This editorial was first published in our Online Payments and Ecommerce Market Guide launched on 1 November 2017. The guide features several important thought leadership editorials from ecommerce and payments industry professionals, which makes it a top-reference source for anyone involved in the payments ecosystem.
New alternatives to traditional bank accounts transfers
Consumer demand for fast, frictionless and low-cost international transactions has created an increasingly dynamic global payments landscape that offers great opportunities for businesses active in this sector.
Companies looking to trade abroad generally need to open accounts in the respective geographical regions. However, the appetite of the incumbent players to offer this service is waning. And that’s not the only challenge. Even when incumbents try to help fintechs with their cross-border requirements, their sheer size and restrictions due to legacy infrastructure prevent them from being as flexible and responsive as the fintechs require.
By nature, fintechs are smaller, nimble and quick to adapt to changing market conditions, and can find the incumbent infrastructure restrictive when it comes to trading internationally. The number of intermediaries required for a traditional international bank transfer adds significantly to the cost and time involved with the process. Yet many companies – of all sizes, from startups to huge corporations – are putting up with these high-costs and slow-transfer times, apparently because they lack the time to invest in researching alternatives.
How to keep alive the flow cash between businesses
Exclusive research commissioned by Banking Circle identified how the diminishing availability of services is impacting not only the fintechs, but also the business of their clients who operate in international markets.
When it comes to cross-border transfers, 50% of respondents named costs as their biggest concern. Speed of transaction was ranked as the second biggest concern, taking 32% of the votes. International regulatory requirements came in third, recording 30% of the votes followed closely by limited payment channels. Clearly, the flow of cash, to and from different businesses, is vital to keep a business alive. Yet in the world of FX payments it appears that there are some severe barriers stifling cash flow, with nearly half (44%) saying that payment settlement times cause the longest delays. In second place, reconciliation (17%) also caused delays, followed by screening (12%). It is not all bad, though, as nearly a quarter (24%) said they are not aware of any delays. However, this could simply mean that they have come to accept and live with long lead times, unaware of other options.
High overheads are compounded by the fact that nearly a third believe they do not get competitive rates from their current FX provider (29%). Interestingly, however, nearly 1 in 10 simply have not compared rates. And significantly, going to the heart of the challenges faced by fast-moving businesses, it seems that current providers are not responsive to the FX and payments businesses’ needs, with 1 in 5 (21%) saying it took them between two and three months to set up a currency account, payment and FX facilities for their business.
The emergence of the Utility
So what is a fintech to do? They need a bank account in order to send and receive payments and they need to be able to trade in different currencies. In response to this, a whole new ecosystem is rapidly emerging, as an alternative for business-to-business cross-border payments. At the heart of it is the emergence of ‘utilities’, which enable fintechs and even banks to concentrate on their core proposition, whilst leaving the back-office processes to specialists.
Utilities for the banking and payments sector provide the unseen but necessary power and energy to offer the customer a great experience. Working in partnership with utilities specialists also means that a business can move much faster, as well as reduce costs – all of which can be passed onto the customer. What is more, the utility is not competing with a business – it’s a supporter – so both organisations should have like-minded goals, rather than pitch themselves against each other.
Banking Circle is just an example of a ‘utility’ providing the connections – such as clearing – via a credible and compliant banking network. This means that clients only have to pass one clearing in one jurisdiction, ensuring that settlements can be done quickly and cash flow can keep moving on.
Banking Circle allows companies who are serving merchants in the digital space to open physical and/or virtual IBAN accounts in 25 currencies, in their name and/or their client’s name. The accounts, domiciled in the UK, EU and Denmark, enable companies to send and receive cross-border and local payments at a low cost and within seconds rather than days, if the other company involved in the transaction is also a Banking Circle member. In this way, payments are sent in the underlying client’s name, in order to increase transparency and reduce rejections.
At Banking Circle, we firmly believe that using a ‘utility’ will be the route to success for those operating in banking and fintech. And, as tier two and tier three banks become more digitalised, relationship-driven and focused on the customer relationship, outsourcing non-core functions such as lending, FX and cross-border payments to ‘utilities’ like us will be crucial.
About Anders la Cour
Co-founder of Banking Circle, Anders la Cour is a hands-on leader, driving innovation to facilitate more efficient and cost-effective cross-border payments. As of July 2017, Banking Circle annualised monthly run rate was USD 36 billion.
About Banking Circle
Banking Circle is the innovative financial utility underpinning the service proposition of fintechs, payment providers, FX businesses and banks. Powered by Banking Circle, the web interface delivered in the fintech’s name enables merchants to make and receive payments without any loss of time or cash, truly empowering global trade.
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