Banks warned to be more proactive in overcoming regulatory obstacles to payments

Saxo Payments' Missing the Opportunity report highlights continuing high costs and delays for businesses in setting up currency account, payments and FX facilities, and opening business bank accounts. 

Although the causes of these problems can be outside bank providers’ control, instead of laying the blame at the door of regulators, the banks can still guide their customers towards a solution.

The cost of sending FX payments is ranked as the biggest obstacle to supporting international trading development, causing problems for 50% of respondents to the Saxo Payments survey. The slow flow of funds also creates difficulties, with 44% stating that payment settlement times caused the biggest headache. 

Away from the movement of funds, constrained access to bank accounts was also identified as stifling development.

Anders la Cour, chief executive officer at Saxo Payments, says: “The main concerns highlighted in the Saxo Payments research were a combination of the high costs of transactions and the lack of access to international bank accounts. For some, this is hampering their business, preventing their growth into more undeveloped countries. 

"These companies are looking to have global coverage, but they are facing problems with setting up accounts, and the amount of time it takes to do so.”

La Cour says companies that have a long-running relationship with their banks are wondering why it takes them so long to complete their requests.

“Banks could work more effectively with the businesses they have a good relationship with," he says. "It took 50% of respondents more than a month to open an account, and 20% stated it can take up to three months. And these are the responses for the companies that actually managed to get accounts open. 

"There is scope for banks to work more effectively with the companies they know and trust.”

Partly these problems reflect regulatory pressures on banks, but that doesn’t stop customers from blaming their providers, particularly for not offering more competitive rates now that banks’ costs and charges are becoming more visible.

Patrick Molloy, director, cross-currency product team at Bank of America Merrill Lynch (BAML), believes part of the dissatisfaction in payment cost might be down to clients now having more insight into the breakdown of charges.

“The cost of transactions has become more transparent, and as a result corporate clients now understand what they are being charged," he says. "If people are seeing how much the different parts of the transaction costs, it might feel more expensive even if the price has not changed.”

In the case of banks being reluctant to provide bank accounts, it might be down to their own concerns on regulatory compliance, particularly around know your customer. 

Saxo's La Cour says it is up to the discretion of each bank who they provide an account to, but there are other options out there.

“Banks cannot be forced to issue bank accounts," he says. "It’s a matter of the policy that the bank has. There are, however, emerging alternative providers that could offer the products that businesses need. There are a rising number of challengers that specialize in opening bank accounts and facilitating cross-border transactions.”

While new providers are emerging, the incumbents are finally working on developing better payments platforms. Some possible solutions have been established with automated and data-rich processing.

Swift’s global payments innovation (gpi) messaging platform has been identified as one solution to streamlining the process. Formally launched in February, the gpi runs more detailed messages along existing payment rails. 

To speed up the process of adoption, BAML's Molloy suggests that Swift could push its members to use its latest method of processing transactions if they want to retain access to its messaging channels.

“There could be a call to action among Swift members," he says. "Banks that want to remain on Swift need to have a higher operational standard. They cannot just use MT103. They also need to communicate on returns, servicing and other items via standard communication methods. 

"Swift is trying to increase the standards with the implementation of the gpi, which is a great starting point.”

The most effective way of seeing a reduction in costs and more efficient transaction times might well come down to modernization. The wire services are the most time-consuming and expensive method of completing payments.

In February, BAML expanded the automated clearing house (ACH) capabilities of its CashPro platform. The expansion now allows for payments to be made to 60 countries in 22 currencies. The move came following customer demand for capabilities to make low-value, international payments more easily. Molloy says the bank is trying to help its clients to transfer to using ACH.  

He explains: “Moving from FX wires to cross-currency ACH can create as much as a 60% to 80% reduction in transaction fees. When there are more players involved in each transaction – such as when using the wire transfer process – the costs will increase. In the long term, any move towards digitizing payments could reduce the costs even further.”

The full onus of getting the best price does not rest solely on the banks. Getting a better deal on payments can also be as simple as reminding clients to check what currency they need to send a transaction. 

Molloy says: “We advise clients on which currency they should use to send a payment. A wire sent to a receiving bank for a local currency account will be converted at the retail rate of the day. However, doing the FX conversion upfront would give them better control over the FX rate.”

Where changes cannot be easily made, companies need to be looking for alternative methods. 

La Cour says: “Businesses need to prioritize their resources, if they are struggling with high transaction costs and a lack of access to bank accounts, so they can focus on the parts of the business where they can achieve easy wins.”

Making changes works more effectively when the companies themselves are involved in converting the downstream components of their payments flows. BAML has developed systems to assist its clients in helping to bring their own customers over to a more cost-effective way of completing transactions.

Says Molloy: “We have worked on creating migration templates to help clients change how they are paying their vendors. We provide assistance with email and phone campaigns to help guide them on how to speak to a vendor in another market about changing payment methods.”