The cross-border payout industry is full of false information, which makes it difficult to know what’s fact and what’s fiction.
We talk with clients every day about the key issues they have faced while making payouts in the past and have collected data to understand the steps businesses must take to pay their recipients around the world.
While collecting this information, we noticed five common myths about payouts that kept cropping up and have busted them below.
MYTH: Everyone Uses Wallets
While e-wallets are indeed growing in popularity (they’re expected to overtake credit cards globally by 2019), they are not the only way that recipients prefer to receive payouts.
But while these virtual accounts, where funds can be stored and exchanged, are one of the more widely-used method for payouts, that doesn’t mean that everyone uses it as the only way to transfer payments to recipients.
FACT: There are several other types of payout methods, including international bank wires, prepaid cards, money transfer services, checks, and independent payout networks that are all popular with companies providing payouts to their recipients. In fact, independent networks tend to have lower fees and more transparency than other methods, making them one of the better options.
MYTH: One Size Fits All
It’s a good idea to go with the payout method that everyone else is using, because if everyone else is using it, it must be good, right?
Not necessarily. Just because a payout method is a good fit for one business doesn’t mean it’s the right one for you or your recipients. Look into the options you have, the advantages and disadvantages of each one, and then decide which is the best fit for your business.
FACT: Different payout methods suit different types of businesses. To help you out, we’ve listed the advantages and disadvantages of each one below.
- International Wire Transfers
- Have the most widely used global financial payout and pay-in messaging system
- The most popular wire transfer, SWIFT, connects with the world’s correspondent banking networks
- Has compliance and security measures in place to safeguard transactions
- You might get hit with surprise charges and hidden interbank fees
- Lack of transparency with transactions
- Payments can take days or weeks to come through
- Unpredictable levels of service
- Different bank requirements and regulations can lead to delayed or lost payments
- Cash Transfer Services
- Great for payments to emerging, cash-driven markets where banks and credit cards aren’t widely used
- Recipients have immediate access to funds
- High transaction fees and FX markups for the sender
- Limited transaction transparency
- High incidences of fraudulent activity
- Prepaid Cards
- Transfers take 24 hours or less
- Strong reporting capabilities
- Greater transparency
- Excessive hidden costs for recipients, like monthly maintenance fees, withdrawal charges, and activation fees
- International recipients must pay additional cross-border and FX conversion fees for each transaction
- Delays with card issuing, mailing, and registration
- Secure payments that don’t require the exchanging of personal information
- Convenient for businesses to transfer instant funds to recipients
- Lengthy process to access funds, which can lead to delays and added costs
- High fees and varying transfer fees when transferring from an e-wallet into a bank account
- Limited funding options in most emerging markets
- Possible chance of money laundering
- Long-standing payment method
- Can be used all around the world
- Extra time and resources are needed for processing
- Difficult to resolve if lost or stolen
- Some country-specific banks don’t accept them
- Many countries are moving away from paper checks
- Local Bank Transfers
- No intermediaries
- Lower fees than other payout services
- Faster transfer speeds
- Direct access to difficult regulatory markets
- In-house compliance teams
- Few payout providers have self-owned payout networks
- Lack of differentiation and general awareness
MYTH: Currency Issues Are Inevitable
More often than not, businesses that use bank wires to pay their recipients end up paying double in conversion fees because they convert the payment into USD or EUR and then into the local currency of the receiver. This issue was cited by respondents to our “Digital Women” survey, which we conducted in partnership with the Business Council for International Understanding in August.
Half of the 482 Indian respondents and one-quarter of the 404 American respondents claimed that currency issues including forex fluctuation and the limited acceptance of different currencies as detrimental to their businesses.
FACT: Currency conversion fees are avoidable if you choose the right payout method. While bank wires often come with hefty additional fees, other methods like local bank transfers do not. This is because they eliminate the need to convert funds before they reach the recipient, making payments faster and more cost-effective for everyone involved.
MYTH: Payment Processing is Slow
Many recipients complain about how long it takes to get paid and, unfortunately, this is often the case.
As a business, it’s important to research what payout methods are available to you and ensure payments are put through in a timely manner.
Say, for example, your payouts are delivered via debit card. To get their hands on their money, your recipients need to trek to an ATM to withdraw their funds, and it’s even worse if they’re receiving their debit card for the first time. In this instance, it can take weeks or months if the cards are arriving from overseas. Add that to the possibility of the cards getting lost or stolen in transit and you have a recipe for even longer delays.
FACT: Choosing a different payout method that doesn’t involved debit cards or finding an ATM will lead to less delays in the payment process. Show your recipients that you value them by paying them on time and by providing a seamless payment experience that doesn’t take days or months.
MYTH: Hidden Fees Are Unavoidable
Businesses and recipients are often at the mercy of hidden fees when it comes to cross-border payouts. These fees can include high transfer costs, hidden correspondent banking fees, fluctuating foreign exchange rates, and hidden markups – and that’s not even the half of it.
FACT: Hidden costs are only a problem if you choose a payout specialist that works with several intermediaries.
For example, if you send payouts via bank wire, you usually have to pay fees for the sender’s local bank, corresponding banks, and the recipient’s local bank.
This is what the complex payout journey from sender to recipient looks like:
Then there are bank wires, which tend to be costlier than other methods simply because of the number of intermediaries involved. Every corresponding bank acts as another step between you and your recipient getting paid, most of which charge a separate interbank fee.
A lot goes on behind the scenes during the transfer of funds, which means it’s not always easy to determine costs upfront – but it is possible.
The easiest way is to choose a payout specialist that can simplify fees and explain pricing up front. Payout providers that have direct relationships with their payout network can provide this type of transparency and help eliminate any hidden costs.
Visit our article to learn about simplifying payouts to sellers, freelancers, publishers, and partners worldwide.