Companies that have the need to provide international payroll services for their employees are looking for ways to find added value by streamlining the processes involved in successfully executing these payments. Many factors come into play, including global compliance laws, country specific differences in banking data requirements, and available transaction methods (wire, low value, etc.)—all areas with which global payroll professionals are familiar.
A lack of consistency in global banking standards is a challenge, yet failure to adhere to these requirements can result in payment delays, assessed fees, returns, and thus employee dissatisfaction. With the dynamic changes in international banking, manual processing leaves room for error that can lead to loss of employee trust and a damaged reputation. Partnering with an organization that can automate your global payment process can reduce these risks.
Identifying an international payroll disbursement solution for your organization involves working with your payroll group to develop a comprehensive list of objectives and timelines. I suggest you discuss these variables in a consultative and detailed way with your prospective or existing payments provider, which should guide you through the process to understand your options.
Key points that you should focus on before a discussion with a cross-border payment solutions provider include the following:
- Which currency corridors are providing the greatest challenges to your team with respect to delivery of payments and returns?
- Has your team been trained on these countries’ requirements to send funds?
- Is your team struggling to collect the required information from payees?
- What percentage of your payments are returned?
- Can you isolate the various reasons they’re being returned?
- How is this information being collected?
- What payroll pre-payment procedures and technologies do you currently use to validate payment information?
- Where is it working, and where is it not working?
- What part of the process takes the most amount of time and causes the biggest challenge for your team?
- How much are you paying to make these payments?
- How much are you paying to make repairs to these payments?
- Are your payees receiving the entire payment or are they being charged fees to receive wire payments?
- How are payment investigations handled?
- Is there someone at your provider who knows your account and can help you?
- Are you often calling a call center?
There are many providers of international payments. The incumbent banks are happy to process wires from their corporate customers en masse. However, international payments may not be a core competency of the bank, and that bank may often not have the tools to identify errors before payments are sent. Because of the scale of their business, they cannot provide the attention to each transaction that is necessary to avoid common human errors.
FinTechs (an acronym for financial technology companies) can identify these types of common issues and provide technology to make international payments simpler. In most cases, international payments are not a “core” service offered by banks. FinTechs, with a focus on global payments, are quite agile in their ability to quickly develop unique, customized solutions. In fact, most FinTechs have symbiotic relationships with banks to fill these gaps in their service. This is also true more broadly when we look at start-up tech firms and their pervasiveness in the modern era (check out this report from INSEAD Business School to dive deeper).
Company ABC Example
Perhaps the best way to illustrate the impact of an international payment solution is to use an example. “Company ABC” is a global relocation firm sending approximately 15,000 international wires annually, or 1,250 wires per month. Of those 1,250 wires, on average 200 wires were returned each month. Each return incurred repair fees, potential exchange rate losses, and assorted other fees to send the payment again with the correct instructions.
Because these payments are for time sensitive items such as rental deposits, school deposits, tax payments, and cost of living allowances, they can cause hardship to the payee if delayed. This organization thus had to utilize additional resources (and incur additional expenses) to address the possible damage done to relationships with their customers.
In this example, the high frequency of returned payments was due to simple errors related to unknown variations in required banking data from country to country. It’s one of the most common issues I encounter when speaking with multinational organizations. The information needed to successfully send a payment to Canada is not the same as what is needed to send a payment to India. Unless this validation is completed before a payment is sent, the bank is simply taking the “garbage in, garbage out” approach.
To better understand the challenges cross-border payments can present, let’s dive deeper into some of the reasons for these frequent returns.
Country Challenges, Payment Delivery
Brazil, Russia, India, and China are good examples and highlight the challenges faced by accounting departments. The banking data required to successfully deliver payments to these countries differ to such a degree that they’ve been given their own acronym, “BRIC” countries. Your team should understand what data is needed to send the wire and be able to collect that data accurately from your payee.
For example, in order to successfully disburse money to a payee in China, you must provide a local contact phone number, purpose of payment, and the CNAPS (China National Advanced Payments System code), in addition to typical bank account details. This information should be easy to obtain.
However, a new employee who has relocated to China may not know of these requirements and unknowingly provide incomplete banking instructions. Often, payors will have the payee register their banking details up front, via secure technology developed by the FinTech payments provider, to ensure the payee provides accurate data.
International wires are sent through the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network. Often, receiving banks will deduct an incoming wire fee from the payment, causing the predictable result of frustrating the payee who is expecting to receive the entire amount of the payment. Many international payments providers are establishing accounts based in the countries where a payment can be made via in-country transfers instead of an international wire. This benefits the payee by ensuring they receive the total amount they were expecting and often the payment is delivered more quickly than an international wire.
The primary key to success is collaborating with a company that has easy-to-implement, reliable, and flexible technology with easily accessible (i.e., no call centers) client service resources. Quality FinTech organizations will familiarize themselves with your business in order to know your payment environment and anticipate your needs. Their solutions should integrate with or work alongside your core application(s) to prevent rekeying information and employ dependable and accurate error detection technology. They should also be able to provide references to support their track record. These variables can be leveraged to increase speed, improve accuracy, and enhance efficiency in processing and managing cross-border payments, while also reducing costs.
The value organizations should expect to see are hard and soft dollar savings, greater successful delivery percentages, as well as improved relationships and loyalty resulting from happier customers, employees, and payees.
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Mike Shamburg is Vice President at Global Payment Solutions at AscendantFX. He has been in the foreign currency and payments industry for 21 years, working to bring better payment solutions to multinational corporations and nonprofits. After working for Travelex, Custom House, and Western Union, Shamburg has spent the last six years as VP of Global Payment Solutions for AscendantFX. He believes that the marriage of client service and innovative financial technology is the key to providing more efficient, fast, and reliable global payment strategies.