Over the past decade, the payments landscape in the UK has changed dramatically. From the speed, efficiency and effectiveness of Bacs payments to the explosive growth of the internet and online communities, companies can now manage domestic payments seamlessly through a secure online platform that is tied to a sophisticated workflow and approval engine.
Yet by comparison, international payments are expensive, time consuming and inefficient. From lost payments to high transaction charges and the challenges associated with currency management, the international payment services offered by the major banks are often unsatisfactory. And, with the continued delays, organisations cannot just wait to see whether or not the single euro payments area (SEPA) will provide a solution – at least for European payments.
UK businesses need to adopt a far less expensive, more efficient and effective model for their international payments in order to maximise international business opportunities.
UK organisations are increasingly looking to trade outside national boundaries. Indeed, according to the most recent figures from HM Revenue and Customs, international business continues to grow: European imports showed almost a 15% increase compared with the same month in 2009, and a 16.5% increase in exports. Non-EU figures show an even greater uplift, with exports showing a 33% increase and imports have seen a 28.4% increase over the previous year.
But while the commercial opportunities are clearly compelling, for the vast majority of organisations, the expense and inefficiency of making international payments remains a major burden. Indeed, given the unacceptably high level of payment problems, today’s solutions represent a significant business risk. According to research undertaken on behalf of Travelex Global Business Payments, 36% of all international business payments experience at least one problem. Moreover, the average missing payment takes seven working days to notice and rectify.
Even worse, the onus is on the organisation making the payments to discover what has happened to the payment. And, once the problem has been uncovered, the business will not only have to pay a second time for the payment to be made but may face a fine from the bank. Travelex estimates these errant payments are costing UK businesses £100m each year – and that does not include the time spent rectifying problems.
And, for the majority of small to medium-sized businesses without a treasury department, managing foreign exchange (FX) can be a major headache. Banks rarely offer competitive exchange rates, and finance directors spend far too much time attempting to mitigate FX risk.
The SEPA Promise
The SEPA initiative was meant to solve these international payment problems – in Europe at least. However, while in place as an inter-bank payment solution, it is of increasing concern for the European Commission (EC) and the European Central Bank (ECB) that even though 95% of the participating banks within SEPA offer the new credit transfer (SCT) scheme, only 10.4% of the total payments traffic is conducted through it, while the legacy conduits remain very much in vogue for the vast majority of bank customers.
Furthermore, the lack of a corporate SEPA option has left companies relying solely on the payment services offered by the banks. But with the year-on-year growth of international trade, UK companies cannot afford to hang around to find out whether or not SEPA will deliver on its promises, especially given growing concerns that it may never actually evolve to become the necessary corporate service.
The good news is that there is a viable international payments alternative – and one that supports global, rather than just European, transactions. The service addresses the key concerns of accuracy, efficiency and cost; with a proven transaction success rate achieved through sophisticated ’find a bank’ technology and validation checks to ensure transaction routing is not a problem. Should a payment go missing, the onus is on the service provider, not customer, to proactively look to solve the problem – and without charging any additional fees. Additionally the service streamlines payments by reducing manual processes through online beneficiary management, management reporting and integration with enterprise resource planning (ERP) and accounting systems.
Critically, this model lets companies manage risk, avoid managing multiple currency accounts, and provides more competitive exchange rates and services. Leveraging global experience and expertise in FX of over 30 years, this electronic payment service does not require currency accounts and offers far better exchange rates than the banks. For a number of companies that typically end up with a funds deficit or surplus in one or more currency accounts each month, this service is invaluable.
Organisations have come to expect simple, effective, reliable and low cost UK payments. So why do they continue to accept expensive and unreliable international payments? While some companies may have been waiting for SEPA, just how long will they continue to wait, particularly while losing money through expensive transactions, lost payments and inefficient currency exchanges?
With international trade opportunities clearly on the up, there is a pressing need not only for a more efficient, lower cost approach to international payments but also one that delivers true end-to-end transaction visibility, in line with the requirements of the Payment Services Directive (PSD)1 to ensure real-time insight into the financial position. It is by leveraging FX expertise, with sound processes and proven global routing, that organisations can maximise global business while significantly reducing the cost and risk associated with making international payments.
1The PSD is the EU legislation that came into force in 2009, originally set up to facilitate the development of SEPA. The PSD now incorporates benchmarks that have made European, cross-border payments safer, more transparent and more efficient. This, therefore, increases competition in the marketplace and enhances the choices available to the corporate.
Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
This year promises to further the regulatory compliance burden imposed on financial institutions. How are firms in the sector responding to the challenge?
The benefits of an in-house bank are increasingly evident, but some treasury departments still hesitate to take the plunge. This article offers a step-by-step guide.