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How to break down five common cross-border payment barriers
Expanding into international markets can be a double-edged sword for many direct selling organizations. While new revenue sources are a cause for celebration, overcoming the many challenges associated with cross-border compensation plans isn’t always easy.
As more direct selling organizations pursue global expansion objectives, treasury and finance departments are under increasing pressure not only to mitigate risks, but also improve efficiency, cut costs and ensure future scalability. It’s a tough job, but for good reason. Payments and other transaction services, including prepaid card and incentives management, are at the core of a direct selling organization’s economic and distributor relations.
Not surprisingly, this is why many of the industry’s top performing organizations are partnering with professional payment providers in order to scale rapidly, ensure regulatory compliance and meet the demand for more convenient international payment options. As business models continue to adapt to global growth and expansion priorities, innovative cross-border payment products are emerging that offer greater payment flexibility and security.
The Challenges of Global Payments Distribution
Is your payments solution ready for the rigors of international expansion? The following points may be worthy of deliberation as you consider if your company should “go it alone” or work with an expert to outsource this side of your business:
1. Developing a Financial Network
While large direct selling organizations typically have multiple bank accounts in the jurisdictions where their subsidiaries operate, difficulties arise when an organization tries to find economical and efficient ways of introducing their product into a new country. In these cases, cross-border payments—SWIFT wires or international checks—are typically the only way that direct selling organizations can internally manage their payment process. The result? High fees are incurred by both the organization (upon sending) and distributors (at pick-up). On the administrative end, your accounts department will have their work cut out for them managing complex SWIFT instructions, collecting banking information from distributors and, in the case of checks, dealing with lost or delayed deliveries. Managing different payment file formats, along with account reconciliation and handling errors, can further exacerbate the process.
Partnering with a strong international payment provider will mitigate many of these costs and hassles through their existing financial networks. Now, instead of executing payments through multiple channels, you’ll have the ability to manage all of your treasury needs through a single integration point.
2. Foreign Exchange Costs
Every organization has different goals when it comes to the management of their treasury department. In most cases, the focus includes eliminating foreign currency fees for distributors, as well as reducing internal processing costs.
Processing high international payment volumes can quickly throw internal accounting practices into turmoil, never mind the hassles created by foreign banking holidays, exception handling, time zones and language barriers. Partnering with a strong international payments provider can help your organization manage all of these currency complexities effectively, reducing risk and handling errors.
3. Unreliable Mail Distribution
According to Storm Trading Group, more than 14.5 million pieces of mail are lost or misplaced in the U.K. each year. And that’s in a country where the postal service is professionally maintained and managed. Therefore, it’s not surprising that internationally posting payments—whether they’re in check, money order or prepaid credit card format—is becoming increasingly frustrating and risky.
When analyzing payment options and providers, be sure to inquire about any digital or real-time payment options. While traditional bank transfers can help to mitigate the risk of lost payments, the cost is often too much for distributors to stomach. Alternative options, such as virtual prepaid cards, mobile airtime top-ups and the ability to deposit earnings onto an already existing credit card, make it easier for distributors to access their commission payments faster and without any unexpected lifting fees or bank charges.
That being said, some payment products such as prepaid cards and checks simply cannot be delivered without the postman’s help. In these instances, you’ll want to work with your payments provider to mitigate unreliable mail services through the use of expedited bulk deliveries. Top providers can arrange to batch-deliver these products to local head offices using secure, tracked mail services. From there, the local office can go about delivering each individual payment in the most efficient manner.
4. Urgent Payments
Traditional payment solutions offer very little flexibility in regard to nonstandard payments, especially when it comes to cross-border issuance. From hardship payments and corporate expense reimbursements, to manual one-off or missed payments, handling these unique cases can be extremely time-consuming. While workarounds can be used to somewhat alleviate these issues, these inefficient solutions can result in poor data quality, creating additional downstream inefficiencies, errors and costs, as well as tarnishing your reputation with your distributors.
Having the ability to solve unexpected payment issues quickly will help you ease frustration and build trust amongst your new recruiting base. Remember this when it comes time to review your payment practices. If your international subsidies aren’t able to accommodate urgent requests easily using instant-issue prepaid cards and real-time card loads, it might be time to consider a new approach.
5. Accommodating Underbanked Members
While the majority of your distributors may be well-served by direct bank deposits or checks, those without formal banking relationships will find these payment options to be too restrictive, if not entirely inaccessible.
When developing an underbanked payments strategy, it is important to understand what the driving factors are behind the financial decisions of your new distributors. While banks play a prominent role in North American and European nations, there are many markets where people prefer to address their financial service needs outside mainstream institutions.
In addition to providing distributors in these areas with the appropriate products and services, you’ll want to make sure that every effort is made to reassure your new distributors of the trustworthiness of your payments system.
According to a 2009 study by the Center for Financial Services Innovation (CFSI), most members of the underbanked community strongly emphasize intangibles such as respect, trust, safety, security and a sense of belonging. Unfortunately, many commission payment methods can be viewed as quite intrusive, requiring rigorous identity verification in order to abide by financial institutions’ overly strict interpretation of regulatory policies. These privacy requirements are often enough to discourage members of the underbanked community from joining a direct selling company. In these instances, corporate closed-loop payment services—such as corporate incentive prepaid card products that can only be loaded with funds by the corporate entity (not the cardholder)—can be used to minimize the identification verification process for payees, effectively opening up a direct selling organization’s recruitment opportunity to a much wider audience.
Providing commission payments in a timely and cost-efficient manner is a major challenge that gets compounded even further when international payments are introduced. Many organizations can benefit from working with a trusted international payments provider, as it will allow them to focus their efforts on new business development rather than on financial administration.
Jeff Turney is an Account Manager, International Payments at hyperWALLET Solutions Inc. A leading global payments provider, hyperWALLET was recently awarded the 2014 DSA Ethos Award for Partnerships.