SME: Overcoming The Hurdles of Cross-border Payments

Fatihah Ramzi, DigitalCFO Asia | 2 November 2022

Arnold Chan, General Manager, Hong Kong & SEA, Airwallex

The ability of banks and other financial institutions to quickly move money across borders remains challenging as technology continues to quickly change how people and businesses handle their financial transactions globally. Many systems are unable to keep up with contemporary technology because they have stayed antiquated. Globalization has created a fantastic and profitable opportunity for this industry’s progress, and the need for a more efficient, cost-effective system is rising.

To find out more about the current landscape of cross-border payments, DigitalCFO Asia spoke with Arnold Chan, General Manager, Hong Kong & SEA, Airwallex.

The Major Hurdles For Cross-border Payments

The hurdles of cross-border payments differ according to company size. One of the key hurdles, according to Arnold Chan, is how companies handle their finances in a more efficient and cost-effective manner. With COVID-19 and macro-environment changes, a lot of businesses in SEA are no longer locally sourcing their suppliers. Their customers are also extending beyond their own country and city. The pandemic also urged many businesses to turn digital and this eventually led to the increasing complexity of B2B payments. 

In the pre-pandemic days, a lot of SMEs were still running their businesses traditionally and it might not necessarily be the most time-efficient manner. Many small businesses reported using cheques before COVID-19 to transfer money internationally to their suppliers but due to employees having to work remotely during the pandemic, business owners found difficulty in relying on such traditional modes of payment. In essence, the pandemic brought to light the necessity for business owners to seek out other methods of payment transfer. 

“The complexity of paying to suppliers, receiving money from customers and procuring advertising avenues have become more difficult,” says Arnold Chan, General Manager, Hong Kong & SEA, Airwallex. 

Traditional finances may not have the kind of cost-efficiency for them to handle. Hence why we are seeing more and more players in the region targeting digital first businesses by using a Fintech solution to address all these payment ports. 

Tackling The Lack Of Transparency In Cross-border Payments

Transparency comes in many forms such as the fee rates, the transfer fee and the currency exchange rate. For executives who are not an expert in FX, they would just take the exchange rate quoted to them as is. However, a lot of the traditional providers have a lot of mark up on the rate. 

“Airwallex, as an advanced Fintech player, we provide absolute transparency in terms of how much mark up we provide on top of interbank rates. Secondly, we are upfront about how much we charge for the transfer fees,” says Arnold Chan, General Manager, Hong Kong & SEA, Airwallex. 

Aiwallex has partners all over the world which means they are able to offer local p[ayment methods to a lot of countries in the world so consumers (businesses) are able to save on the transfer fees and the currency exchange rate. The other area of transparency is the speed of transfer. If businesses go through a traditional provider, it would involve a lot of players and corresponding banks which could result in a lack of ability to locate where the money is at during the transaction. This could cause a number of issues as businesses are obligated to pay their suppliers on time.

The Future Of Cross-border Payments

Real-time payments are now made and delivered 365 days a year, 24 hours a day, seven days a week. This is simply one of the truths of real-time transactions in the current market landscape. Financial organizations therefore must offer 24/7 quick payments.

In contrast to the conventional batch-based end-of-day processing, this introduces the necessity for standby processing in the event that host applications are down due to upkeep or network disruptions. Additionally, banks’ real-time clearing, settlement, and payment systems necessitate 24-hour liquidity management.

With current cross-border payment services already being offered round the clock, there is definitely a demand for it. Therefore, in the next couple of years, we can expect to see more and more businesses digitalizing meaning that there will be a higher demand for FinTech solutions. As such, cross-border payments will definitely be more diverse and hopefully more advanced such that intermediaries might not even need to be as heavily involved in the process as they are today. 

“I do think that there will be a higher need for businesses to make payments to different countries. This can be seen in the macro trends whereby businesses of all sizes are selling to places outside of their own country,” says Arnold Chan, General Manager, Hong Kong & SEA, Airwallex.

Taking The First Step In Adopting Cross-Border Payments

Researching available digital service providers would be the first step. The providers must have secure networks and effectively inform their customers about them. Almost half of users, whether they are individuals or enterprises, worry about fraud when sending money abroad.

Businesses must consider suppliers’ pricing when evaluating them. Nearly half of consumers believe they pay excessive costs for their transactions and receive inadequate exchange rates. Hand in hand with the last point, many businesses wish for greater transparency. That means receipts for each transaction, and the ability to track them. 

Having a large network is crucial as well. When their provider does not operate in the country they want to send money to, many businesses may find it frustrating. Additionally, businesses will need a wider range of payout alternatives so that their foreign business partners can benefit from them and are more likely to want to collaborate with them as a result. These are the key characteristics that a business should seek in service providers if it wants to enjoy a positive cross-border transactional experience.