The topic of international money transfers might include a long list of different purposes and forms. Individuals often utilise foreign remittance if they work abroad or own properties overseas (or even make regular international payments for pension or mortgage instalments). If you run a business these days, you’ve probably had to handle cross-border payments at some point.
Businesses regularly apply foreign remittances to their transaction processes, particularly when their revenue streams rely on the ability to transfer large sums of money between different countries. As digital adoption is pushed to the forefront and the COVID-19 crisis continues to disrupt conventional supply chains as well as logistics, many new users of international money transfers have emerged.
Let’s revisit 3 points every party dealing with such global transfers should know.
1. Know your costs and hidden charges
Currency fluctuations might sound like something that’s just a problem for small-time foreign exchange traders, who don’t possess the required volume to make up for the margins. However, in today’s global economy, every single global transaction affects every party in a supply chain. Therefore, it is important to know your costs and hidden charges, if any, that may impact your business.
For most citizens irrespective of whether they are based locally or abroad, their local bank is the first port of call when making international money transfers. However, no matter where you live in the world as well as what types of bank accounts you have set up, most banks tend to have higher transaction fees and hidden charges.
Why? Because these traditional financial institutions require an international network, and the best and most efficient way to acquire one is to ride on a third-party hub, like Tranglo. The math is simple: if we charge Bank A an X amount to transfer money, it is safe to say that Bank A will charge you an Y+X amount, to account for their operational costs.
But it shouldn't have to be this way, and for this reason, shopping around for the best deals is probably a good idea.
2. De-risking threatens the remittance industry
According to Mohit Davar, chairman of the International Association of Money Transfer Network, the trade body for the remittance industry, de-risking is the single greatest threat facing the remittance sector.
De-risking or de-banking refers to the process of financial institutions attempting to leave relationships with and ending accounts with clients considered to be “high risk”. There has even been a trend towards de-risking entire sectors, including money service businesses. The World Bank reported that the most impacted by de-risking activities are money transfer operators and other remittance companies.
Restrictive anti-terrorism and anti-laundering financing regulations are big contributors to this running trend. This, combined with a cautious approach to risk ever since the damaging 2008 financial crisis, has made financial institutions a little more wary of working in certain sectors, especially those considered high-risk, complicated or unprofitable.
De-risking stifles competition and focuses business on four or five incumbent players. This means that fees are entirely dependent on these incumbents. With fewer choices and suppliers, prices become higher than they should be, and this affects you and the way you handle payments as your costs are driven up.
3. Are virtual payment platforms a good idea?
It depends on the platform, but for the most part, technology and virtual transaction capabilities are a huge help to the foreign remittance process. In many instances technology can lead to reduced costs, saved time and better transparency between involved parties.
Ultimately, digital platforms provide convenience, freedom of choice and faster transactions. There is also greater accessibility to help businesses broaden their customer base. Some platforms can even offer a variety of options and additional services on top of basic global payments, including risk management and global switching capabilities, as well as networks comprising numerous wallets, banks and pickup points around the world.
Conclusion
Aside from the points discussed above, cross-border payments often come with common issues that revolve around regulatory obstacles which lead to inefficiencies. That is why it is important to give fintech disruptors a chance to come up with solutions that make convenience, simplicity and speed top priorities when it comes to payments.
These qualities have in the past softened the impact of regulatory dilemmas and created a faster and more empowering tech-driven era of global payments.
