Banks and innovation help companies meet the challenges of doing business overseas.
By Jim Pytell, Editor July 5, 2022
He is It’s no secret that the economy is becoming more and more interconnected across borders. According to the Federal Reserve, cross-border transactions – currency transactions between people or businesses located in different countries – totaled about $29 trillion in 2019, and are expected to grow by approximately$39 trillion by 2022.
Io stay competitive in the global marketplace, companies operating overseas want their transactions to be as instant, secure and transparent as possible. Today, digital innovation in the financial services space, couThanks to the services offered by banks, it is easier for companies to achieve these goals.
Oliver Lewis, executive vice president and head of commercial banking at Fair Lawn-based Columbia Bank, says the most common form of assistance his bthat ank’s customers are looking for in the area of world bank pays foreign suppliers.
“Businesses need a good online reporting tool with robust capabilities for making payments,” says Lewis.
Services in this area include wire transfers, where the money is electroonly transferred between persons or companies in which no physical money is exchanged; and foreign currency payments, which involve the conversion of money from one currency to another, between a company and its suppliers.
Another service that banks can provide to ensure suppliers are paid is a letter of credit, which is a contractual commitment by the foreign buyer’s bank to pay once the exporter ships the goods and presents the required documentation to the exporter’s bank as proof.
As a trade fiA financing tool, letters of credit are designed to protect both exporters and importers and can help companies win business with new customers in overseas markets. This means that the exporter obtains a guarantee of payment while offering the importer a reasonable payment terms.
The buyer who obtains the letter of credit can help put the seller at ease in the transaction, especially if they have never worked with the buyer before. However, letters of credit are expensive and can lead to delays in the transaction if changes need to be made..
“The need for letters of credit has diminished over the years as companies have established long-term relationships with suppliers, and in tower built confidence,” says Lewis. “More [of our] customers opted for payment terms similar to what you have if someone ordersred from another part of the United States, for example.
Innovating the cross-border payment experience
Technological innovation also plays an important role in improving the cross-border transaction experience for businesses.
Andy Joyce, head of North America cross-currency solutions at JP Morgan says that as the industry continues to move forward, it is now looking beyond traditional clearing rail advancements and leveraging technologies such as global innovation SWIFT payments (GPI), virtual account management, and application programming interface (API) connectivity to enhance the recipient and sender experience.
“For the payee and sender, API connectivity helps provide greater visibility and transparency into when and how their payment status is.or the sender, they can see the exchange rates in advance before sending a payment. When a problem occurs with a payment, recipients can track the payment and receive real-time updates. Once implemented, recipients and senders can better manage their cash positions wherever they maintain a bank account, which can contribute to greater predictability. »
Additionally, Joyce explains that virtual account management can provide clients with the flexibility to manage cash flow between currencies through a centralized account structure.
“With centralized account structures, businesses can achieve better sequencing of payments and manage detailed reporting under one roof,” he continues. “Thanks to this structure, companies can easily transfer and/or concentrate their balances held in one account in one currency to another account in another currency, or fund local payments using a centralized account. This allows companies to maximize their liquidity, reduce their exposure to risk and operate in currencies twhat makes the most sense for their business.
Supply chain challenges
According to the latest forecast from the American Bankers Association’s Economic Advisory Committee, international trade is expected to remain weak because the country’s major trading partners in Europe and Asia are suffering from military conflict, COVID-19 and high energy prices.
Lewis says it’s important to provide flexibility to customers to help them navigate the various challenges posed by supply chain issues.
“We can help companieshis clients get the approvals they need or access the cash they need to buy things up front,” he says. “We have also granted increased lines of credit so that a [business] can store more goods in its warehouse.
In cases where a customer needs to find a new plathis to source products or materials due, more recently, to pandemic-related shutdowns or wars, Lewis says it’s important for businesses to know that the bank is there for them and can perform payments in any new country chosen.
The capacityThe ability for a bank to pivot and make quick decisions is extremely helpful for businesses, especially in today’s environment, and is one of the advantages small banks have over large ones.
“We are small, nimble and can provide capital quickly and make decisionsget on big lines of credit very quickly because we don’t have so many layers,” Lewis says of Columbia Bank.
Although doing business overseas presents its challenges, banks continue to expand their offerings to make the process easier for companies large and small. And, over time, technological innovation seems poised to completely transform the way international trade is made.
“The drive to make end-to-end money movement more instant, secure and transparent across borders drives the payments industry to continually seek to improve the user experience,” said Joyce of JP Morgan. “Integrating digital innovation into traditionl clearing rails to improve existing technology is one example; creating new solutions, like real-time payments and wallets, is another. This is driving current digital trends and will continue to set the agenda well into the future – all of which will produce new payment technologies and methods and the emergence of a variety of non-bank payment providers.
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