High transaction costs turbocharge payment revolution
High costs for cross-border transactions imposed by a banking oligarchy are tempting some corporates towards trying out new payment service providers in the fintech world.
Anders la Cour, CEO of Saxo Payments
Saxo Payments' report and survey Cross Border B2B Payments Today’s Landscape; Tomorrow’s Opportunity identified the disparity in the amounts charged for cross-border payments by banks, and the impact this has on their corporate clients.
Bank fees charged per transaction were found to have a huge range. The largest proportion – 23.48% – of the survey's respondents reported fees of between 1% and 2% per transaction. Some stated they are paying considerably more, with 0.76% responding they pay between 11% and 20% per transaction. And, surprisingly, 18.9% stated they do not know what fees are charged by their bank on each transaction.
Source: Saxo Payments
Despite the report finding that corporates don’t have enough time to look into another service to get a better deal, 79% say a lower cost would encourage them to look for a new provider, ahead of faster transaction times.
Source: Saxo Payments
Anders la Cour, CEO of Saxo Payments, says the traditional lack of competition in the market has allowed banks to continue as they were.
“The B2B cross-border payments sector is a market that hasn’t necessarily experienced strong competition to date," he says. "The banks have held the market share and, as such, have been able to dictate the fees charged.
“But that is all changing with the emergence of fintechs that want to compete with the traditional banks and I think that is the reason that different fee bands were revealed by our research. And with over 10% of respondents saying they pay a fixed fee for all cross-border transactions, there seems to be a clear picture that customers are starting to set the agenda in terms of what they’re willing to pay.”
The UK’s payments space is in the process of opening up after a report by the Payment Systems Regulator identified the dominance of VocaLink as stifling innovation. This demand on a regulatory level for greater innovation will require the banks to do more to keep pace, but this will likely reduce their returns.
For banks and existing providers to continue to be relevant, payment innovation needs to be developed with a steady end-cost to the consumer.
Even established payment methods are seeing a competitive threat from fintechs. Swift’s global payments innovation initiative (GPII) has been developed and piloted in conjunction with banks and corporates, and offers transparency around the fees charged.
Wim Raymaekers, head of banking and treasury markets at Swift, says: “Recognising the current situation, the global payments innovation initiative will enable corporates to receive an enhanced payments service directly from their banks. Corporate treasurers will be able to benefit from the same day use of funds, track payments from start to finish, experience transparency and predictability with fees, as well as transfer richer payment information."
However, the issue around the additional services that new players are providing also needs to be addressed. The report found having a lower cost of completing transactions is of greater concern than the length of time it takes to complete the transaction.
Raymaekers says there is a need to create value and enhance the services of the users, but this needs to also see a decline in costs or it will not be sustainable.
He adds that the existing providers need to be innovative to match what the emerging players are offering.
New platforms need to include evolved functionality. Says Raymaekers: "Another idea being discussed is a 'pay me' function to request payments. Such a payment request would include the invoice, full payment details, enabling you to complete the payment using a simple prompt. This type of functionality typically included by the start-up payment providers."
He also says there is a growing demand for data, with capacity for detailed lines of information. Companies are looking for more than the 140 characters which can be included in the standard Swift MT103 message format, but additional data mean larger messages of several megabits, and might indirectly incur more cost.
Raymaekers says sending richer data requires greater digital capacity. In order to do this in a cost-efficient way, payments needs to have a new operating model and further leveraging of new technology.
Saxo Payments' La Cour says the report’s finding that corporates were starting to think about using alternative providers rather than the banks they know suggests a shift in perspective.
“This indicates that businesses are becoming more aware that using specialists, rather than all-round service providers, can result in a better and potentially more competitively priced service," he says.
“The traditional bank’s role in terms of deposits and day-to-day local banking will remain – it will just be that businesses spread their custom wider. And that creates a healthy environment for the best in service, innovation and price.”