The hidden costs of cross-border payouts 

Payments

Product

3 min read

Businesses yet to optimize their payout operation may be losing money on every cross-border transaction. 

Much that is documented about the cost benefits of an optimized payment operation focuses on money coming in. But businesses also stand to lose out if they don’t look at what they're paying for money going the other way. 

The ecosystem of payouts is riddled with complex processes and invisible go-betweens. With most payouts still routing from bank to bank via multiple correspondent institutions using legacy technology processes, businesses are at high risk of being negatively impacted by:

  • The fees, often hidden, that banks levy
  • Long processing time for payouts
  • Inefficient manual reconciliation

In the end, all of the above falls off the bottom line. But, more importantly, it inhibits scalability and growth for businesses and is a barrier to providing good customer service.

Companies that transact across borders are even more vulnerable. A payout to another country can cost up to 10% of the transfer value, with some banks charging fees over £30, about $36.50, per payment processed. 

Here is a guide to the key costs relating to payouts and how businesses can make sure they're not paying more than they need.

Routing

There’s no avoiding using the banking network to process a bank transfer payout. But merchants can cut the complexity, and so the cost, of the journey the money takes. There are typically two banks involved in a payout for domestic payments: the payer’s and the payee’s. 

But when payouts move across national borders, they also move across different banking networks that form the global correspondent banking network. These networks were never designed to work in harmony, and different data standards, regulations and fraud prevention measures — to name just a few — mean they often don’t. Intermediary banks step in to facilitate the path of the payout. And for that, they take a cut. The more complex the payout route, the more intermediaries are needed, and so the more costly it gets. 

To avoid dealing with the complexity and cost of traditional bank transfers, payouts can be made through alternative channels such as cards. With Visa Direct and Mastercard Send, businesses can leverage the schemes' global presence and unified network of account holders to push funds to customers. Visa and Mastercard are as ubiquitous for pushing payouts to customers as they are for collecting payments.

Exceptions

A complex payout path doesn’t just hike costs, it also jeopardizes the payout being successful. There are multiple reasons why a payout can fail. Some are the responsibility of the payer, such as not having the necessary funds or credit limit or inputting incorrect information about the payee. Other times the payer is at the mercy of data incompatibility between banking systems, regulations and standards. This forces businesses to navigate and understand the local requirements in every country they send to — or risk the payout failing. For businesses operating at a global scale, this is a huge undertaking that will ramp up payout costs significantly. 

FX conversion

The apparent cost of converting one currency into another is the bank's commission, or other brokers, for doing it. Less scrutinized is the difference between the FX rate agreed with the payee and the rate used for conversion. This difference is usually caused by fluctuations in currency values between the time the payout is initiated and the currency conversion. And without full visibility into rates and control over the transactions, there’s no possible way of guaranteeing what amount the payee will receive.

Operational costs

A successfully processed payout is the expected outcome for a business. Failed payouts introduce a measure of the unknown, as the business typically needs to investigate the cause of failure and take remedial action to correct and reprocess the payout. In many organizations, these investigations and corrections are costly as they are done via staff performing manual tasks.

A lack of data and insight into failure reasons only serve to impede and slow down the ability to correct failed payouts, further increasing the cost of operations for the business and negatively impacting customer experience. Thus the more resources are needed to handle exceptions and the cost of making payouts increases.

Finally, there's also the cost of connecting and maintaining connections to the disparate systems required to make payouts at scale. It's not uncommon for businesses sending payments globally to have five or more direct integrations to domestic payment networks. And connecting to a new network can usually take six months or more.

Take the pain out of payouts

Inefficient payouts are a hidden cost that blight every business. Solving this inefficiency can go a long way towards reducing costs, maximizing profits, and, most of all, increasing customer satisfaction.

The good news is that it's solvable. The payments innovation that's taken place in the past decade has put in place all the components for a radically different cross-border payment ecosystem. 

By choosing a partner that's built its payouts solution for the 21st century, businesses can hook into this next-generation network through a single integration, allowing them to access every payout method in every geography without the technical overhead. And once connected, businesses are afforded the flexibility, visibility and control to drive optimizations and efficiencies across their payouts process, turning it from a costly confusion to competitive advantage at scale.

Get in touch to see how Checkout.com allows merchants to turn payouts into a competitive advantage with simple, convenient options that help funds get to customers faster.

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Written on Apr 12, 2021 by

Sophia Rostron

Product Marketing Manager, Checkout.com

Keep up-to-date with all things payments

We process your personal data in accordance with Checkout.com's privacy policy. By subscribing, you consent to us sharing updates with you.

Keep up-to-date with all things payments

The Checkout.com team

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