Choosing a new global payments provider: Avoiding pitfalls in a digital age
The world of global payments is changing. Choosing the right partner can be critical to your business growth.
Choosing a new global payments provider: Avoiding pitfalls in a digital age
The world of global payments is changing. Choosing the right partner can be critical to your business growth.
Arguably, more change has occurred in global payments—and in global business processes—in the past five years than in the preceding fifteen. The 2007-08 financial crisis is often described as the dawn of the FinTech era, whilst the COVID-19 pandemic accelerated the digitalization of business processes—and of global payments.
Regulations adapt in response to these evolutions, but implementation sometimes lags. Further, in a globalised environment, regulations are localised and nuanced despite some broad-stroke alignment.
In such a changeable environment, then, the need to find a reliable, sound payments provider who can stay current with new technologies, applications, methods, security and data protection frameworks, regulatory and compliance change—and who has the appropriate jurisdictional licensing –becomes even more acute. The old proverb, “Trust but verify”, springs to mind.
Choosing a new provider—the right provider for your business—is an important decision. As with any relationship, it helps to be clear about your priorities today, as well as in the future. Will a short-term solution do? Or are you looking for a partner whom you can grow with for the long term? What are you willing to compromise on, and what are your non-negotiables? And—most importantly, what’s most important to you?
Following are some suggestions for evaluating the ‘fit’ of a new global payments provider for your business.
Do your due diligence. Exercising due diligence when choosing a partner is prudent. Just as a provider will perform an extensive ‘know your customer’ (KYC) check when onboarding a new client, so might you consider a ‘know your provider’ check when considering a new payments provider.
Licensing. Find out about the provider’s licensing footprint. If, for instance, you work in frontier or emerging markets, a provider with a well-developed emerging markets practice can be of help. If the provider relies on multiple intermediaries, it could slow the payments process down and result in additional fees.
Compliance and regulatory alignment. Licensing goes hand-in-hand with compliance and regulatory requirements. Adherence to Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) guidelines is a must for most financial institutions. A partner with deep compliance expertise and regulatory know-how can add to your peace of mind.
Diversification and services offered. Furthermore, licensing—and compliance and regulatory alignment—may differ depending on the provider’s business model. A traditional bank or financial institution might offer loans and business lending services and interest-bearing accounts, while a non-bank provider, Money Services Business, or a non-bank financial institution (NBFI) typically would not. Again, be clear on what you are looking for. A one-stop shop or a group of specialists you can rely on for specific services? Diversifying financial service partners can offer benefits. A foreign exchange specialist might be able to offer a small business more attentive or efficient service for global payments than a large bank can.
Protecting client funds. How will your funds be managed? Regulations on handling client funds vary from jurisdiction to jurisdiction. Ensure that your provider has appropriate policies and protections in place to keep clients’ funds safe.
How does the provider make money? Bear in mind that the exchange rates you see on line are usually ‘interbank’ rates. These are the rates that the largest banks charge each other and are based on the volume: Institutional trading involves trillions each day, and reporting is typically delayed by a few minutes. Individuals, small and medium-sized businesses, and corporate clients will pay a higher exchange rate than the published rates. Most FX providers charge a ‘spread’ on foreign exchange conversions to cover their costs and overhead (and to keep their business profitable especially if FX spread is a key revenue source for that business). Others, including many banks, may charge account maintenance fees for FX services, and some may require you keep a minimum balance in your account. Depending on the settlement type that you choose, you may see transaction fees, including wire fees or ‘lifting’ fees charged by intermediary banks. Make sure you understand the provider’s pricing model, from FX conversion fees to transaction and maintenance fees. A periodic check-in is a good idea—at least annually or with a frequency aligned to your accounting practice. In fact, undertaking a full FX performance audit with your provider, at least annually, is a best practice. It may inform future strategic approaches as your business—and the market—changes.
Scalable technologies and payment infrastructure. As your business grows, you may find you need more services, features, and technological capability from your provider. By the same token, you don’t want to be paying for services you don’t need.
Security of systems. It’s dangerous out there in cyberspace: what security measures are in place to help protect your sensitive financial and personal data? And your provider’s systems and data centres; are they monitored and tested regularly? Are failover mechanisms built into their systems in case of power or system failure, or heaven forbid, a security breach?
Reputation. Exploring the website, reading case studies, and checking peer review sites like Trustpilot and G2 is a good start when evaluating a new provider. You may also wish to ask your provider to provide references from current clients whom you can call. Has the provider been in the news lately—and not in a good way? Have they recently lost licenses, or been challenged or fined by regulatory bodies? You might want to dig a bit deeper if that’s the case.
2023: The year of the shake-out
In 2023, we saw some high-profile specialty bank failures in the US and in Europe, resulting in buyouts and mergers. Fortunately, these issues were largely contained and swiftly dealt with to stem the tide and minimise losses. Some storied institutions have been fined for various reasons: ‘fat-finger’ trading issues or less oversight than was required.
Further 2022 and 2023 also saw the ‘crypto-winter’: with high-profile bankruptcies and shakeouts in the realm of cryptocurrency and cryptocurrency exchanges. Fallout included some specialty Fintechs serving those companies. Many of these are still winding their way through the courts and regulators. Some providers’ risk profiles do not allow them to work with companies in these areas. Consider weighing your business’s risk tolerances into your conversations with potential partners, and while making your choice.
Tread cautiously.
These are times of change, with new payments technologies and products being tested and implemented
One new product that has seen a lot of press is Central Bank Digital Currencies. While some have been launched, many central banks and regulatory bodies are still in the exploratory or pilot phase. Some have raised concerns about possible implications for users’ privacy.
Another front-page story is artificial Intelligence (AI)—machine learning tools that are now widely available to consumers. Useful as they are, some businesses, regulatory bodies, creators and users are looking more closely at unintended consequences. Most recently, we read that Apple Intelligence (Apple’s new AI suite), would not be launched in Europe—yet—due to regulatory and anti-trust concerns.
As with any new product, including highly regulated industries like payments and financial services, there is typically a flurry of activity and then a quieter period as participants and regulators catch up.
If you don’t understand a given product’s pros and cons, or the risks it might entail, it would probably be wise to take a beat before diving in head-first. Ask your questions and do your due diligence.
In sum, choosing a provider can be a bit like dating in the digital age. If the profile looks too good to be true, it may well be. Take some time for a chemistry check, to ensure you and your potential partner understand each other and can exchange ideas for your business growth. Sharing your hopes and dreams for your business can signal whether you have a future together. It is your business—and your money after all. Trust is key.
If everything checks out, then, you may be ready to go ahead and swipe right.
To find out more about choosing a global payments provider, or about Corpay Cross-Border and its suite of global payments technologies, foreign exchange and currency risk management services, please get in touch.
About Corpay Cross-Border
Global businesses and institutions trust our Corpay Cross-Border solutions to power their international payments, execute plans to manage their currency risk and support their growth around the world. We aim to deliver unmatched service and expertise with respect to moving money globally. Corpay Cross-Border is a part of NYSE: CPAY (Corpay, Inc.). Please visit www.corpay.com.
About Corpay
Corpay, Inc. (NYSE: CPAY) is a global S&P500 corporate payments company that helps businesses and consumers pay expenses in a simple, controlled manner. Corpay’s suite of modern payment solutions help its customers better manage vehicle-related expenses (such as fueling and parking), travel expenses (e.g. hotel bookings) and payables (e.g. paying vendors). This results in our customers saving time and ultimately spending less. Corpay Cross-Border refers to a group of legal entities owned and operated by Corpay, Inc.