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Could banks help UK SME merchants do more cross-border business?

Wednesday 5 July 2017 | 11:06 AM CET

Anders la Cour, Saxo Payments Banking Circle: To make international expansion possible, viable and even profitable, merchants need the right banking partner

Saxo Payments has recently surveyed SME merchants based in the UK but trading internationally. What are their main concerns when it comes to cross-border transactions?

A major stumbling block for small businesses trading internationally is the lack of a global account infrastructure that they can access quickly and cost-effectively and this is exacerbated by the need to manage multiple banking and supplier relationships. Our research suggests that merchants are opting for one partner for all their banking needs, locally and internationally. Could this be simply because it is too time-consuming to manage multiple relationships?

The biggest concern for merchants when it comes to cross-border payments is transaction fees (50%). Also, 40% are concerned with getting the best FX rate, and 37% worry about the risk of fraud. FX fees and the speed of processing payments are also significant areas of concern, for 29% and 27% respectively. And over a third (39%) stated that these concerns have undeniably put a stop to any international expansion plans, thus preventing them from reaching their full potential and maximum customer base.

Which are the main criteria that SME merchants have in mind when choosing the right banking provider? Do you agree that these criteria are the most important?

When it comes to selecting a banking provider, merchants are focused on finding the most efficient service, with 47% looking at speed of settlement, 45% taking FX fees into account and 41% looking for a wide range of currencies offered for international payments. Just 32% are swayed by reliability of the service itself, and only 21% consider support including fraud monitoring to be a priority.

Payments are, of course, not the only service merchants require from their banking providers. Another essential service for many companies is financing. In this respect, 48% of respondents have had issues in obtaining finance quickly from their current day-to-day bank, and the main problems came down to speed. Hence, 44% said the bank did not respond quickly enough to the request for finance, and 52% reported that the bank was not able to facilitate the finance quickly enough. Rates and fees were less prevalent issues, with 33% and 20% respectively.

Of those merchants who looked elsewhere for funding, 44% did so to find a better rate than offered by traditional banks and 41% required more flexibility than the bank was able to provide. Note that 21% found that the alternative provider responded more quickly than the traditional bank.

To make international expansion possible, viable and even profitable, merchants need the right banking partner. I firmly believe payments businesses can exploit that opportunity by working with financial utilities, such as Saxo Payments Banking Circle, which provides PSPs, acquirers and fintechs with access to a global account infrastructure to meet the needs of merchants trading internationally. Then merchants will be able to reach their potential in all the markets within which they want to trade.

To what extent are SME merchants looking at non-bank providers for cross-border payments and how many different suppliers do they use to make and complete cross-border payments?

According to our data, 87% of merchants surveyed currently use a traditional bank to complete cross-border payments. But the good news is that alternative providers have begun picking up the slack. For example, 13% of the merchants who responded to our survey use a merchant acquirer; 14% use FX specialists for cross-border payments and 9% use a dedicated payment services provider (PSP).

Over half (58%) of respondents said they have just one banking relationship; just over a third (35%) have one provider to handle all international payments and another for local payments; 7% have one provider for each country in which their business trades. Of course, if one provider is offering the best service and the most competitive rates, then there is nothing wrong with that approach. But our research amongst merchants seems to suggest otherwise.

According to your survey, 76% of the SME merchants operate in Europe. How do they feel about Brexit and how will it affect their business?

The result of the UK referendum regarding its EU membership threw the UK’s businesses, and those working with them, into turmoil, and they remain in a state of uncertainty even a year later. With negotiations on trade barely begun, businesses are having to consider how their future looks if they remain based in the UK. Will it still be viable for them to trade internationally? Will certain EU states become too expensive to operate within? What changes will be required to the infrastructure of companies wishing to continue trading with the rest of Europe and further afield?

As yet we can only speculate on the outcomes and how these will affect businesses. Our research reveals an almost even split in confidence due to the ‘Brexit’ vote – 33% are now more confident about the future of their company, but 35% are less confident, and 32% do not feel the referendum result changed the level of confidence they have in their business.

This lack of a clear majority reflects the high level of uncertainty still prevalent in UK businesses, and which is likely to remain throughout the negotiations with EU and until we have firm agreements in place.

Readers interested in the research can download the Saxo Payments report Cross border payments for cross border merchants: An internationally ‘local’ future.

About Anders la Cour

Anders la Cour is the co-founder of the Saxo Payments Banking Circle, designed to provide fintechs and banks with the crucial ‘financial utility’ to deliver core banking services to their clients efficiently and cost-effectively. Importantly, Anders la Cour is not just a figure-head – he is a hands-on leader for the Saxo Payments business. Reflecting his innovative approach to a core business problem – that of cross-border payments – Anders la Cour has been invited to speak and present at a number of industry events including Money20/20 Las Vegas, Oracle OpenWorld, BankInno, Innovate Finance and Money20/20 Europe. He has also written many thought leadership articles which have been published in key industry titles.

About Saxo Payments Banking Circle

Saxo Payments Banking Circle gives fintechs the ability to offer their merchants the facility to pay suppliers and partners directly from a web interface delivered by them, in their name, and powered by Saxo Payments without any loss of time or cash, truly empowering global trade. The ground-breaking solution ensures that financial regulation is completely adhered to without impacting on business success.