Analysis of the impact of high exchange rates

Plans for card network giants visa And master Card Raising interchange fees in April faced resistance between merchants and politicians, as many companies are still working to overcome the challenges posed by last year’s events.

Both companies have so-called merchants Swipe fee You have to pay for each debit or credit card transaction. Mastercard said the increase was planned before the pandemic, but recognized the hurdles companies might face while returning to stable ground.

These exchange fees are also insignificant, as merchants usually pay 2% to 3% of a customer’s credit card purchase.Visa effects Replacement adjustment The annual cost increase is expected to be $ 768 million, and Mastercard’s price increase is estimated to reach $ 383 million annually.Global Payment Consultant CMS Payment Intelligence Limited We identified a substantial margin of over 50% for card networks and up to 30% for acquirers and card issuers, and recommended a review of global exchange regulations. The merchant’s operating margin is about 3%.

The· Merchants Payments Coalition Requested as well Federal Reserve Fix 10 years old debit card Interchange fee regulation in May. The retail group quoted a report showing that the average processing cost of these banking transactions was cut in half, but merchants are still paying as much as they were ten years ago.

This month’s Deep Dive analyzes the impact of high exchange rates on global business and identifies digital tools that can be implemented to optimize cross-border payments.

Expanded support for lower processing fees

Calls for lower exchange rates have been ringing around the world for the last few years. A report By the board Reserve Bank of Australia We conclude that there are many benefits to lowering the exchange rate. Doing so not only lowers merchant costs, but also improves payment efficiency, lowers retail prices for goods and services, reduces barriers to entry into new payment methods, and provides a system that favors large retailers. It is subject to change. The report also pointed out how some card systems work without these fees and cited cases where regulators set lower exchange caps outside Australia.

1 report We have found that many companies are leaving money on the table for legacy infrastructure, and that the difficulty of collecting cross-border payments is hampering their global expansion capabilities. The report surveyed 301 financial professionals working for companies that earn between $ 100 million and $ 1 billion. Nine out of ten respondents responsible for in-house payments said international expansion efforts could flourish if they could handle foreign exchange rates more easily.

Fifty-five percent of respondents reported a monthly loss of revenue of 4% to 5% due to inefficiencies associated with payment processing, and 23% said they would lose 6% to 10% of their revenue. A huge 89% reported that the company lost money due to the time spent on accounts receivable. 54% say they spend up to 10 hours managing inbound payments each month. This is the time you can spend more productively elsewhere. 51% say inbound payment visibility is important for managing cash flow and budget.

Therefore, upgrading these legacy payment infrastructures will allow businesses to better pay interchange fees.

Optimize cross-border payments with digital tools

Companies must submit a document to the bank when initiating cross-border payments to meet foreign exchange (FX) and regulatory requirements. Documents are usually processed separately from payment instructions and often require manual linking. Citibank We are working to streamline these payments for institutional investors Electronic platform For example, integrate documents with payment instructions. This platform may reduce the number of days required to complete a cross-border transfer. This initiative was first launched in South Africa before its broader rollout.Head of Citi Global Finance and Trade Solutions Shahmir Khaliq He said the goal was to create frictionless payments that could be delivered electronically and evenly in any currency, anytime, in any country, through any channel.

B2B companies that process many card payments can also benefit from providing Level 2 and Level 3 data during a transaction.By providing this enhanced data, businesses can unlock Reduction of exchange fees We spare no major card network to accept it — American Express, Mastercard and Visa — from looking for the information itself.Many companies Partner Work with payment processors to access application programming interfaces (APIs) and other tools that help you send Level 2 and Level 3 data more easily.

Another way to optimize and modernize cross-border payments using digital tools is Open banking Sends inter-account (A2A) payments at a per-transaction fee that is much lower than the exchange fee associated with card payments. Payment information service providers make direct use of consumer and merchant bank accounts via APIs, allowing money to be transferred directly between accounts without intervention.

Companies that want to optimize cross-border payments and save money need to evaluate ways to reduce costs and determine if tools such as A2A payments can be leveraged until exchange fees are reviewed and reduced. There is. Doing so will improve your ability to compete and expand globally.

https://www./news/b2b-payments/2021/deep-dive-impact-interchange-fees-global-firms-optimize-cross-border-payments/ Analysis of the impact of high exchange rates

Back to top button