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Cross Border Payments for SMEs in ASEAN

foreign currency exchange rate on digital LED display screen

In a rapidly changing landscape of financial service providers many SMEs may not be aware of improving solutions and lower cost providers of cross border payments. Staying abreast of developments, from new non-bank offerings to fintech and beyond, involves simple research and can save SMEs time and money in conducting business across the region and globally.

The cost, FX risk and legal complexity of cross-border payments in ASEAN are key issues for SMEs which make up 70-80% of the industry in the region. Due to high economic growth the demand for goods and services is booming facilitated by the development of mobile-commerce. Recent research shows the ASEAN region is increasingly a mobile-first society with non-bank led financial services, such as Alipay and WeChat Wallet, disrupting emerging markets and challenging banks with viable alternative payment methods resulting in increased use of online payment services (72.4%), smart phone wallets (32.8%), and mobile money (13.3%).

Key aspects that hinder cross-border payments
Lee is an importer of Chinese teas and spices in upstate New York. When paying his suppliers, his local bank charges him almost $100 per payment, which average about $1,000. When the process works well, his suppliers receive their payments almost a week later. However, they often complain about incomplete payments because destination processors have also deducted fees. Occasionally, his payments never arrive, going astray in a maze of international exchange and paperwork.

Speed: According to McKinsey research on cross-border payments, the average time to complete a cross-border transaction is three to five business days, which includes the final mile transfer via a domestic payment network, such as Automated Clearing House.

Cost: Fees accumulate at each step in the process, including transfers from the sender’s bank to the national correspondent bank, from one correspondent bank to another, and foreign exchange fees. Fees for cross-border payments where volumes are high usually average 2% to 3%, but can exceed 10% where payment volumes and values are low. And it’s not always clear when costs will also be charged to a recipient.

Transparency: It’s usually difficult for senders and receivers to track their payments while funds are in transit, creating uncertainty about both delivery timing and the final payment amount. It can be especially difficult to quickly trace transactions when problems arise, such as incorrect account numbers.

Faster cross-border transactions for SMEs
SMEs in Asia often have difficulty embracing electronic payments as they prefer physical paper transactions. Shifting to paperless payments requires them to undergo a shift in their business model. Previse, a fintech start-up, recently announced the successful completion of a seed funding that will facilitate the development of their proprietary artificial intelligence (AI) solution designed to support instant payments between large corporates and SMEs. Today, three out of five small suppliers are paid late by large corporate buyers. As a result, SMEs may be forced to take out expensive, short term credit from banks to cover their cash flow difficulties, ultimately driving up the price of their products. Many SMEs in Asia go bankrupt as a result of late payments each year. Solutions that Previse will offer include; as soon as the invoice is issued,  advanced AI and hundreds of millions of data points are used to score the likelihood that a corporate buyer will ultimately pay a supplier’s invoice. Previse provides the score to funders, principally banks and asset managers, which pay the supplier instantly on the buyer’s behalf. In exchange, suppliers offer a small discount on their invoices. This results in reduced transaction costs for buyers; improved working capital for suppliers and a safe, attractive new asset class for funders. Eliminating late payments will boost the Asian economy significantly. “Previse’s AI technology ensures instant, frictionless and efficient payments can become the new standard for B2B payments,” said a senior executive at

Previse adding, “Payment decisions are a perfect candidate to utilise machine learning. Our advanced proprietary machine learning algorithms were developed using data sets of multiple billion dollars of corporate spending, building upon state of the art binary classifiers and highly innovative domain-specific feature engineering methods.”

Cheaper cross-border transactions for SMEs
According to recent McKinsey Global Payments Report, cross-border payment transactions represent 20 percent of total transaction volumes in the payments industry but generate 50 percent of its transaction-related revenues. Margins for domestic payments were squeezed by regulation and competition in recent decades, banks were forced to pare back costs and improve the efficiency of their systems and products. But cross-border payments have not yet experienced such pressures, so banks have had little incentive to develop innovative customer offerings. This is now changing.

In addressing some of the gaps in traditional financial services, World First offers overseas payment and transfer services between a client’s bank account and another account in any major bank around the world, except those in restricted jurisdictions.

Unlike banks, the foreign exchange company does not charge its clients a service fee but makes its revenue from exchange rate margins. SMEs can expect savings of 0.3% to 1.5% per transaction compared with what they can get on the market this means an SME transferring $1 million through the platform may save up to $15,000 per transaction.

Transparent cross-border transactions for SMEs
Banks have long been reliant on the payments infrastructure provided by the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the global network that enables communication of financial information between banks. With so much disruption in global industry financial institutions that want to remain competitive in the market for cross-border trade must embrace innovation. SWIFT’s global payments innovation (GPI) initiative commits banks to higher standards when facilitating cross-border payments, which help corporate banking customers grow their international business. The initiative’s pilot program, launched in April 2016, goes a long way toward removing the bottlenecks that slow down cross-border payments. The initiative is already supported by over 70 global banks. At the heart of the scheme is a new multilateral service level agreement (SLA) rulebook which commits banks using the SWIFT platform to meet improved customer service standards when facilitating payment transactions. A key aspect of the SLA rulebook is transparency. Under a mutually agreed set of business rules, banks must offer their customers full visibility on transaction fees. This means providing insight into the fee structure and highlighting any fees that might otherwise be hidden. This improved transparency enables customers to better measure their transactions’ cost and more effectively prioritize their banking relationships. SWIFT’s initiative also ensures that banks offer their customers a wealth of information on payments. Banks must provide extensive end-to-end payment tracking. In this respect, SWIFT is developing a database, hosted in the cloud, allowing banks and their corporate customers to track their funds from the initial transfer to confirmation of clearance in the beneficiary’s account. This will provide key insights into the status of payments, using a unique reference number to identify when they have been sent, received, and cleared. The result is that a buyer has confirmations that its creditor has been paid, and companies at both ends of a transaction will be able to dedicate fewer resources to investigations into the causes of slow payments. This new transparency improves interactions and builds trust among banks, sellers, and buyers.

With innovations in crypto currencies and blockchain payments looming, existing methods of cross border payments are being improved and still provide valuable ways of growing business for an SME in ASEAN.

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Grant Morgan
Grant Morgan
Grant is a highly experienced and motivational sales leader with a wealth of experience within fintech and the wider tech market space from companies such as Bottomline Technologies, Ideal Hardware plc, and Panasonic. Having worked with customers from micro SME to large multinational through a variety of sales channels, Grant has extensive knowledge of supplying business’s with financial, payment and collection systems, working with partners such as HSBC, J P Morgan Chase, Barclays, and Worldpay.

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