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Managing Growing Fragmentation in International Payment Services

By Bill Camarda

For many international businesses, the experience of managing payment services has grown much more fragmented – and may continue to do so.

As Entrepreneur Magazine notes, there are now some 200 different ways to make electronic payments.1 Hult International Business School cites the proliferation of payment services as one of 2017's top challenges for international businesses, pointing out that systems commonly accepted in a company's home market may be unavailable elsewhere.2


Some international businesses are responding to this growing complexity with new payment systems and processes that aim to centralize, standardize, and streamline the way they make international payments.


Payment Services Fragmentation May Grow


Businesses may need to contend with growing fragmentation in payment services for some time to come. In an August 2017 report, the World Economic Forum (WEF) identified growing fragmentation as one of the likeliest payment evolution scenarios between now and 2020. While stressing that other scenarios are possible, WEF says long-time trends towards financial globalization could give way to diverging regional models optimized for differing local conditions, customer needs, and regulatory environments.3


Other major global financial institutions have also expressed concern about the growing fragmentation of payment systems, both domestically and internationally. In March 2017, Federal Reserve governor Jerome H. Powell observed that innovators are building new payment systems and services atop existing infrastructure, with the side effect of increased fragmentation.4 The Bank for International Settlements worried that incumbent providers may lack financial incentives to develop new fast payment offerings, ultimately losing market share to entrants who can't grow large enough to benefit from economies of scale and network effects. The resulting fragmented payment systems might offer suboptimal safety and efficiency.5


For many international businesses, fragmentation in payments services is both a problem in itself and a symptom of broader issues. As J.P. Morgan writes, global expansion tends to introduce fragmentation and complexity, driven by differences in organizational and regulatory issues, accelerating technological innovation, and issues related to the business environment, including rapid change in payment systems, and different payment requirements within and across markets.6GTNews writes that "the efficient management of funds is made harder by a mass of solutions, interfaces, settlement approaches and payment options that [must] be integrated into everyday workflows."7 By one set of estimates, $1.6 trillion in operational costs are associated with processing cross-border payments, and enterprises may need to establish 100+ different integrations to payment services.8


What Global Businesses Do About Payment Fragmentation


Many observers believe these issues can best be managed through centralization, integration, and consolidation of payment functions wherever possible. For example, J.P. Morgan notes that some global companies are seeking to improve efficiency by implementing regional treasury centers, payments "factories," and shared services centers that centralize the way payments are made and received, gaining benefits of scale.9


Using Pay On Behalf Of (POBO) structures, large companies establish one entity that can pay on behalf of all their business units or subsidiaries.10 This can potentially reduce requirements for local companies to maintain separate foreign currency accounts. Information about which company made the payment is included in the remittance data payees receive.11 Similarly, companies can use Receive On Behalf Of (ROBO) structures to concentrate receivables in a single entity that can accept payments on behalf of other groups within the business.


According to global banking software provider Nucleus Software, the Single Euro Payments Area (SEPA) has made it easier to implement POBO and ROBO throughout the European Union by requiring transactions to include debtor and creditor information, but companies must still pay close attention to tax and regulatory issues there and elsewhere.12 Deutsche Bank notes that POBO/ROBO projects require time and due diligence, but companies can gain benefits from them even without integrating every local company.13


Other approaches to simplifying payments in a fragmented world include using cross-border ACH-style services to consolidate small payments. According to Wells Fargo, the fast-growing Five Guys Burgers and Fries in Arlington, Va., has used this strategy to reduce the number of separate international payments it must process from 1,000 per month to 60.14


Streamlining and Standardizing via Payment Hubs


International companies are increasingly considering payment hubs as part of the solution. Payment hubs serve as a single gateway for payments processing across all enterprise applications, payment types, and banks. As part of this task, they manage interfaces among the many back-office systems, treasury workstations, and other linked systems typically involved with managing payments and cash.15 Payment hubs can streamline and standardize payments processing, improving visibility and control over cash, mitigating risk, and improving efficiency."16


Bellin, a global treasury consultancy based in Germany, describes how payment hubs can strengthen compliance by centralizing user rights and payment cycles, while still permitting payment execution processes to be managed locally.17 If an international business adds a new bank, that bank can immediately become available to all entities. Moreover, the hub can aggregate payments for delivery, cutting costs in operations and elsewhere.18


Using E-Wallets to Mitigate Payment Services Complexity


Payment hubs are typically most advantageous for midsized and larger companies. Smaller businesses often use e-wallets to help reduce the complexity of managing widely diverse international payment systems, though these typically add a layer of fees.


As Entrepreneur Magazine writes, other payment methods sit behind e-wallets, such as credit cards or bank transfers, but the e-wallet provider manages the transaction's processes, complexities, and security. As a result, the business doesn't have to deal with multiple payment systems directly.19



Worldwide, there are now hundreds of systems business can use to pay and be paid. Businesses are managing this complexity and fragmentation in several ways, including centralizing payment services functions, aggregating smaller payments, and using e-wallets to outsource the complexity.

Bill Camarda - The Author

The Author

Bill Camarda

Bill Camarda is a professional writer with more than 30 years’ experience focusing on business and technology. He is author or co-author of 19 books on information technology and has written for clients including American Express Private Bank, Ernst & Young, Financial Times Knowledge and IBM.


1. “What You Need to Know About the 3 Biggest Global Payment Methods,” Entrepreneur Magazine,
2. “11 Biggest Challenges of International Business in 2017,” Hult International Business School;
3. Beyond Fintech: A Pragmatic Assessment Of Disruptive Potential In Financial Services, World Economic Forum,
4. Innovation, Technology, and the Payments System, Jerome H. Powell;
5. Fast payments – Enhancing the speed and availability of retail payments; Bank for International Settlements;
6. “Tackling Treasury Inefficiency,” J.P. Morgan;
7. “Efficient funds management in a fragmented payments ecosystem,” GT News;
8. “Corporates,” Ripple;
9. “Tackling Treasury Inefficiency,” J.P. Morgan;
10. Ibid.
11. “Optimizing Payments Through a Pay-on-Behalf-of Model,” TMI;
12. Improving Business Agility with On-Behalf-Of Structures, Nucleus Software;
13. “On Behalf Of Structures: Lessons Learned,” iTreasurer;
14. “Five Guys streamlines global payment process,” Wells Fargo;
15. Five Best Practices for Managing Global Payments in a Changing World, Bottomline Technologies;
16. Ibid.
17. “The Payment Hub: Implementing Load Balanced Treasury,” Bellin;
18. Ibid.
19. “What You Need to Know About the 3 Biggest Global Payment Methods,” Entrepreneur Magazine,

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