3 Key Reasons International Payments Take Longer to Process
For any business that works internationally, slow payment processing can prove to be a true challenge and hindrance to establishing a stable international presence.
When sending payments internationally, payments can become delayed for many reasons, including slow intermediary bank processes, regional differences, and time-consuming fraud prevention. Luckily, with the help of technology, the entire payment process can be optimised.
In this blog, we discuss these three factors that affect international payments, we also cover three additional ways SMEs can boost the speed of their payments. Plus, keep reading to learn how Freemarket can help your business achieve faster international payment processing times.
What makes international payments take longer to process?
It is commonly known that international payments take longer to process than domestic ones, but why exactly is this and what factors impact the efficiency of these payments?
Here are 3 key reasons why international payments can take longer to process than domestic payments:
1. Regional differences
When sending money abroad, several regional factors can impact the speed of international payments.
These factors include:
- Currency Conversions: When you send international payments, these payments must be converted to the currency of the recipient. The speed of currency conversions can vary depending on where you are sending the payment and how familiar the region is with your domestic currency.
- Time Zones: While you may send a payment well before the end of business hours in your own country, it may arrive at its destination during a time when banking or other financial professionals are out of the office for the day.
- Holidays/Weekends: While there are some holidays shared by most regions around the world, many countries have their own unique holidays that are observed by banks. For instance, in Muslim countries, banks close during the three-day celebration of Eid. Similarly, Jewish nations like Israel that celebrate Rosh Hashanah may have different banking schedules, as this is a multi-day celebration and holiday.
2. Working with Intermediary Banks
Intermediary banks often play a key role in international payment transfers.
An intermediary bank — a type of financial institution that helps facilitate international transactions — has the ability to handle high-volume transactions that require currency conversions.
Although intermediary banks are one of the pillars that make international payments possible, the entire process can be time-consuming and can sometimes involve multiple intermediary banks. With these extra steps added into the money transfer process, international payments end up taking longer to arrive.
Reduced operating hours
When sending money internationally, working hours that may not be aligned with those in your own country can have a significant impact on payment processing times. For example, if your SME is based in New York, and sends a payment to a business in Thailand at 10am EST, the recipient’s settlement system may not be operational until normal working hours in the local country, so that payment may not reach its destination for another 12 hours, when the banks open up at 9am ICT. Over time, this can have a huge knock-on effect on liquidity, as exchange rates can change dramatically between the time someone sends a payment, and the time it reaches its destination.
Legacy platforms are a hurdle across banking, but particularly when it comes to processing international payments. The systems financial institutions leverage to process cross-border payments were created when payment first became digitised. This creates a significant number of delays due to a lack of automation, inefficient monitoring, poor data processing and a high dependence on batch processing.
3. Slow fraud prevention
As the financial and banking industry becomes more digitally oriented, the emphasis on strong fraud prevention procedures has become even more pronounced.
In traditional banking settings, these fraud prevention models can take time to complete, as they often involve some amount of manual labour on the banking staff’s behalf. Moreover, fraud prevention becomes more complex when sending money internally, contributing to the slow processing time.
Of course, both clients and institutions alike benefit from these fraud prevention models — after all, without them, many payments could end up lost and in the hands of financial criminals.
Luckily, as banking technology has continued to develop, so have the options for faster, automated fraud prevention programs.
How Can SMEs Boost the Speed of International Payments?
If you rely on international suppliers, business partners, or clients as part of your business structure, finding ways to optimise and hasten your international payments is key.
Let’s examine 3 ways businesses can boost the speed of international payments:
1. Open a Multi-Currency Account
If you know your SME will be conducting business internationally, one of the best initial steps you can take to make your international payments speedier is to open a multi-currency account.
A multi-currency account is a type of financial account in which you can store, receive, and send money in a range of currencies. From a business perspective, this means you can hold the currencies of the countries you work with, this enables you to send payments that are already in the correct currency of the recipient.
Among other benefits, a multi-currency account makes it possible to eliminate the use of an intermediary bank, as your business will already have the ability to hold and convert currency on its own.
2. Use a Digital Wallet
While some banks may offer multi-currency solutions, the best way to utilise a multi-currency account is through the use of a digital wallet.
Digital wallets are a type of financial technology (typically offered by FinTechs or other technology-oriented financial businesses rather than traditional banks) that allows you to store, send, and receive funds entirely digitally.
Like multi-currency accounts, digital wallets further enable you to avoid the time-consuming processes of an intermediary bank. Moreover, digital wallets often make it simpler to conduct business according to local regulations in the region you are sending money to.
3. Read Up on Local Culture & Regulation
Once you have a multi-currency digital wallet or payment account set up, the last — but still highly important — step to take is to familiarise yourself with the local culture and financial regulations in the regions you plan on doing business with.
On the regulation side of things, you need to be sure that you are following all the proper regulatory requirements to remain in good compliance with financial law. This is especially important when using a digital wallet, as there may be additional fraud prevention models or other legal requirements to send and receive money.
As for local culture, having a clear understanding of how a region operates in terms of business hours and holidays is essential. With this information, you can choose the ideal times to send international payments.
Final Thoughts: Freemarket Enables Fast International Payments
There is another way. At Freemarket, we provide your SME with the technology needed to enable fast, secure, and reliable international payments. We provide you with the capability to send and receive funds in more than 40 different currencies across 100 countries.
Our core services include:
- Cross-Border Payments: Our team understands the importance of speedy international payments. That’s why we have adopted a multi-bank network approach that enables faster, cheaper, and more transparent international payments.
- Currency Exchange: With the help of our custom-built technology and smart-order routing methodology, your SME can find the currency exchange route that is the fastest and most cost-effective option available.
- Reconciliation: With 40+ currencies spread across 100+ different countries, Freemarket has the capabilities to carry out real-time reconciliations.
To get started with Freemarket, talk to us today.