Exclusive: ‘A world without borders for marketplace merchants’ – Anders la Cour, Banking Circle in “The Paytech Magazine”
Individual countries’ regulations and processes still present a challenge for merchants selling through marketplaces. But payments providers and fintechs
can deliver a solution. Anders la Cour, Co-founder and CEO of Banking Circle, explains how
The world of online trading is maturing, but it is still feeling the pain points of a rapidly-growing and evolving marketplace where entrants face multiple barriers to operating because established financial institutions have a fear of the unknown.
As an innovative financial infrastructure provider that aims to help fintechs and payments businesses improve financial inclusion for smaller businesses, Banking Circle builds solutions from the ground up. Through detailed market research, we have identified the gaps in the market that our solutions can then address.
Earlier this year, we carried out a Europe-wide survey involving more than 1,500 SME online merchants.
Our study found that online merchants access a wide range of services from their current banking partners. Around half use short-term loans, overdrafts, finance agreements for specific purposes and settlement accounts for crossborder payments. One in three uses foreign exchange (FX) services. But, crucially, just 15 per cent of the SMEs surveyed have not experienced problems when trying to arrange crossborder payments through their banking partners.
UK and German banks seem to be the most successful providers: 21.5 per cent of merchants based in the UK and 18 per cent of those in Germany stated that they haven’t experienced issues. But that’s still a small proportion of all SMEs wanting to trade internationally. And, at the other end of the scale, less than one in 10 (9.9 per cent) of French firms have experienced problem-free crossborder payments.
While there are a wide range of issues at play, the most significant difficulties are relatively consistent across the regions. Just over a third of all firms found high fees an issue – the most problematic area for all regions, except the Nordics, where merchants struggled more with slow bank responses. Poor FX rates provided challenges for around one in three of all online merchants, although they were less of an issue in the UK compared with the other regions.
Interestingly – and particularly in light of the acceleration of digital services in response to COVID-19 – a poor digital experience hampered a quarter of respondents. Poor customer service affected a similar proportion.
Easing the payments path
When a new business launches, payments are typically quite low on the list of priorities. Funds and transactions will usually be managed through a familiar and trusted bank as the startup cannot invest in researching alternative options.
However, SME banking charges can be prohibitive, especially when looking to expand internationally. Crossborder payments are slow and expensive through traditional banks, as they use the correspondent banking network, with each bank in the chain charging a landing fee. Traditional banks’ legacy systems cause inflexibility for their own operations, so they struggle to provide the best payment solutions for SMEs.
Online marketplaces are an increasingly-popular avenue for smaller businesses and startups to rapidly grow their customer base. However, when a customer in another country places an order, profits and cashflow take a hit as the funds make their way from buyer to seller. Payments businesses have stepped in to bridge this gap and provide a faster, more cost-effective transactions solution, but changes introduced under the revised Payment Services Directive (PSD2) have brought an end to online marketplaces being exempt from payments regulations.
For marketplaces to remain exempt, the flow of funds must bypass the marketplace. To meet this new need and address pain points identified in our market research, we have used our innovative financial infrastructure to build a solution with the needs of the industry right at the heart: Banking Circle Marketplaces.
Banking Circle is a new, fully-licensed bank, free of legacy systems. We are committed to building and delivering accessible and affordable solutions to help businesses of all sizes compete and prosper. The suite of innovative Banking Circle solutions is increasing financial inclusion by providing previously-excluded businesses with access to affordable, compliant payment solutions.
Banking Circle Marketplaces enables payment service providers (PSPs) to accept payments from marketplace buyers in the name of the marketplace seller and settle the funds back to the seller’s account in the currency of their choice. This allows them to take control of the foreign exchange conversions.
Online sellers join marketplaces to get instant access to global markets. Some marketplaces settle merchants in the currency of their home country, regardless of whether the merchant’s home accounts can accept the currency used at collection, with the result that they can face additional FX costs. Addressing this issue, Banking Circle Marketplaces provides sellers with local IBANs (international bank account numbers) in the country they want to sell in – typically the UK, Europe and the US.
The virtual benefit
Banking Circle Virtual IBAN is a unique solution that gives payments businesses the ability to issue multi-currency IBAN accounts to their customers in multiple jurisdictions. They can now access a reliable and fully-flexible crossborder payment system. As such, merchants can make and accept payments, crossborder, in different currencies, in a way that traditional banks are unable to facilitate.
Banking Circle Marketplaces was specifically designed to support payments businesses servicing online marketplaces, and their sellers. The solution uses virtual IBAN accounts to give payments businesses serving online marketplaces genuine added value, without any requirement for upfront investment in systems or process changes. Accounts deliver full transparency and faster settlement, enabling payments businesses to offer marketplaces and their sellers a full transactional service at low cost.
Improvements are experienced across payments acceptance, screening time, reconciliation/settlement times and customer experience. Payments are made and received at low cost per transaction, delivering a valuable competitive advantage previously unavailable to smaller sellers.
Barriers to banking
The opportunity is clearly there for fintechs and payments businesses already supporting the online merchant space. They can deliver genuine added value by providing their merchant customers with banking services, including access to funding. And, in the current climate, that support is going to be more valuable than ever. Indeed, for payments providers that demonstrate a real understanding of SME needs, there could be a significant long-term gain.
The full white paper, Mind The Gap: How Payments Providers Can Fill A Banking Gap For Online Merchants, is available to download for free at https://