Cross-border payments shouldn't be hard, says Eyal Nachum, Bruc Bond's resident fintech guru and board member. Sadly, for many businesses, they too often are, creating unnecessary stresses for already strained small enterprises.
We all know how it goes. You walk into your bank or the nearest Western Union, maybe you go on your bank's website or open their app, you issue instructions to send a certain amount to a particular person or company, and that's it, someone takes care of the rest for you. Several minutes to days pass, and the money arrives at the other end. For most of us, all payments work pretty similar to this, whether sending money domestically or abroad. Simple, as it should be. However, when dealing with business transfers, things can get quite complicated very quickly. And that is doubly true for cross-border payments, says Eyal Nachum.
Business owners and finance officers the world over know that banking and payments come in two flavours, and the two don't mix. One for private individuals, where processes and procedures are streamlined, where the convenience of customers is paramount, and, crucially, transfers are relatively small and safe. When they don their business hats, however, these same private individuals suddenly come face to face with the other flavour, that of business.
In business banking, due to the size of transfers and their frequency, the risks for banks and financial institutions are far greater. Anti-money laundering and other regulations specify quite clearly what exactly financial institutions need to know about each transfer, including proofs of purpose such as invoices, contracts and the like. When you throw into the mix the issue of crossing borders and entering differing jurisdictions, demands grow more rigorous as different institutions along the chain add their own stipulations to performing the transfer.
That chain of financial institutions, says Eyal Nachum, is the source of many of the difficulties businesses are faced with when transferring money abroad. Direct transfers from one account to another are incredibly uncommon. If two companies have accounts at the same bank, then the task is as straightforward as it can be. The bank already has all the information it needs on its records. It is equally as simple to engage a specialist like Bruc Bond to handle the transfer. Typically, however, accounts will be held at two banks in separate jurisdictions that have no direct means of transferring funds between them. In these cases, banks will transfer monies through intermediaries, which are usually far larger banks who have similar agreements with hundreds of financial institutions worldwide.
These large banks facilitating transfers between smaller financial institutions around the world are called correspondent banks, and, more than any other involved party, they lay down the law when it comes to remittances and cross-border transfers. A majority of them are based in the US, which means that the law they are laying down is American, regardless of where senders or receivers operate. Unless you are engaging a banking specialist like Bruc Bond, it could be very well true that your bank simply lacks the experience with correspondent banks' different demands and stipulations. Then, the process can stretch out for weeks or months, while floundering bank officials try to figure out how to deal with multiple jurisdictions and unspoken demands from banks and regulators on the other side of the globe. Surely, says Eyal Nachum, this is a recipe for slowness and delays.