECIAL REPORT: MANAGING INTERNATIONAL PAYMENTS

Making the Most of FinTech Jo Roth, Staff Writer FinTech offers a range of options and possibilities, but to get the most out of it, banks need to truly understand how it works.

T Banks may have initially reacted with various levels of scorn, fear and eventually hostility to new market entrants, but they are now waking up to the opportunities

HE EXPLOSION of the FinTech market has enormous appeal to businesses looking to move money across borders. But, while it’s attracting plenty of attention, this is still an industry which is much misunderstood.

The first common error is to believe this new sector fundamentally changes the process of international banking. It doesn’t. FinTech companies still rely on traditional banks to move money behind the scenes. It’s a bright shiny new face, with a number of functions which make the process smoother and more appealing for the consumer, but dig beneath the façade and it’s good old fashioned banking technology working away underneath. Understanding that simple fact and the implications it has is an important first step.

So How Do They Work?

A FinTech company is a hybrid animal – a combination of techies and engineers on the one hand and financial experts on the other.

Companies such as these set out to act as a disruptive technology in the international finance sector providing a service which is faster, simpler and less expensive than traditional banking. If nothing else, this injects a sense of genuine competition into the scene. Rather than a straightforward choice between two banks offering similar services and similar pricing models, buyers can now choose between a host of international payment platforms. This, in itself, is a huge benefit for the customers. It expands their horizons and increases their options allowing them to optimise their transaction costs.

That price advantage spreads across all the financial services a company might need whether that’s money transfers, foreign exchange or equity funding, adding up to a sizable gain – one which could be critical.

At a time when adoption is still in its relatively early stages, this also creates a competitive opportunity. If a competitor is still reliant on legacy banks, a company would have a great opportunity to steal an edge by turning to FinTech.

10 | WWW.CEOREPORTS.COM

In a market of high competition and fine margins this can prove to be the critical point of difference between two similar firms.

Trouble Ahead?

There are, though, things to watch out for. The competitive advantage of FinTech businesses lies in their software rather than their banking expertise. While they strive to develop their offerings on both sides, their success varies from company to company. With the FinTech boom sparking new start-ups almost by the day, the sheer variety in terms of quality and expertise is widening. It’s worth looking closely at a FinTech partner and assessing where their key expertise and skills truly lie.

The market is newer and, as such, more lightly regulated than the banking sector. This has been the cause of some frustration among banks angered by what they perceive as greater freedom of operation afforded to these companies. Regulators have made moves to address such complaints. In Spring 2016 US Regulators issued a call for officials to start crafting a framework in which FinTech companies could work7. It’s the first attempt by a major banking regulator to create clear guidelines for this new and growing industry.

More will almost certainly follow as regulators battle with the challenge of deciding what regulation, if any, will be required. As ever, the aim of regulators is to deliver a framework based around safe and sound practices, to protect against money laundering and terrorism funding, but also to avoid stifling innovation and development. Many FinTech entrepreneurs fear that established players have a vested interest in seeing the heavy hand of regulation coming down on the market, rather than joining it instead.

That is not wholly justified. Banks may have initially reacted with various levels of scorn, fear and eventually hostility to new market entrants, but they are now waking up to the opportunities.

Banks have recently shifted their strategy to focus away from simple funding and investments

SPECIAL REPORT: MANAGING INTERNATIONAL PAYMENTS

and towards a more active role of partnerships and mergers and acquisitions. In August 2015, Black Rock purchased the online investment firm FutureAdvisor for $150 million8. With the growth of FinTech, there is an increasing brain-drain as the brightest talent increasingly opts for the small, mobile and growing FinTech sector. The more this happens, the faster innovation can take place.

Choosing the Right Provider One of the market’s biggest strengths is also its weakness. The FinTech revolution has spawned hundreds of start-ups offering international payments services. That competition is driving rapid innovation, which sees a host of new services and benefits opening up for businesses.

Each one is striving to be the best, creating new features and offering new services. However, this can also add to uncertainty within the market.

Inevitably, with such a wide range of providers comes a significant variation in quality.

Those which are successful are those which offer the right mix of technical and financial expertise and who can use that expertise to help their customers. Ongoing management support and technical advice is crucial to helping clients get the best out of any system. The more features

they incorporate the more complex they become and the more likely it is that a client may only harness a portion of a system’s full potential.

Getting that level of advice is crucial as the technical expertise is lacking within most small to medium sized businesses. When planning global payments, input is needed from experts who can help move money in the most cost effective and affordable way.

Rapid Change The world of international payments is moving rapidly. It has changed dramatically within the past ten years and the chances are it will transform again over the next decade. Such rapid movement brings opportunities and risks. With adoption varied across the industry, a company can gain a sizable competitive advantage over the competition if it successfully implements new payment systems. Equally, those which are slow to move run the risk of being outflanked by their key competitors. Understanding the state of the technology, where it is heading and the factors which might impact development in the future, such as regulation, will be important in staying ahead of the curve and maintaining a critical edge.

That price advantage spreads across all the financial services a company might need whether that’s money transfers, foreign exchange or equity funding, adding up to a sizable gain

WWW.CEOREPORTS.COM | 11

SPECIAL REPORT: MANAGING INTERNATIONAL PAYMENTS

The New Payment Providers James Butler, Staff Writer How a new wave of start-ups is challenging convention and opening up a real opportunity for small and medium sized businesses.

W

Suspicion of new and untested concepts is nothing new, but it can be frustrating for those at the vanguard of change

HEN IT comes to international payments, the major banks have traditionally had the playing field to themselves. That’s changing with a new generation of payment providers offering faster, swifter and smoother payment operations. The benefits for small and medium sized businesses are enticing but many businesses are unaware of them. This is a new market and, as such, suffers from a lack of recognition and trust. As so often, a lack of awareness leads to caution, which can hold the market back.

Suspicious Times Suspicion of new and untested concepts is nothing new, but it can be frustrating for those at the vanguard of change. Writing on CoinDesk John Biggs, CEO of Bitcoin start-up Freemit described the US FinTech scene as “timid, timorous and inbred, and the room for disruption is defined by how best to wedge yourself into existing scams.”

True innovation, he writes, is treated with suspicion and stymied as CEOs prefer to persist with out-dated and broken systems rather than taking the risk of moving towards something new. Freemit is one of a number of platforms designed to facilitate international payments for individuals, but the same caution applies with small businesses. A host of alternative payment methods are becoming available, but they meet barriers of awareness, trust and acceptance.

Traditional methods may be slower and more expensive, but they are familiar and reassuring.

Overcoming such resistance is not easy and will require successful examples from the real world.

However, that caution does create opportunity for others. Those who are making the move now are in a position to gain first mover advantage against the competition.

12 | WWW.CEOREPORTS.COM

Fast, Affordable and Efficient The benefits these promote are considerable.

Take the example of payroll services provider CloudPay who have used a partnership with one of the leading business payment systems on the market to streamline processes and save money for their clients.

They rely on Equiniti’s cloud based international payment platform, PayFac, to help process bulk international payments.

The PayFac solution provides a rapid access to one of the world’s largest global payment networks with state-of-the-art payments technology. The solution is fast and accessible providing compliance with multiple in-country regulatory issues and allowing payments to be processed with just a few clicks.

Fast, Affordable and Simple In doing so PayFac epitomises the offering from the latest systems. It is fully automated and can integrate with a client’s existing accounting system either via an API or direct upload. Transfers can be transmitted through UK BACS, CHAPS, UK Faster Payments, SWIFT, or SEPA and it can provide tailored reports into the transaction and direct access to one of the world’s largest transactional banks. It has the scale and the automation required to make bulk payments across the world, even in some of the most challenging territories.

CloudPay are currently using PayFac to make payroll payments around the world. The system allows them to take advantage of the various payment methods Equiniti provides such as Urgent Wires and Automated Clearing House.

The direct integration between CloudPay’s existing payroll and payments infrastructure and PayFac increases automation and reduces the need for manual data entry and the risk of duplication.

SPECIAL REPORT: MANAGING INTERNATIONAL PAYMENTS

The results are clear to see from the bottom line. One of CloudPay’s clients has reduced the overheads associated with their international payroll payments by 41%, while continuing to make payments to 24 different countries in 14 different currencies.

“Its rich secure user-based privilege model makes it easy to control who has access to the payments application. Furthermore, the PayFac application is supported by an expert team of individuals within Equiniti who ensure clients have complete control over their payments process,” said Andrew Pearson, CEO of CloudPay. “Individual accounts and currencies can be maintained within the application which benefits multi-national organisations who handle multiple payments across numerous countries and customers for reconciliation and assurance purposes.”

Developing into the Future The market currently stands at an intermediate level of development. FinTech has been successful at attracting the so-called early adopters, namely those who are willing to try out new technologies. Next in its sights are medium term adopters who can help the market truly move into the mainstream. There is certainly much to come. FinTech is a creature of immense potential, which governments around the world are keen to nurture.

At a keynote speech at the 2016 Innovative Finance Global Summit, Economic Secretary

to the Treasury, Harriett Baldwin, revealed three new initiatives to help maintain the UK’s leading position in the FinTech market.

1. A FinTech panel and support function which will set an overall strategy for the UK and drive forward initiatives.

2. Create a professional service hub for FinTechs making it easier for them to source legal and accountancy services.

3. Help UK FinTechs expand internationally9.

The overall environment for new FinTech players – both from a commercial and regulatory viewpoint – is relatively favourable. It is a market which can do much to facilitate international expansion for businesses of all size and, as such, its importance to a country’s economy goes far beyond the amount of revenue it brings in. Small wonder, then, that the UK is so keen to maintain a leading position within the global market.

These examples show some of the ways in which the international payment market is changing. It is new and exciting, but little known and, in some cases, untested. It can open doors but, like any new technology, involves a certain amount of risk. Traditional financial institutions may feel comfortable and familiar with existing systems and for many companies that will be enough to deter any change. The rest, though, should take a look at the market and try to assess how it could impact their own businesses. Fortune, as they say, tends to favour the bold.

The market currently stands at an intermediate level of development.

FinTech has been successful at attracting the so-called early adopters, namely those who are willing to try out new technologies

WWW.CEOREPORTS.COM | 13

SPECIAL REPORT: MANAGING INTERNATIONAL PAYMENTS

The Future of International Money Transfers Tom Cropper, Editor The international money transfer sector is undergoing a seismic change, but where is this going and how will the market look in ten years’ time?

W

The market has grown rapidly so far, but that’s nothing compared to where it can go in the future

14 | WWW.CEOREPORTS.COM

HEN IT comes to international money transfers there’s one issue which is hard to get away from - FinTech. The past few years have seen an enormous growth in the FinTech market with new start-ups arising by the day and billions of dollars flooding into the market from global investors. The consensus seems clear: FinTech is the future but, unfortunately, nobody seems entirely certain about what that future will look like.

Rapid Growth The market has grown rapidly so far, but that’s nothing compared to where it can go in the future.

For all the change that has occurred over the past few years, this is still a relatively new sector in which much of the fundamental technology remains unproven. Barriers persist in the form of inertia, caution and general unawareness among key potential users.

In short, the signs suggest we have only scratched the surface of where this market can go. Demand and innovation have been mutually sustaining. Technology allows businesses to work more freely across borders which, in turn, creates demands for innovative technological solutions to expedite international payments.

We can expect this to continue as a number of new platforms come online to smooth out the process. As this happens, barriers to international cooperation will come tumbling down, prompting more companies to make the move, particularly at the lower end of the market. Small to medium sized businesses may previously have been put off international expansion due to the complexity and cost involved with moving money abroad.

Now those costs are coming down making it much easier to gain a profitable margin. eCommerce will continue to grow with smaller companies increasingly becoming active in this space. A survey by eBay found that 93% of small businesses which traded on its sites had made international transactions. In comparison, 28% of small businesses which did not trade online

had fulfilled international orders within the past year. One in ten said they planned to expand their international trade in 201610.

Major ecommerce providers around the world are opening up to international trade. Take Japan’s largest e-retailer Rakuten Ichiba, for example. As well as expanding internationally in places such as Brazil and Europe, they are working hard to make it easier for international retailers to sell on their platform.

Ryan Miller, Vice President of Global eCommerce Strategy at Rakuten Ichiba explains: “To set up on Ichiba a brand needs to have a local business entity and a local bank account. Some brand owners will already have a local business entity set up in Japan, so for them the process will be straightforward. However, many others do not,” he says. “Rakuten has a network of partners that can set up a store on behalf of a brand. They work behind the scenes as an intermediary, contracted with both the brand and Ichiba to run the store (or at least set it up) on behalf of the brand11.”

Not Just for the Little Guys Much of the narrative surrounding FinTech to date has revolved around plucky little start-ups leaping into the space once dominated by the big banks. They will indeed remain a major part of the landscape, but the truth is that, far from fearing the onslaught of the FinTech revolution, the traditional banking institutions are working hard to become a part of it. A huge amount of investment is pouring into the block chain technology which underpins Bitcoin.

Barclays, for example, has launched a scheme called Rise to take advantage of innovation within the FinTech scene12. In December 2015 it opened the first African branch in a bid to work with entrepreneurs who would otherwise be beyond their grasp. A company such as Barclays holds its talent and expertise in traditional banking, but FinTech relies on technical expertise. But the two parts can be mutually beneficial. The big banks can bring the financial security and know-

SPECIAL REPORT: MANAGING INTERNATIONAL PAYMENTS

how, which FinTech start-ups often lack, while those start-ups can bring technological expertise, agility and innovation.

Greater Scrutiny A major factor in the success or failure of FinTech will be the role played by regulation. Early firms enjoyed a key advantage through light touch regulation. The market was new and authorities were unsure how it should be regulated or even if it should be regulated at all. Banks and financial institutions – alarmed by what they saw as an unfair advantage – pressed for tighter restrictions and these seem to be coming in.

Earlier in the year CNBC reported on a ‘wave of regulation’ which could be the next big development in FinTech. A report from PwC reveals that 86% of financial services CEOs fear being too heavily regulated.

“The twin pillars of financial services regulation in the U.S. are safety and soundness and

consumer protection13,” said Haskell Garfinkel, FinTech co-lead with PwC. “Regulators are trying to balance these mandates with the flood of innovation occurring on the periphery of the regulated industry.”

The impact of regulation could be twofold.

There is genuine concern that the prospect of the regulator’s heavy hand could be enough to hinder fragile start-ups, retard innovation and scare away potential investors. Equally, it could add much needed certainty and reassurance to a market which still looks fragile and risky to many.

While uncertainty remains surrounding much of the FinTech industry, demand is set to spur huge innovation over the next few years. International payments are changing rapidly, becoming easier and faster. It’s in everyone’s interests that this continues to be the case. As trends develop quickly, a key challenge will be to identify where the market is heading and to remain ahead of the curve.

The twin pillars of financial services regulation in the U.S. are safety and soundness and consumer protection

WWW.CEOREPORTS.COM | 15

SPECIAL REPORT: MANAGING INTERNATIONAL PAYMENTS

References:

1

2

Fintech boom: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/428647/UKTI_Fintech_capability_V2.pdf Crowdfunding to Surpass VC:

http://www.forbes.com/sites/chancebarnett/2015/06/09/trends-show-crowdfunding-to-surpass-vc-in-2016/#3c670415444b 3

The Future of Fintech:

http://www3.weforum.org/docs/IP/2015/FS/GAC15_The_Future_of_FinTech_Paradigm_Shift_Small_Business_Finance_report_2015.pdf 4

UK SME International Payments Analysis: https://www.moneymover.com/media/uploads/files/UK-SME-International-Payments-Analysis-Summary.pdf

5

Is Your Business Suffering from Hidden Charges:

https://www.linkedin.com/pulse/international-payments-smes-time-put-banks-test-hamish-anderson?forceNoSplash=true 6

Your Small Business is Spending Too Much on International Payments:

https://www.lexoo.co.uk/blog/3-reasons-why-your-small-business-is-spending-too-much-on-international-payments-and-what-you-can-do-about-it/ 7

A Wave of Regulation is Coming: https://memeni.com/sparks/bhi/a-wave-of-regulation-is-coming-for-fintech?tab=comments

8

BlackRock to Acquire Future Advisor: http://www.businesswire.com/news/home/20150826005586/en/BlackRock-Acquire-FutureAdvisor

9

UK’s World Leading Fintech Industry: https://www.gov.uk/government/news/uks-world-leading-fintech-industry-to-be-given-new-government-boost

10

Digital is Helping Small Businesses to Export: http://internetretailing.net/2016/03/digital-is-helping-small-businesses-to-export-ebay-study/

11

Selling on Rakuten: http://www.webretailer.com/lean-commerce/selling-on-rakuten-japan/

12

Barclays Launches Rise:

http://www.barclaysafrica.com/barclaysafrica/News/Press-Statements/2015/Barclays-Africa-launches-Rise-a-global-start-up-community 13

A Wave of Regulation is Coming: http://www.cnbc.com/2016/05/06/a-wave-of-regulation-is-coming-for-fintech-startups-stocks.html

16 | WWW.CEOREPORTS.COM

CEOs Find Solutions To Their Business Challenges With CEO Reports

For the past decade, CEO Reports has been helping CEOs and their management teams to find new solutions to their commercial, technical and operational challenges.

Our Special Reports provide readers with an unparalleled depth of information on specialist subjects, which receive limited coverage in the mainstream business media.

Each report is designed to help CEOs to make more effective business decisions, by providing a unique mix of: • Subject specific technical information • Insight and knowledge from internationally recognised key opinion leaders • Independent data and analysis • Unbiased editorial content

subscriptions@globalbusinessmedia.org www.globalbusinessmedia.org