Solving the cross-border B2B payments conundrum

Reported by: |Updated: October 21, 2016

Lakhs of small businesses and entrepreneurs are turning to platforms that can help them manage payments received from international clients

rohit-kulkarni_payoneer
Rohit Kulkarni, Country Manager, Payoneer India

With increased globalization, more Indian businesses and entrepreneurs are reaching out to global markets for business. A whitepaper titled ‘Unveiling the true cost of cross-border B2B Payments’ from Let’s Talk Payments says: Cross-border payments have become a critical part of millions of lives as we moved towards a more globalized world and multicultural societies. The segment represents a massive market, great opportunities and very promising players.

The same report also declares that the total online cross-border spending in India was $8 billion in 2015 and it increased to $15 billion in 2016 – a massive growth of 78.5%. However, despite the promising growth rates, businesses have always faced challenges in managing payments from their international clients. Here are two real-life examples:

Abhinav Gupta runs a software consulting company called Concretio Apps Private Limited in Jaipur, Rajasthan.  His company specializes in cloud computing and provides consultancy services to companies in the West. His company experienced a lot of difficulties when managing payments from international clients. “We were also paying very hefty fees for our transactions when using PayPal and wire transfers,” said Abhinav.

Kushal Raha is the founder and CEO of Host4Geeks LLC, based in Pune. Host4Geeks is a full service web hosting and IaaS (Infrastructure as a Service) provider.  It provides a web hosting platform for people to host their websites and run their online businesses without having to worry about the infrastructure behind them. And it hosts about 5,000 clients from all across the globe. One big problem when having such a diverse customer base is having a payment solution that works for everyone. “The main challenge we faced regarding payments was transferring it to our local bank account in a fast, reliable and hassle free manner without losing a ton on charges and exchanges,” said Kushal.

Like Kushal and Abhinav, there are thousands of Indian businesses and freelancers who do business with customers outside India. They are freelancers, software services companies, IT/ITES /BPO companies, online advertising firms, and small merchants trading through e-commerce marketplaces. Their challenges are receiving payments on time, long delays in transferring funds, uncertainty about currency conversions, and bloated transfer fees.

Rohit Kulkarni, Country Manager, Payoneer India says: “There are two scenarios in which these services are largely used. One is companies transferring funds directly to Indian service providers. And the other is Indian exporters selling goods on e-commerce marketplaces, receiving payments for their merchandise. But there is also a growing base of Indian freelancers.”

There are lakhs of freelancers in India who work through freelance marketplaces such as such as Upwork, PeoplePerHour, Odesk and Freelancer.com. Any freelancer will tell you how difficult it is to receive and track payments. What they really need is a platform and the right tools to do this.

In India, 75% of all cross-border payment transactions occur through international credit cards. The rest is through e-banking. But international payments through wire transfers is time-consuming and expensive. There is a lack of standards for sending remittance information that allows efficient reconciliation and posting of electronic payments once they are received. Online wire transfers are open to risk by fraudsters who are able to circumvent online authentication measures.  Sending a wire transfer to a bank abroad can take a lot longer. This is problematic if there is an emergency.

That’s why the growth of transactions through cross-border payment platforms will increase significantly in the coming years.

DRIVERS FOR CROSS BORDER PAYMENTS

The Let’s Talk Payments report says the following factors are driving cross-border payments:

  • Connectivity: The number of opportunities for a business to find (and be found by) potential customers has exploded.
  • E-commerce platforms: The rapid development of e-commerce platforms, particularly B2C and B2B e-commerce marketplaces, is changing the way businesses go to market and find customers. The entire distribution model for a business to get to customers is being radically transformed.
  • Infrastructure: The increasingly available global infrastructure is the grease that enables the wheels of cross-border commerce to keep spinning faster and faster.
  • Cloud-based software: The availability of new cloud-based software tools is enabling businesses to go more digital, for more of what they do, more quickly, simply and cost-effectively than ever

Another important statistic to note is that B2B payments in India was estimated at approximately $20 Billion in 2015. And it is growing at a fast rate.

traditional-cross-border-payment-procedure

FACILITATING TIMELY PAYMENTS

There are multiple solutions for transferring funds between accounts and each has its pros and cons. Indian businesses are using cross-border payment solutions such as PayUmoney, Dovetail, Alipay, CSI GlobalVCard, ZymPay, X-Border Payments and others.

Both Abhinav and Kushal use a solution called Payoneer, which has a user base of 30 lakh customers.

Kushal has been using this solution for some time and swears by it. He says: “Since we are a small business, having smooth cash flow is very important to us. Payoneer’s quick service helps us pay our vendors, employees and service providers on time. Without Payoneer, we would probably still be jumping through loops and hoops to get our hard earned money.”

Abhinav has a similar opinion. “A client recommended that I sign up with Payoneer in order to receive payments in foreign currency in an easy and cost-effective way. Payoneer provides me with international receiving accounts that allow me to receive payments from clients worldwide in both US dollar and Euro.”

Leading corporations like Airbnb, Upwork, Getty Images and Google are now using platforms like Payoneer for mass payout services in multiple currencies, to global businesses.

Rohit says cross-border payment platforms such as Payoneer give businesses the ability to track their payments through control panels in the interfaces.

“We can tell you how many of your clients opened your emails, how many made a payment against an invoice that you raised, and also the exact currency conversion and the exact amount due to you. Dashboards also give you information about the timing and frequency of the payments. We also have time-tracking tools for projects undertaken by freelancers,” said Rohit.

This is a lot more information than what you would get in a typical wire transfer. The accountability and transparency provided by cross-border payment platforms, coupled with the low transfer rates and speed of transfer is a big draw for small businesses and freelancers.

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