Cross-border payments: why they’re important for retailers
By Marc Docherty – Head of UK Acquiring / Large – Strategic Business, Merchant Services at Worldline
Fully embracing digitisation is key for retail merchants looking to unlock value in cross border payments. This process presents huge opportunities for businesses, across all sectors, looking to both reduce costs and improve the customer experience. With retailers increasingly seeking to connect their business globally, it’s important they enhance their digital offering from a cross-border payments’ point of view.
The value of cross-border payments is set to grow by £100 trillion in ten years – from approximately £150 trillion in 2017 to £250 trillion in 2027 – according to the Bank of England, thanks to changing consumer demands (increasingly they want their shopping experiences to be quick, efficient and at a low cost through the use of seamless technology), trade with emerging markets (there’s been a growth in focus in emerging markets including Latin America, Africa and Asia) and mobile device accessibility.
All these factors have combined to create an increasing need for end-users to have frictionless, cross-border payment experiences that drive healthy competition, are efficient and have security at their core. These have given rise to new, specialist providers challenging the pain points surrounding traditional cross-border payments, such as delays and high costs, enabling the challengers to take on the incumbents with pioneering business models.
Cross-border payment services form an integral part of a wholesale or retail merchants’ business, with many customers, from companies of all sizes, now based abroad. Such payments are made in a multitude of ways, from card payments, bank transactions or through alternative means, including e-money wallets or mobile payments.
Retailers should embrace the competitive nature of the cross-border payment market, harnessing all options to secure the best possible deal for their business. There are two types of cross-border payments: wholesale cross-border payments, which normally take place between financial institutions; and retail cross-border payments, which occur between individuals and businesses and concern remittance and currency.
Within the cross-border payments world, retailers may come across helpful jargon or buzzwords which are relatively straight forward to understand. “Spot rate” and “Forward rate” indicate exchange rates and might be used in foreign exchange transactions. Despite their similarities, there are subtle differences which are worth knowing about.
This is important because exchange rates differ from one monetary jurisdiction to another and holding a particular currency can be advantageous or disadvantageous depending on the circumstances. A spot rate indicates the foreign exchange rate at the point the merchant processes a cross-border payment. A forward rate is a fixed rate for a payment agreed for a future date. Most retailers use forward rates, as there is less risk associated with the process and greater protection against currency volatility.
Choosing between the two options may come down to a retailers’ risk appetite and/or their cash reserves. The most secure thing a merchant can do is to limit their exposure and choose a policy which provides some insurance and protection against changes in rates.
If you would like to chat further with Marc about this, you can find him HERE
