The world is shrinking and becoming more interconnected. We've passed the point where we can reasonably expect businesses to remain competitive while only operating in their home markets, and digital tools have evolved to meet these new expectations. We expect video conferencing, cloud-native business software, and enterprise resource planning platforms to function properly no matter where we are in the world or where our colleagues are.
Why hasn't corporate remittance kept up with the rest of these tools? Why does it still take a week and a slew of fees to carry out one of the most basic functions of a business - the payment and collection of money?
Banks are the most expensive type of service provider, according to the World Bank, with an average cost of 10.66 percent per transaction. Meanwhile, the global average for all remittance methods is only 6.38 percent.
What's the deal with the discrepancy? Because banks are the most established players in the remittance ecosystem, they are frequently constrained by legacy technologies. These systems have the inertia of their own, and updating them risks putting banks out of compliance and disrupting established business processes. Furthermore, these systems are highly opaque, making it difficult to calculate the true cost of foreign exchange.
Many banks are caught between a rock and a hard place because updating these systems is so difficult and risky. On the one hand, they understand that customers prefer a more transparent, faster, and lower-cost FX solution. On the other hand, they don't want to invest in a disruptive upgrade that, if it fails, will cost them customers and put them out of compliance.
So the question is, why have businesses relied on banks in the first place?
Businesses have had little choice but to rely on banks to process payments for a long time. Simply put, there were no organizations with the necessary regulatory coverage to meet know-your-customer (KYC) and anti-money laundering (AML) requirements. Because banks were the only ones with the necessary regulatory protection, they were also the only ones who could collect foreign payments from third parties they had never met — that is, from their business clients' many anonymous customers.
Previously, any new player in the remittance industry would have to onboard all of their business clients' customers in order to facilitate FX transactions. However, sophisticated corporate remittance Fintechs are now offering FX transactions at a fraction of the cost and time it used to take banks. So, what has changed?
Fintechs such as TranSwap, Remitr, and others now make it possible for businesses to send money across borders at ever-lower costs. Whereas previously only banks had the necessary infrastructure to enable third-party collections and cross-border payments, the barrier to entry has now been significantly reduced. New technologies and compliance approaches are making it easier than ever for digital-first institutions to provide fast and low-cost FX transactions with a transparent user experience.
Currencycloud Spark is a prime example of the type of technological innovation that is enabling this change.
Currencycloud Spark is a product that enables corporate remittance Fintechs to provide a single multi-currency account in the name of their business customers. Customers can collect and payout funds in different currencies to anyone, anywhere within the supported Currencycloud ecosystem by using unique account details. Currencycloud Spark, with access to over 38 currencies and the ability to make payments in 180+ countries, enables corporate remittance Fintechs to streamline costs and transaction processing, eliminating the need for multiple partners.
When it comes to moving money across borders, new solutions also provide more transparency. FX transactions sent through banks are notoriously opaque, requiring businesses to check with their beneficiary to determine whether or not a transaction has been completed. However, by utilizing SWIFT gpi (SWIFT global payments initiative), unique tracking codes can be applied to any gpi-enabled SWIFT payment, allowing visibility of the entire payment journey.
This means that corporate remittance Fintechs can offer their customers:
All of this works together to enable businesses to move faster and to address new opportunities as soon as they arise.
Corporate remittances do more than just provide lower-cost FX transactions. Fintechs that provide these extra features, such as payment tracking and multi-currency e-wallets, are giving banks a run for their money.
Because of brand recognition, some businesses are willing to tolerate higher bank fees. Or, if they're simply looking to save money, they'll go with the cheapest corporate remittance Fintech available. However, when presented with a low-cost solution that also includes a multicurrency e-wallet and total visibility into the payments journey, businesses reach one of two conclusions:
Overall, this represents an exciting new opportunity for corporate remittance Fintechs to generate new revenue streams while also providing a more streamlined, lower-cost experience to their business customers.
In our eBook, Transform your payments from cost-center to profit-center, we go into greater detail about how Fintechs can turn international payments into a profit center. Learn more about Currencycloud Spark for Fintechs interested in learning more about how Currencycloud can help their business and their business customers conduct FX transactions.