FX International Payments
By Christine Parizo
The idea of committing more upfront money than due for a current payment might seem daunting or unnecessary, but bulk payments can make international business payments easier and end up costing less in the long run. For example, the average fee for an outgoing international wire transfer is $42.1 When companies start making cross-border B2B payments as a regular part of business, the associated per-transaction fees may add up quickly – though recurring B2B payments may be eligible for discounts if they’re set up with the financial institution in advance.2
Using bulk payments can also lock in a lower foreign exchange rate. When a company commits money up front, the financial institution may be able to ensure the same exchange rate or lower, with no minimum or maximum transfer limits. This is particularly common with foreign exchange companies, whose rates are often lower than wire transfer fees.3 Foreign exchange companies will take it a step further and only charge one transaction fee for bulk processing multiple transactions.4 This can save hundreds or thousands of dollars, depending on how much money is transferred.
There are other advantages to using bulk payments for international B2B payments, the largest of which may be convenience. When companies make international business payments on an ad hoc basis, someone in accounting needs to log in and process the invoice for each transaction. This may also require purchasing foreign currency – and, as mentioned above, exchange rates may vary uncertainly at the time the payment needs to be made. Bulk processing lets companies buy foreign currency in bulk and at the same time send payments to multiple vendors located in the same country, gaining advantages in more certain and consistent foreign exchange rates as well as faster payment time.
Bulk payments may also achieve efficiencies through financial institutions’ use of application programming interfaces (APIs) and other technology mechanisms to automate payment processes.5 Such mechanisms can either plug right into existing accounting software or allow companies to upload payments in XML or other file formats. Using bulk payments can also reduce human error: information is often uploaded directly from the accounting software, removing the need to key in every payment separately, or it is uploaded via a file that is created directly from the accounting software.
As payment technologies evolve the advantages and disadvantages of bulk and ad hoc payment methods will evolve along with them. The rise of blockchain technology, the entrance of financial technology (fintech) companies into the B2B payment space and peer-to-peer payments are all changing the payments landscape.6 Keep in mind that blockchain doesn’t eliminate foreign exchange fluctuation risk; fintech companies are still new and largely untested and peer-to-peer payments, like ad hoc payments, typically come with individual transaction fees.
Additionally, foreign entities are developing ways to streamline cross-border B2B payments. European Union countries have been particularly interested; by engaging in batch processing of cross-border B2B payments, companies in those countries can reduce their own costs.7 To help facilitate streamlining, the Euro Banking Association (EBA) launched the Straight Through Euro Payment System (STEPS). STEPS has two systems in its program: STEP1 to support single cross-border payments, and STEP2 to support bulk international business payments, as well as high-volume, low-value and domestic interbank payments.8 So, by making batch payments, companies may be indirectly lowering their trading partners’ costs.
Bulk payments are an option worth exploring for companies that engage in a lot of international business payments. Depending on the situation, bulk payments can lower companies’ transaction fees, help manage foreign exchange rates, save time by automating processes and potentially reduce errors.
1. “Wire Transfers: A Guide to What Banks Charge”, NerdWallet; https://www.nerdwallet.com/blog/banking/wire-transfers-what-banks-charge/ .
3. “International Payment Updates”, The ATA Chronicle; http://www.atanet.org/chronicle-online/featured/international-payment-updates/
4. "International Payment Options for Translators and Agencies", The ATA Chronicle; http://www.atanet.org/chronicle-online/wp-content/uploads/4311_10_lindemuth_bodeux.pdf
5. “41 APIs Making Waves in FinTech”, Let's Talk Payments; https://letstalkpayments.com/41-apis-making-waves-in-fintech/
6. “The Scope of Cross-Border B2B Payments in 2016”, American Express FX Blog; https://www.americanexpress.com/us/foreign-exchange/articles/scope-of-cross-border-b2b-payments-in-2016/
7. "Cross-border payments in Euros STEP2”, treasurytoday; http://treasurytoday.com/2004/06/cross-border-payments-in-euros-step2
8. "Payment Systems in the Euro Area", Bank for International Settlements; https://www.bis.org/cpmi/paysys/ecbcomp.pdf