Three main challenges appear for cross-border payments, as follows:
The existence of a gap between two regulations and how far apart are the regions they have jurisdiction over – it would be easier to address the European market as an EU company than breaking into Brazil, for example. SEPA (Single Euro Payment Area) created homogenised payment practices, and selling to EU fellow countries is easier.
The availability of the current tech stack for cross-border payment and its sustainability – current provider(s) might show limitations in their offer, but also in their capacity to address them: lack of licences, lack of product integration, and so on. Would it make sense to add multiple layers of providers for each of the markets?
The whole ecosystem compatibility with the current and future integrations – as an example, adding a new payment method in a merchant’s equipment in-store raises the question of whether the new payment method is compatible with the current system.
All of the above must also be put in the balance with your vertical (retail, travel, hospitality, and so on), the type of customers you serve, and your physical presence in targeted regions. Those three dimensions will add another level of complexity to tackle.
This quarrel between ancient and modern does not make sense – for three reasons.
Firstly, the literacy of merchants dramatically increased along with the emergence of the full-service model (gateway, processing, acquiring, and settlement by one actor). Merchants have been challenged in their understanding of the value chain and by the promises from actors promoting this model.
Secondly, the tech stack and its integration significantly leaped forward over the last 20 years, even if merchants still often have the perception bias that payment integration is a pain. It is indeed more complex to integrate than other products, but not as complex as it used to be.
New forms of commerce (such as marketplaces) but also new ways of paying (BNPL, cryptocurrencies) changed payment companies’ mindset and purpose, being much more ‘final customer-centric’ and making them more than just pipeline providers.
There is some truth in that, but let’s never forget that payments remain a complex matter. There are so many actors and still a lot of newcoming paytechs because the value chain will stay as fragmented as it is regulated.
Moreover, regulations are not fixed and monolithic, they are becoming more fluid and ever-changing with the emergence of new operating models. EU is about to vote on a third directive in less than 15 years on payments.
‘Risks versus regulation’ is and will remain a definite component of the payments industry, and merchants tend to forget about that, too impressed by the promises of providers.
Merchants using the current state-of-the-art tech in the industry should join the dots and have a strategy and internal governance, not in the least because they are over-solicited on payment matters. This issue is even more critical, since payments are transversal, not really seen as an IT matter, nor a finance or treasury one. Too often we encounter companies with no idea of how the money comes in and out.
The situation can become critical with cross-border payments, as merchants will need to face challenges they might have never seen before: lack of interoperability for their acceptance even among global networks with new ways of paying, higher risk of fraud and disputes, local regulatory and financial constraints that are difficult to overcome, or cash management issues.
Brazil has shown an incredible 18% growth rate in ecommerce, but the Brazilian Real is non-convertible. Since all funds in this currency must stay within the country, collecting and distributing money tangibly will be more difficult, more limited, and potentially more expensive.
Merchants should question their desire for a one-stop-shop experience and its purpose. This model is not made for everyone and can become a prison, while it can also put a crude light on organisational problems.
They should also focus on obtaining KPIs for more clarity on the full payment funnel in order to make informed decisions over the FOMO feeling created by the industry. Full payment indicators refer to the net acceptance rate, but also rates of refunds, chargebacks, and the overall cost per transaction, including processing, FX, fraud, reconciliation, settlement, refunds, and disputes.
No one can provide payment in multiple geographies with the same level of services, same price, and no fraud, in a modern payment platform.
At the end of the day, payments remain a real enabler that needs to be considered along with other relevant topics and not as a commodity due to the number of actors in the industry. Buying and paying are the two faces of the same coin.
This editorial piece was first published in The Paypers' Cross-Border Payments and Ecommerce Report 2022–2023, which taps into the fast-growing cross-border market and provides a comprehensive overview of trends and developments that are pivotal in this space, being the ultimate source of information for ecommerce businesses interested in expanding globally.
Jordan spent the last 12 years in industry at MoneyGram, Limonetik (now Thunes Collections), and Worldpay from FIS. He collaborated with the whole payment value chain inside and outside Europe (PSPs, acquirers, merchants, issuers/payment methods). He previously wrote in The Paypers about marketplaces, B2B, global ecommerce, and specific geographies.
Rhapsodies Conseil is a consulting firm based in Paris, France. Our main purpose is helping our clients with their transformation in this ever-changing digital world, by bringing out what makes sense for them. Retail Payment practice is here for all merchants in Europe and overseas for payment-related questions.
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