Voice of the Industry

Exceeding merchants' payment expectations

Wednesday 23 November 2022 09:40 CET | Editor: Oana Ifrim | Voice of the industry

Mitch Trehan from Banking Circle looks at how payments businesses can leverage partnerships to change the cross-border payment provision for their underlying customers

As global ecommerce has evolved, it has broken down borders and created a global marketplace. Digitalisation has accelerated the development and broadened the reach of businesses and customers, and the ease with which cross-border trade can take place. However, the high cost and slow transfer times of cross-border payments mean many sellers and merchants remain unable to access international markets. 

The reality is legacy technology and the correspondent banking model make it hard for financial institutions serving merchants to deliver more affordable, accessible cross-border payments. The growing threat of de-risking only adds to the difficulties. 

Since the 2008 financial crash, banks have had to protect themselves by avoiding higher-risk clients, and many have opted to carry out wholesale de-risking to avoid potential risks from entire regions or sectors. Consequently, many businesses and smaller banks cannot find suitable, affordable partners for non-core services including cross-border payments.

Last year we spoke to 700 European banks, FinTechs and Payment Services Providers (PSPs), about threats facing their businesses. The study found that 77% of these financial institutions have increased the number of correspondent banking partners they have in the past ten years to mitigate against being de-risked. 

Earlier this year we spoke to 900 European merchants to find out their current expectations of payment partners, and what their providers are doing to deliver better solutions. 

Taking stock

Of the four biggest pain points the merchants participating in our research experienced with their PSPs, two relate directly to cross-border payments.
  • Security - 33% 

  • Service Support - 31% 

  • Speed of Settlement - 30%

  • FX facilities - 28%

When we asked merchants how their PSP partners performed in the areas of cost of transactions, reliability, and speed of settlement, we found a generally positive response. We focused on Cost of Transactions, Reliability (rarely offline), Security, 24/7 Support and Speed of Settlement.

In each area around 1 in 3 merchants felt the performance was ‘quite good’.
  • 15%-21% said ‘very good’ 

  • 21-23% said ‘poor’ or ‘very poor’

24/7 Support was the poorest performing area, with 23% choosing ‘poor’ or ‘very poor’. Security scored highest, with 21% selecting ‘very good’.

Merchants are also looking for more support regarding regulatory requirements overseas. Less than half (49%) said they receive assistance from their PSP for every country in which they trade. 43% receive support in some countries. 

Adapting to a new landscape

SME merchants have a wide range of requirements and priorities, and respondents confirmed they currently work with an average of three PSPs in order to meet the needs of their business. 

More than 36% of merchants use more than one PSP to access different benefits; 37% use more than one PSP to enable them to serve different geographies.

For 34% of the merchants we surveyed, they said they need to work with the PSP specified by a given marketplace, leading to a higher number of PSP partners. 33% use more than one PSP to mitigate against being de-risked. 

On average, merchants are changing PSPs every two years.

To remain competitive and increase ‘stickiness’, PSPs are increasing the range of added-value non-core solutions they provide. 

Marketing assistance was cited as a key benefit for 34% of respondents; direct debit for 31% and the ability to pay EU and UK VAT via their PSP for 31%. Other payment solutions were also seen as value-add benefits by the merchants we surveyed, including Request to Pay for 30% and Buy Now Pay Later for 28%.

Collaborating to broaden the proposition

Our data shows that PSPs offering access to a suite of solutions and added value propositions in one place will be an attractive option, helping to simplify payments for the merchant. And the wider range of benefits offered by a PSP, the more payments will be sent their way. However, PSPs cannot build and maintain a broad enough suite of solutions and services working in isolation. 

Working in partnership with external, expert, partners addresses the challenge, delivering market-leading solutions underpinned by fit for purpose tech and supported by regulatory expertise. 

On 16th November, Mitch Trehan, Head of Compliance at Banking Circle joined Christina Hamilton of Stripe, James Booth of PPRO and Mike Doyle of Dojo on a webinar hosted by The Paypers, to discuss the finding of the latest Banking Circle research. The webinar covered merchant expectations and the pain points they experience, how PSPs are adjusting their operating models to improve cross-border payments, and the role of collaboration with payments infrastructure providers to improve the experience and accessibility for all participants. Watch on demand here.

About Mitch Trehan

Mitch Trehan is the UK Head of Compliance and MLRO at Banking Circle and a regular public speaker. Mitch, who started his career in the RAF training as a Pilot before moving into financial services, has more than 19 years’ experience in Corporate Banking and FinTech, having held senior positions in Citi, Barclays, JP Morgan, Ebury, Currency Solutions and Banking Circle. Mitch is the co-chair of the “Interbank Payment Policy Committee” for UK Finance, the chair of “Project Banking Access” for the Payments Association, and a member of the Executive Committee of the Association of Foreign Exchange & Payments Companies.   

About Banking Circle  

Banking Circle is a fully licensed next generation Payments Bank, designed to meet the global banking and payments needs of Payments businesses, Banks and online Marketplaces. Banking Circle solutions power the payments propositions of more than 200 regulated businesses, Financial Institutions and Marketplaces.  Banking Circle is wholly focused on delivering a payments solution for Payments businesses, Banks and online Marketplaces that is invisible to end users but will enhance their customer proposition – without upfront investment in systems or process changes.  

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Keywords: merchants, cross-border payments, PSP, payments infrastructure, banks, fintech
Categories: Payments & Commerce
Companies: Banking Circle
Countries: World
This article is part of category

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