Oct 05, 2021 | Risk Management

Misconceptions about International Payments

What’s hindering your global expansion?

Karen Penney

To succeed in today’s market, innovation is critical. Organisations need to be flexible and quick to adapt to changes in regulations, new technologies, new protagonists and, above all, consumer behaviour and expectations.

New regulations alone are opening up markets. The increased transparency brought by the Payment Service Directory (PSD2) and Open Banking is really shaking up the payments arena.

Huge opportunities abound, especially in global markets. But there are several misconceptions about overseas trade and international payments, that are holding businesses back. Let’s shine a light on seven of the most commonly cited myths, and reveal the truth behind the rumours.

Myth-busting: Seven misconceptions that might be holding you back
Misconception #1 - Banks are the best providers of International Payments services

You already have a bank, so when you start trading overseas, what could be more natural than turning to them for international payments? Well, using the same banking platform for all your business activities may be convenient, but may not be transparent and is unlikely to be the cheapest option.

You may be better off with a specialist Payment Services Provider which can offer you a bespoke service. Unlike many banks, they can offer you a payments platform with transparent pricing, and no hidden fees. The small investment of your time in signing up with a specialist can be quickly repaid in both monetary savings and improvements in your process.

Misconception #2 - Expanding internationally requires opening multiple bank accounts, with multiple banks.

For some international businesses, opening currency bank accounts overseas is a good option. If you have large inflows and outflows all in the same currency, it can make a lot of sense as it can cut costs and mitigate foreign exchange risks. But it doesn’t work for everyone, and it isn’t the only option.

Opening a bank account abroad is not straightforward. There are administrative obstacles, regulatory and taxation requirements, as well as cultural and language barriers. If you are not going to have equal incomings and outgoings of that currency, they can also be a false economy.

A specialist payments provider can offer other solutions. Fore example, we offer Holding Balances, a solution that allows you to store incoming payments free of charge for up to 90 days. This gives you control over your funds, flexibility to secure favourable exchange rates, and the ability to make same day payments, reducing your currency risk exposure.

Misconception #3 - International Payments can take weeks and sometimes can’t be traced.

Usually, an international bank transfer through SWIFT and the correspondent bank network takes one to five working days to reach its destination. Sometimes there are delays. These can be caused by fraud prevention measures put in place by each of the correspondent banks in the process (SWIFT transfers may pass through up to three banks), or the fact that different currencies are being processed. Even the day of the week or different time zones could delay the payment. In these cases, the delays should be relatively short.

Of course, sometimes there are errors. These can be human errors such as the incorrect destination details being input. To minimise the risk of this, choose a provider with safeguards in place to ensure that payments do not go wrong. A good specialist provider will have a payments platform with minimal manual processes real-time tracking so that missing payments can be easily found, and errors minimised.

Misconception #4 - My money is not recoverable once it goes to a foreign bank account

Fraud is a very big concern in all areas of banking, and it is important to have preventative strategies in place. But if the worst happens and funds are misdirected, they do not necessarily have to be written off.

Payment providers have many tools available to them to recover funds, and have teams in place whose role is to retrieve payments that have gone astray. It’s a complex process that means contacting all the institutions involved and conducting thorough investigations, so it’s important to choose a partner with a global network and experience in dealing with fraud recalls.

Misconception #5 - It’s expensive to mitigate the risk of Fraud in relation to International Payments

There is no doubt that tackling fraud, and having training and preventative measures in place, will reap dividends by saving you a lot of unnecessary money and time. But how expensive is it?

The single most common fraud relating to international payments is Business Email Compromise (BEC), which accounts for 43% of all cybercrime.

BEC can be successfully tackled through a programme of training and controls. This dual-pronged approach can bring down the levels of business email compromise, on average, between 20 and 30% year-on-year. This type of mitigation is relatively inexpensive to implement and makes a big difference.

Misconception #6 - Risk management is expensive and more suited to large multinationals.

The subject of risk management can seem dauting for smaller organisations, but mitigating risk is sound business sense and shouldn’t be ignored.

Whatever your size, if you need to forecast accurately what your incomings and outgoings are going to be, you don’t want exchange rate movements to impact on your cashflow. To start with you can implement a basic strategy to mitigate the risks of market movements. Know what your risks are and the impact they could have, and put a plan in place to protect you against the worst case scenario.

Having a Risk Management Strategy is important for any business which needs more certainty when making or receiving international payments. It helps you understand your exposures, enables decision making and allows you to act strategically and efficiently.

Even the simplest approach can give you real peace of mind that the risks are under control, and it doesn’t have to be expensive as there are many different tools available. Your payment provider will be able to guide you in drawing up the plan, and in putting it into action.

Misconception #7- Becoming compliant with local schemes requires full replacement of your existing payment scheme.

International payments, by their nature, cross borders and pass through different regulatory environments. Regardless of the destination country, there is no need to change your payment scheme or structure. Instead, you may need to adapt your compliance controls to be able to effectively respond to the local circumstances. Understanding the regulations, nuances, and what's needed in each region will give your business more flexibility and help you have a more robust and tailored compliance strategy.

A good payment provider will have experience and expertise in worldwide compliance regulations, and will be able to guide you through any complexities.

More information

If you missed World Forum Disrupt last month, you can watch Karen Penney, UK VP of Payment Products at Western Union Business solutions debunk the myths about international payments that may be hindering SMEs’ global expansion plans.

Western Union Business Solutions

At Western Union Business Solutions, we are trusted by more than 60,000 organisations to move money around the world. We have an extensive global network, spanning 200 territories and 130 currencies, and an in-depth knowledge of local markets and compliance.

If you are looking for world-class cross-border payments services, please contact our team at UK-Payments@westernunion.com. We’ll be more than happy to talk about how we can help you manage your international transactions.

Read Whitepaper Watch Recording