Why The Time Is Now for Innovative Borderless Payments and Virtual Accounts

Why The Time Is Now for Innovative Borderless Payments and Virtual Accounts

Contribution by: Product Team, Thunes

COVID-19 has turned the world upside-down. It has impacted almost every aspect of our lives and work, forcing many industries to make uncomfortable changes to adapt to the new age. 

The payments landscape is no exception, yet the change it has undergone is positive – global digital payment adoption has increased exponentially, with at least 1.2 billion mobile money accounts opened across 96 countries.
The pandemic has accelerated a shift to cashless payments and boosted alternative payment methods such as mobile wallets. The next step is taking the convenience, speed and security of domestic digital payments and making transactions across borders just as seamless, reliable and affordable.

Unifying local and cross-border payments

Traditionally, digital payment methods like e-wallets and local bank transfers are only available within a country or region’s borders. 

But by harnessing the power of technology and innovation, Thunes enables previously incongruent payment methods across the world to fully operate with each other.

Customers can send money directly from their mobile wallet to a bank account or cash pickup location, for example, in more than 120 countries, with the funds arriving instantly in the recipient’s local currency.

This article looks at how cross-border payments have become as efficient and safe as local services.

The need for innovative borderless payments

Weaknesses in the correspondent banking system have spurred the drive to make cross-border payments as seamless as local transactions. The conventional process is inefficient and expensive, as banks cannot transfer funds from one point to another on their own.

They require go-betweens to make these transfers, and correspondent banks are usually the first line of intermediaries engaged for this purpose. If a transfer is more complex, other players like foreign exchange agents and network providers will join the mix, further burgeoning costs and inefficiencies.

Other contributing factors include unpredictable processing times, hidden fees, and unfavourable foreign exchange rates. According to the World Bank Report 2021, the average fee for sending USD200 in Q1 2021 is 6.38%. This figure represents the loss of a significant slice – especially for people from emerging markets.

Given the correspondent banking system’s disadvantages, there is a need for innovative solutions. That is why fintech companies like Thunes have stepped up to integrate cross-border payments with local payment methods.

Below are some measures Thunes has taken to synergise global and local payments.

Partnerships with local payment providers

The first step to innovating cross-border payments is partnering with local payment providers. They are instrumental in building the infrastructure of payment networks to facilitate seamless transfers across borders.

There are two main reasons why such partnerships are important:

a. Consumers tend to use local payment methods 

The preferred payment options among consumers are vastly different across countries and regions. Boleto is preferred in Brazil, PayTM in India, and WeChat Pay or Alipay in China. It is thus crucial for cross-border sellers to cater to all these different local payment options to expand reach and customer base.    

b. Traditional cross-border remittances are impractical

Previously, cross-border remittances involved sending money to an overseas bank account. This transaction is not always feasible, especially in predominantly unbanked countries. The Philippines is one such example, where many people in rural areas still prefer cash pickup.

Recent innovations have even made remittances to mobile wallets possible, with payment service providers (PSPs) instructing one wallet to move funds to another. Such remittances happen in real-time, a fraction of the 2-5 days that traditional remittances require.

On the surface, the above process appears seamless. However, on the backend, the process is costly and time-consuming. PSPs can’t connect with local partners in every country, especially when trust and regulatory issues are involved.

A global payment network like Thunes can address these issues. We divide the markets’ needs into four broad categories:

  1. Cash-driven countries (for example, the Philippines)
  2. Countries with a dominant digital wallet (for example, Kenya’s MPesa)
  3. Countries with new financial instruments (for example, GrabPay and GoPay in Indonesia)
  4. Banks that work with businesses

In doing so, cross-border payments become faster and more affordable for all players involved.

Virtual accounts 

For businesses looking to expand into new markets, getting their cross-border payments right is essential for their cash flow, customer service, and cross-currency risk exposure. 

In order to run effective commercial operations, businesses must have local bank accounts for each currency where their customers are located, but this can be difficult to set up and tedious to oversee. It also leaves the businesses’ cash sitting idle spread across different countries, accounts, and currencies while adding FX exchange rate risk.

Virtual accounts (VAs) present a safe, efficient and cost-effective solution. They simplify cross-border operations and payments for businesses, ease cash flow and enhance the customer experience. Businesses no longer need to travel to multiple locations and set up local offices to open local bank accounts for each currency in all markets, yet can offer their clients an easy way to pay. 

To help explain how VAs work, we’ve illustrated an example of the process below: 

How do Virtual Accounts work?

infographic explaining how virtual accounts work

Picture this: 

You’re a Chinese clothing retailer who is selling dresses on an Indonesia-based online marketplace. It is common for Indonesians to make bank transfers for domestic transactions, instead of paying with credit or debit cards. You are awaiting payment from a buyer and have instructed her to make the payment within three days before you’ll ship her the dress she ordered. 

Going down the traditional route of wiring the money to an international bank account through her local bank is not an option, as it’s far too inefficient and expensive for both sides. The journey her money will take to reach you is fraught with obstacles: correspondent banks’ fees, foreign exchange agents, and/or network providers cropping up along the way to further slow things down and drive up costs.

And above it all, the process is not transparent. There is no way of knowing when her money will reach your hands. However, you still need to be paid before you can release the dress.

This is where VAs can help, serving as a cheaper, faster, and more transparent alternative to the cumbersome correspondent banking system.

Thunes and Thunes’ partners in Indonesia can quickly set up a Virtual Bank account on behalf of a Chinese merchant to get them up and running. The number of VAs we arrange for you depends on your needs and requirements – you can have multiple for each of the eCommerce platform that you work with, and we will link all of them to a physical bank account of your choice. 

From here, all you have to do is instruct your buyer to make her payment to one of your VAs. She can use any of the local Banks to make a simple, cheap and fast transfer, or even use local wallets such as OVO, Dana or LinkAja.

Payment is instantly transferred, with the transaction reflected in your records. You can now start packing that dress and prepare it for shipment.

Local or cross-border, there is no difference

Whether through a global payment network or a virtual bank system, it is clear that local and cross-border payments are becoming integrated.

Thunes has developed a highly efficient product that automates the cross-border payment reconciliation process for millions of transactions in over 100 countries. This innovative solution enables our partners to hone a sharp, competitive edge in the ever-evolving payments landscape.

Interested to see how Thunes can help? Get in touch with our team today.

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