Constituting a little less than a fourth of the total cross-border market, at USD 6 trillion, small businesses are severely under-served in the payments arena.
The challenges for SMBs using the traditional methods of payment include: major banks, FX providers and payment service providers such as PayPal and Western Union.
For instance, most major banks charge hefty wire fees to both the sender and the receiver of the funds. The sending fee can go up to USD 50 per wire, while the receiving fee is up to USD 30 per wire, depending on the bank. On top of the wire fee, the banks hit unsuspecting clients with an FX spread of 3-8%. Moreover, most clients will also be surprised to see that the amount received into their account is actually less than the amount invoiced. This fee is known as “Bene-Deduct” and occurs when your local bank uses a correspondent bank to transfer money overseas. A “correspondent bank” is a giant global middleman, such as HSBC or Citi, which is used by smaller banks to transfer money overseas.
Larger enterprise businesses are able to negotiate the fees and rates down due to their leverage with banks. The banks are willing to lower the FX rates, in exchange for making their money on credit lines and other services. Most banks are more concerned with losing an enterprise level business then they are with losing a small business. Hence, the smaller the shop, the less relevant it is in the eyes of the bank.
There are alternatives to using banks for international transfers
One such alternative is an FX provider. While FX providers are more competitive on the FX rate then the banks, there are two major pitfalls with using FX providers. First of all, they can only accommodate payers, and do not have a system which can accommodate receivers. So, if a business wants to receive payments from abroad, they are still stuck using their bank.
Second of all, working with FX providers means that they are still entirely dependent on the bank. Because FX providers use bank partners to send the funds, they actually take a longer time to complete the transfers because they themselves act as the middleman. Bottom line, using FX providers might save SMB’s money, however, will slow down the time of the transfer.
The second alternative to the bank is using a payment service provider such as PayPal or Western Union
While these companies vary in features, they all have one thing in common – high exchange rates. In some cases, they can speed up the process as compared to the banks, but small business will pay dearly for that speed.
Enter the blockchain era
The most innovative technology to hit the payments market in decades, the blockchain offers a slew of benefits to small businesses using it for overseas payments. Because it eliminates the correspondent banks in the FX conversion process, the currency exchange happens real-time. As a result, money is converted and deposited into the beneficiary account without bene deduct or wire fees.
Not only does the blockchain offer faster, cheaper payments, it allows for never-before seen features in payments. Features such as real-time tracking, full transparency, and payment processing at the click of a button are all benefits of this amazing technology.
The blockchain opens up a whole different world when it comes to the SMB payment experience, and it’s really just the tip of the iceberg of what this new technology can do.
About Elina Manevich:Elina Manevich has 13 years of experience leading marketing strategy and building power marketing teams. She currently runs marketing for a FinTech disruptor, Align Commerce. Prior to Align Commerce, Elina led North American go-to market strategy for an FX giant, OzForex. Elina holds a BA from the University of San Francisco’s McLaren School of Business.
About Align Commerce:Align Commerce (Align) is a next-generation global payments provider that enables businesses to quickly and securely pay and get paid in their local currency. Align is disrupting the archaic international payments industry by leveling the playing field for small businesses in cross-border payments. Align helps businesses process payments via a simple, frictionless, and inexpensive manner by using revolutionary multi-rail technology.
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