Solving the cross-border B2B payments conundrum
Lakhs of small businesses and entrepreneurs are turning to platforms like Payoneer that can help them manage payments received from international clients
With increased globalization, more and 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 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 in Jaipur, Rajasthan. The company specializes in cloud computing and provides consultancy services to firms in the West. It 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,” says Gupta.
Kushal Raha is the founder and CEO of Host4Geeks, based in Pune. It is a full service web hosting and IaaS (Infrastructure as a Service) provider. It has 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,” says Raha.
Like Gupta and Raha, there are thousands of Indian entrepreneurs and freelancers who do business with customers outside the country. There are also software services companies, IT/ITES /BPO companies, online advertising firms and small merchants trading through e-commerce marketplaces, who face the challenge of receiving payments on time, long delays in transferring funds, uncertainty about currency conversions and bloated transfer fees.
This is where firms like New York based Payoneer fit in. It provides online mass payout services – money transfers and e-commerce payment services – and they are not the run-of-the mill service providers that offer the usual money transfer services.
Payoneer is a winner of the Deloitte Technology Fast 500 – 2012, 2013, 2014, 2015. And it is ranked in the top 100 of the Inc. 5000 Financial Services companies.
Says Rohit Kulkarni, country manager, Payoneer India: “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. Apart from these, there is also a growing base of Indian freelancers.”
There are innumerable freelancers in India who work through freelance marketplaces such as Upwork, PeoplePerHour, Odesk and Freelancer.com. And all those using these platforms have the same story — how difficult it is to receive and track payments. What they really need is a system of seamless, cross-border payments platform.
There are also payment service providers like PayUmoney, Dovetail, Alipay, CSI GlobalVCard, ZymPay and X-Border Payments, which Indian corporations make use of.
But the features that make Payoneer unique are: It enables Secure Frictionless Commerce with compliance and risk management at the core of cross-border payments. It also removes the complexity of cross-border payments by making the experience simple for users. The other USP is the breadth and scale of its usage: It facilitates payments in 200+ countries and in 150+ currencies. In comparison, PayPal offers payments in 57 currencies. There is no receiving fee in the case of Payoneer and it offers a low currency conversion rate that is 2% above the mid-market rate. The total time taken for payment is 2 – 4 business days. In comparison, PayPal charges the receiver 4.4% of the amount transferred + 30 cents. The currency conversion fee is 2.5% above the mid-market rate. And the time taken for payment is 3 – 5 working days.
Kulkarni says platforms like 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,” says he.
Payoneer, which has a customer base of 30 lakh, offers 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.
Both Gupta and Raha use Payoneer. According to Gupta, Payoneer provides him with international receiving accounts that allow him to receive payments from clients worldwide in both US dollar and Euro. Says Raha: “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.”
Worldwide, leading corporations like Airbnb, Upwork, Getty Images and Google use Payoneer for mass payout services in multiple currencies.
PAYMENTS IN INDIA
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 are 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.
According to the Let’s Talk Payments report following factors are determine the efficacy of 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.
Given the growth in B2B cross-border payment transactions from India and the demand for more efficient money transfer platforms, we see a shift from conventional means like wire transfers and PayPal to more efficient platforms like Payoneer.
While Payoneer can only support receipt of funds from international clients for now, we think it might be appealing to a wider audience if it could also handle remittances from Indians who are working abroad.
Compliance with AML standards and banking regulations in India is also a must for such platforms.