First published, 6th May 2016
Ai Editorial: Payment options that are emerging as an end-to-end alternative to SWIFT are unsettling old-fashioned ways, writes Ai’s Ritesh Gupta
There are several aspects that need to be scrutinized before any travel e-commerce company can work out timely cross-border payments in an extremely complex global payments environment. If coming to terms with associated total costs is one critical issue, then assessing the sort of support needed from a payment provider and spotting what payment options are suitable for receivers are some of the other equally important aspects.
If we consider the significance of a compliance program, then China is one example that exemplifies intricacies involved in the B2B payments space.
Dealing with peculiarities
For instance, it is being highlighted that due to new Chinese government regulations people in China can’ t receive online credit card payments from an international business account to their personal local bank account anymore. This will affect thousands of single business owners in China, foreigners and Chinese, travel agencies and hotel owners who use PayPal or other foreign payment processors/ providers to accept online deposit and balance payments from foreigners as they can’ t receive their foreign funds from a business account into their personal account here to pay providers, staff, etc.
“Each market presents its own set of regulatory requirements for B2B senders and receivers,” says Nagarajan Rao, SVP, Global Head of Business and Product, Transpay, a B2B/B2P cross-border payments platform.
Rao further explained, “For example, a business sending funds into a country may have only one regulated entity to choose from that can move money into that market. On the receiver side in places like China there is also the likelihood that the business has to have a mandated form to accept cross-border payments, which can be cumbersome approval process to receive. Additionally, countries like Brazil and Russia, require businesses to report every dollar of cross-border payment received. So even though it seems like the world has opened up for business transactions, some of these local regulations and requirements are impediments to business growth.”
Continuing with the example of China, many foreign businesses use Alipay or Tenpay to accept payments from Chinese travellers but what about the other way around?
Rao mentioned that these Chinese acceptance companies have done a great job in creating a strong localized payment industry.
“However when payouts need to be made to foreign entities- travel agents, hotel properties and vendors- these in-country businesses have to rely on antiquated wire system that only a few banks in China offer and pay a high amount in fees for FX. The payouts part to funds flow is the next problem for China to solve.”
Options
As for the sort of international payment products that are available, according to Transpay, the options include:
- eWallets (A virtual account where funds exist. No need to share private account information);
- SWIFT Wire Transfers
- International Prepaid Cards (among most costliest ways to receive money);
- International ACH (banks and 3rd party companies work out a direct deposit service. Funds are transferred to the receiver’s local bank account in local currency through the local clearing systems. Tends to be costly when used in emerging markets).
According to Rao, traditional bank wires, eWallets, and prepaid cards “too often come with hidden fees, lack of transparency and inexcusable lag times that are oftentimes bore by the recipient”. With Transpay, the funds are delivered in local currency within 1-2 days.
Traditionally, travel brands sending cross-border bank transfers have had to rely on the SWIFT wire networks. Oftentimes this means slow transactions and opaque funds flow, as funds have to go through multiple financial institutions to get to the ultimate end recipient. Each stop along this correspondent bank network also comes at high cost, as each financial institution charges a fee for handling the transaction, says Rao.
Payouts are inherently more complex than payment acceptance, as it involves one entity making mass payments to different recipients and bank accounts. With solutions that have their own proprietary bank network, travel brands are able to process payouts locally, reducing the number of financial institutions involved, and ultimately reducing the cost of sending mass payouts.
There is also talk of alternate payment solutions. So how are these offerings capitalizing on cross-border opportunity?
There are several applications for travel companies to utilize alternate payouts. Airlines, for example, need a solution for issuing refunds on cancelled flights or OTAs need a payout option for making commission payments. According to Rao, Transpay’s solutions would complement what’s being done for all outbound payments without the expense that virtual cards and traditional bank wires charge to all parties involved.
What to watch out for
According to Transpay, the focus is now on cross-border payment settlement and strategies for paying international recipients.
“Payouts are the last 100 meters of the payment flow that until recently, have been largely disregarded. It’s very glamourous to talk about the customer payment experience, but at some point businesses need to get the funds to the ultimate provider of the product. There are several trends in travel that are shifting the payment dialogue. A growing movement towards pre-payment for hotel booking for example, as well as a growth in the merchant model in the OTA sector- with more funds needing to move from the OTA to the hotel property- are all factors leading to an increased need on payouts that are economically viable,” said Rao.
Also, entities are drifting from manual and batch payout processing to an embedded user experience.
In travel, branded websites and OTAs have mastered the art of embedding local payment acceptance forms into their customer-facing user experience, said Rao. “However, when these companies need to do payouts to agents, suppliers or individual recipients that experience currently site outside of their platforms. As the industry grows and the need for faster transacting increases, streamlining the payout experience is now front and centre. Having an embedded user experience with an industry grade payment network is the next step forward for businesses to ensure that payment acceptance and payouts go hand in hand,” mentioned Rao.
Also, blockchain technology has the potential to improve the speed, accuracy and accessibility of cross-border payments.
Rao underlined that options that are emerging as an end-to-end alternative to SWIFT are unsettling old-fashioned ways. As the cross-border payouts sector moves on, solutions that are curtailing costs and managing FX gain to stand out.
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