Business Payout Alternatives - Blog

Top 3 Alternatives For International Business Payouts

By: Lean Payments
21 Apr 2020 @ 04:26 AM

Delayed payments can disrupt a business’ cash flow management - no matter the size of the firm. Businesses that conduct cross-border payments are well versed to the financial barriers caused due to geographical distance or technical impediments.

Hence, the continuity of growth in FinTech; an industry that uses technology to improve traditional financial services. The FinTech industry can be divided into the following:

1. Online and app-based money transfer services

2. Cross-border banking packages

3. The potential of cryptocurrency

1. Money Services Businesses (MSB)

The most popular examples of non-traditional international payment alternatives are Money Services Businesses or Money Transfer Operators. As mentioned in our previous blog, Money Transfer Operators verge on being regarded as a “traditional” solution as they have gained popularity in recent years.

Money Services Businesses are often online and app-based; for example PayPal and Transferwise. These online entities play the role of ‘digital’ money movers by offering a platform that mandates the subscription of both the sender and the receiver. Funds must be transferred between a traditional bank account to the online digital ‘wallet’ to make or receive a payment.

PROS

CONS

► Fast

Most of these services process the transaction within one-two business days

► Dependence

Both you and the sender must create separate accounts on the platform. Typically, you would also need to leave the banking ecosystem to use their services

► Secure

Money stays protected within the ecosystem that is managed by the platform

► Catered For B2C Payments

These services are more effective when you want to receive payments from consumers (B2C) rather than businesses (B2B)

►Easy, Wide Access

These services are typically available in many countries - forming a vast worldwide network

► Difficult to Move Money in/out of Platform

The process of moving money in and out of the platform is generally not smooth. Rules and guidelines must be followed from both the banks’ and the platforms’ ends

2. Cross-Border Banking Packages

Bigger banks offer cross-border banking packages for businesses who already bank with them and frequently move money in and out of the same jurisdictions. These packages usually involve obtaining a foreign bank account under foreign regulations.

For businesses selling internationally, this is a great solution for receiving payments from their foreign customers because it makes it easier for their customers to pay. Learn more in our other blog about both cross-border payments and borderless payments.

PROS

CONS

► Offer Local Direct Deposit

Foreign customers can transfer money into your account with the same ease as transferring payments to a local vendor.

► Legal presence

Opening a foreign bank account requires your business to have a legal presence in the foreign jurisdiction. Without this presence, your business may not be eligible for the cross-border package.

► Quicker Settlements Between Accounts

Both your Canadian and foreign bank account will exist under the same financial institution.

► Repeat Processes

Each country has a unique set of specific regulatory requirements in order to set up cross-border payments in each country you do business. You must repeat the set-up process in each national region in which you do business.

► Fees

As cross border payments involve international transactions, they include foreign transaction fees, a change of currency, and exchange rates. You will still have to absorb the cost to transfer your money to and from your Canadian account.

3. Cryptocurrency

Cryptocurrency is a web-based platform of exchange and uses cryptographic functions for financial transactions.

With the use of public and private keys, cryptocurrencies can be transferred directly between two different parties

► These kinds of transfers are inexpensive

► Transfers are completed with a minimal processing fee

There is no central authority holding the reins of blockchain technology, thus, cryptocurrencies are immune to the interference and control of government regulators.

Bitcoin: The Most Popular Cryptocurrency

Bitcoin is considered to be the first decentralized cryptocurrency and is accepted across the globe. For financial transfers, all you need to do is set up a personal wallet and send your customer your key; allowing them to then transfer you the Bitcoin.

Once you have received the funds, you can choose to keep it in your wallet to sell it for cash or use it to convert the Bitcoins to your local currency via service.

PROS

CONS

► Transparency

Transactions are all stored in an open ledger; anyone, at any given time, can view the data

► Volatility

Tremendous profit is possible when the price is high, while massive losses loom if the price crashes

► Fast Movement and Accessibility

Bitcoin has instant accessibility with the ability to make financial decisions in real-time

► Can Be Used for Illicit Purposes

Terrorist funding and money laundering are common concerns around cryptocurrency

► Minimal to Zero Transaction Charges

Transaction fees don’t usually apply to transactions using Bitcoins because the cryptocurrency network involved offers compensation

► Insufficient Security of Individuals’ Accounts

Although transactions are secure, there’s no guarantee that a breach won’t occur, even a secure account

► Immune to Inflation

The possibility of inflation was top of mind when designing the system. Each cryptocurrency has a finite limit. At any given time, you can find out how much of the cryptocurrency exists. No agency can mint more coins or issue more money

► Unregulated

Given the kind of power that the digital currency holds, cryptocurrency must have some regulations involved to reduce the chances of exploitation and misuse

The Future of Cross-Border Payments

Nearly the entire market uses the traditional and non-traditional methods stated in this blog. It begs the question of what is next for the cross-border payment industry. If FinTechs and banks don’t have holistic solutions, what can be done?

Fortunately, there are a number of new players on the horizon looking to revolutionize the outdated international payment industry.

They are a group of new fintech known as ‘neo banks’. Their aspiration is to combine the trust and security of the traditional payment solutions and the functionality and efficiency of the non-traditional payment solutions to create products that fit ALL of SMEs' needs.

Lean Payment's Borderless Payment Solutions

Lean Payments shares this vision and continues to be an advocate for the companies and technologies that will drive the new age of fintech. We hope to spark change to an outdated industry, so SMEs can finally have the solutions they deserve.