As head of MasterCard Cross-border services, Stephen Grainger is aware that banks are struggling to meet the increasingly specific needs of individual business customers. But a repurposed payment network can…
For many SMEs, the fact that cross-border payment networks continued to operate during the worst of the pandemic has been a lifeline. Nearly three-quarters of the 3,000 people surveyed for Mastercard’s 2022 Borderless Payments report said they were forced to look overseas as their traditional home markets and supply chains dried up – and that their businesses often benefited.
But while Mastercard found that 58% of SMBs are using cross-border payment networks more than three years ago, that doesn’t mean it’s easy.
Thirty-nine percent complained that the current state of cross-border payments is slowing down their supply chain; 36% wanted more transparency on the amount of money they were losing in foreign currency and transfer fees; while a quarter said offshore suppliers had refused to work with them due to uncertainty over when a payment would arrive at their bank. Countless studies indicate that international trade is a stimulus for business growth. More recently, InterTradeIreland’s Business Monitor survey (Q2 2022) found that SMEs that export are twice as likely to experience high growth as those that do not.
But in August, the World Economic Forum said SMEs “urgently need digital infrastructure, training and processes” if they are to take advantage of the global opportunity, and urged governments to simplify tax procedures and customs to help them. This echoed concerns already expressed by the G20 group of nations. In 2020, the G20 signaled that it would specifically address payment issues, including transparency, cost, speed, and access to cross-border railways.
The group has set targets for their payment providers to make improvements by the end of 2027, including clear, up-front information on transaction costs and the time it takes to deliver funds. Stephen Grainger, executive vice president of Mastercard, welcomes the intervention by national and supranational bodies, because the cross-border business problems of SMEs are not the province of a single industry to solve.
“As we strive for cheaper, better and faster cross-border payments [compared to domestic payments] involve a lot more work,” he says. “You are effectively moving money from one national scheme to another, with all the regulations and rules that surround it. Accountability for making these improvements exists at the exit point of a program and occurs at the entry point.
“It needs more investment in technology and people, who can help facilitate and drive the delivery of the solutions their customers need”
“It also manifests on the person – the individual, the group, the fintech, the financial institution or whoever – that runs it in the middle. “Removing some of the friction – whether around financial crime compliance, tax service provision, foreign exchange, etc. – requires real change.”
That said, according to Grainger, banks in particular can help ease the pain for SMBs and provide the most appropriate service for their specific cross-border payment use case – whether it’s paying international vendors, send income to international workers or pay salaries to foreign beneficiaries. . And, in his view, the most effective way for them to do this is to work with a third party.
“We are working with organizations to help expedite the delivery of these payments [and] provide more certainty,” says Grainger, referring to Mastercard’s cross-border services. Described as “a connection to reach the world”, it leverages Mastercard’s extensive network to enable payments directly to bank accounts, mobile wallets, cards and cash locations in more than 100 markets (including more than 40 in real time) and in 60 currencies. Importantly, it addresses many of the pain points identified by the G20, providing guaranteed and predictable settlement times, transparent and predictable exchange rates and fees, and end-to-end status visibility. of the transaction.
“Ultimately, in this space, you have to provide certainty and predictability,” Grainger says. “If I’m an SME who has invoiced someone and my margins/cash flow are tight, I want to know that the invoice will be paid in a timely manner and that the funds will arrive in my account at some point.
“It’s not unrealistic, but very often funds don’t flow with the same speed and transparency as in national programs. The other challenge is being clear about what is going to land in that account. If I charged you £12,000, I don’t want £11,980. It’s not difficult; this is a very simple basic expectation. “So why is it beyond the ability of many financial institutions to respond?
“The very simple answer is to invest more in technology and in people, who can help facilitate and enable the delivery of the solutions their customers need, alongside traditional services such as loans,” says Grainger. . “And that’s hard to achieve.”
Mastercard Cross-Border Services is an example of the company’s strategy to offer partners – often institutional – easy-to-access, versatile products and channels that they struggle to provide on their own.
IDENTIFY THE USE CASE
Mastercard has come a long way from its traditional card business; its products now extend to account-to-account, identity, cybersecurity and more. This was inspired, Grainger says, by the emergence of “use-case” fintechs that compete in distinct areas of banking. For the first time, SMBs have a choice of vendors that can provide a more optimal solution to their needs at a specific point of need.
Financial institutions are often not equipped to compete with this, he says, because in the first place they often focus on risk and lending rather than payments.
He explains, “They’re underwriting risk, they’re lending money, and payments are often an added thing at the end. “So experience is not – and never has been – the foundation of what drives the provision of a payment service to a small or large business.
“Now you’re starting to see the emergence of this use case environment. “Before, the only people who enabled payment were those who lent money to a merchant to pay their supplier. “That link is being broken, which is great if you’re a business, because you’ll start to see the frictionless consumer experiences that exist transform in the enterprise and SMB space.”
Mastercard Cross-Border Services is just one way to help banks retain business customers who might otherwise be persuaded to look elsewhere. But the strategy is not limited to payments. “Our customers can reuse this integrated channel [with Mastercard] for other purposes,” says Grainger.
Mastercard leverages the power of the network to drive the industry forward. In the Nordic markets, it works with partners in the P27 Nordic Payment Flow initiative to provide fast, multi-currency account-to-account payments, including real-time and batch payments. And in March 2022, it announced a B2B payment solution for the UK market – Mastercard Track Card-to-Account Transfer – which allows businesses to use their commercial card program to make payments to any vendor, whether or not this provider accepts card payments. .
The aim of the initiative – which was first adopted by HSBC – is to help businesses manage their cash flow, eliminate manual labor and expand payment options, with suppliers receiving payments by buyers’ card directly to their bank account. Mastercard issuers will be able to offer the solution to their business and enterprise customers, many of whom during the pandemic have seen the average time taken by large companies to pay suppliers rise to more than 37 days, while the share of invoices paid beyond 60 days days peaked in four years. All of these initiatives share the same intent, says Grainger: a laser focus on the use case.
“How do you respond to a very specific need? Are there different technologies to solve the problem you want to solve? This is the direction the payments industry is headed in – focusing on specific use cases and needs, and maximizing new technologies to be able to do so.