Options to Consider When Managing Cross-Border Payments
Miller, Wendy, Global Finance
A DAUNTING ARRAY OF OPTIONS
Managing cross-border payments can prove to be a difficult feat of navigation. In a changing, global marketplace and evolving payments landscape, understanding how to work in a global payments environment is crucial to any organization's strategy.
A newly appointed cash manager of a company, for example, with global operations is tasked with evaluating international payment options, with the goal of establishing an efficient, secure and low cost process. The evaluation is complicated by the fact that there are multiple service providers, including banks, non-bank providers, technology firms and credit card companies.
Another complicating factor in this equation is the many payment types to be considered, such as:
* Corporate capital transactions; capitalizing a foreign subsidiary or collecting inter-company dividends
* International vendor payables, denominated in local currency
* Small value payroll, pension disbursements, expense reimbursement
There are also a variety of options for beneficiaries to receive their payments. These can include:
* wire transfers, utilizing the Real-Time Gross Settlement Systems (RTGS)
* electronic deposits through bw-value dealing, such as ACH or BACS
* local currency drafts
RULE OF THUMB
When making cross-border payments, the rule of thumb is that the currency of the home country never leaves the country. Rather, these types of payments require correspondent banking relationships connected to each country's clearing system to make the payment. Typically, the correspondent bank performs the foreign exchange transaction.
Third party payment providers ultimately depend on the global payment infrastructure of large banks which continue to maintain the dominant franchise in the payments business. Other nonbank providers do not possess the global network of payment hubs, correspondent relationships and interbank credit arrangements necessary to support payments in the world's currencies.
The key for making cross-border payments is to align the appropriate payments service with the type of payment being originated. For corporates, transactions are typically for:
* Generally large value payments I trades
* Negotiated, shopped FX rates
* Repetitive payments or those planned in advance
* Hedging purposes- using forward trades
On the other hand, Accounts Payable departments which typically handle vendor payable transactions, have somewhat different needs and require:
* Centralized control often with a need for decentralized entry of payment details
* Aggregation of multiple payables in the same currency to achieve more competitive pricing
* Ability to acceptor reject the FX rate via a "Request for Quote" process
* Cash management features repetitive, non-repetitive, entry of payment details
* Small value, high volume payments with the ability to upload a file Corporations need a centralized mechanism for streamlining their global payments process, with the option of decentralized access. …