More and more companies are looking outside their domestic markets to generate new sales cycles, expand product offerings, diversify their supply chain and find a more efficient, cost-effective means of operating. But technology cannot solve everything, writes TransferWise’s Stuart Gregory
Today, the world is open for business. Big or small, businesses are able to trade and transact across borders without leaving their office.
However, while going global should be celebrated, it comes with challenges, particularly in the payments space. Whether taking advantage of new markets or tapping into an international talent pool, when you do business across borders you also have to pay across borders. This can be complicated, costly and time consuming.
Paying your people is one of the most important parts of running a business. But when that means using a different currency to the one you are paid in, things can get complicated and costly very quickly.
Firstly, there are currency fluctuations to navigate, which can place a strain on your finances if your own currency dramatically weakens. Then there is the exchange rate you receive and the fees incurred for sending money abroad. Ultimately, businesses can find that not only do they lose out, but so too do their employees who receive less than they were expecting.
One mistake businesses often make is to not shop around. All too often they rely on their default domestic banking provider; as a result, they will receive poor exchange rates and incur extortionate fees, which can be up to eight times higher than the cheapest provider.
Because of the lack of transparency involved in pricing via rate mark-ups, it is easy for businesses to end up with no idea how much they are paying to send money abroad. When international bank receiving fees are added to the equation, it is even more confusing.
The good news is that there are lots of ways to avoid payments pain when doing business across borders. Technology is providing solutions.
Most importantly, businesses should look beyond their default domestic bank account. Using the same platform for all your business’s financial needs might be convenient at first, but it is almost certainly not cost-effective or transparent. There is a growing ecosystem of specialist payments providers shaking up international payments. The technology these fintechs are built on not only solves the transparency issue at a cheaper cost, but means the service is faster than many of the incumbents too.
Until recently, the logical approach to tackling the challenges and costs of international payments was to open multiple bank accounts in the countries where you are paying. This has its benefits – it allows you to hold balances in different currencies and avoid having to convert it back and forth.
However, learning about new banking cultures and conforming to a range of local standards can be hugely time-consuming. When you are paying only a handful of employees or being paid by an infrequent customer, this can seem a lot of hassle.
Time is the most valuable asset, particularly in the early stages of growing a business. Banking charges are another trap businesses can fall in to, with countries such as France often imposing hefty fees on inactive accounts.
Fortunately, technology is making it possible to have all of the benefits of holding multiple currencies without the hassle of having to open and manage multiple accounts. TransferWise’s borderless account gives businesses bank details for the UK, US, eurozone and Australia in one place, letting you manage your money just like a local and convert between currencies at the real mid-market exchange rate, with transparent conversion fees.
The account also enables businesses to hold funds in a further 36 currencies, protecting themselves from fluctuating exchange rates and once you are ready to send money out, the fees are competitive and completely transparent – so you know exactly what your employee will receive.
Burden of volume
The other big challenge for businesses making international payments is the burden of volume. Until recently, paying out to multiple people or businesses, in multiple currencies, was an administrative recurring nightmare. But with technology like TransferWise’s Payouts API, businesses are able to integrate into fintechs’ products to streamline payment processes.
Hotjar, which provides a powerful analytics tool for deriving market insights, found they saved over a full day of work and over €1,000 a month once they switched from their bank in Malta to TransferWise’s batch payments tool. For a growing business that prides itself on cultivating a flexible and remote workforce, being able to make payments to multiple destinations at the click of a button is a powerful tool.
There are others out there offering similar services: ADP, Ceridian and Celergo offer large-scale global payroll systems. TransferWise is convenient and cheap, as it offers the real exchange rate with a low-cost, completely transparent fee, unlike most of its competitors. Its API can be used to integrate TransferWise into any UK or EU bank and business payments system. Partners like Berlin-based N26 and Estonia’s LHV Bank access the same API that TransferWise business customers use to make thousands of monthly international and domestic payments.
This approach of collaboration and integration is already making a difference for businesses, their employees and partners. Ultimately it will change the way we pay, with technology making it easier, quicker, more transparent and, of course, cheaper.
Stuart Gregory is the head of business at TransferWise