Fintech Solutions For Cross Border E-commerce

E-commerce is another industry that has thrived in recent times (notably during the pandemic) and can simply be defined as the buying and selling of goods through the internet. Cross-border e-commerce entails this same process, but when carried out from one country to another. According to Global-e, cross-border e-commerce sales grew 21% in 2020 as compared to 2019, whilst payments processor Worldpay found that last year, 55% of online shoppers made a cross-border purchase (Forbes, 2021).

However, cross-border e-commerce does have its challenges, which arguably can hinder its implementation and improvement. What’s made it such a difficult process is the simple reason that there does not exist a single omnipresent system that connects various banks all over the world, through which international transactions can be efficiently carried out. Schemes such as S.W.I.F.T. (Society for Worldwide Interbank Financial Telecommunication) and correspondent banks do exist, however they have very limited efficiency in the services they provide and are still faced with many issues surrounding cross-border financial transactions. Daniel Webber, a Fintech contributor to Forbes and founder of FXC Intelligence - a financial data company specialising in cross-border payments, previously outlined what he believes to be the three main challenges faced by cross-border e-commerce within the next decade. These include:

1.      Cross-border taxation – The problem here is that different countries can have different tax legislation for foreign exchange, affecting the cost of goods purchased as additional tax may have to be factored in.

2.      Hidden costs for customers – Along with the potential of tax, there can be further costs added to the total cost of goods. This is because in cross-border payments, a payment processor, card network, issuing bank and acquiring bank are all involved as opposed to just the buyer and merchant’s bank. Extra costs may come in the form of FX margins, cross-border issuer fees and credit card processing fees.

3.      Which currency to use? – Consumers prefer to make transactions with their own local currency, this makes transactions much easier to carry out. When this is not possible, consumers are likely to abandon their purchases since there’s a high chance they may incur additional fees due to conversion as currency rates tend to be variable. Therefore, in order for retailers to maximise sales, it’s important that efficiency within currency conversion is prioritised.

In a 2020 research study by Whistl, further general issues consumers claimed they had with cross-border e-commerce included: longer delivery times, the risk of fraudulent or low quality goods, the cost and complexities of returns, high delivery costs and the lack of trust with overseas sellers.

This is where financial technology can be factored in to make a difference. Cross-border payments are an integral link for the livelihood and economy of migrants all over the world as well as being a major component of global trade. Fintech companies have been seeing this market as an opportunity and consequently discovered contactless and easy solutions that can eradicate the concept of the middleman. The two main ways Fintechs can make cross-border business payments cheaper and faster are: through cross-border payment rails that don't run on traditional bank networks; or through tech solutions that allow clients to connect to legacy bank rails more easily.

One example is in Hong Kong where Geoswift, an innovative payment technology company, enabled overseas customers to remit money directly into bank accounts in China via UnionPay, through a partnership with Nium, a Singapore-based Fintech start-up providing digital and international money transfer services to individuals and businesses. Prior to this, sending remittances to China required transferring funds into that market with the recipient having to pick up funds at a bank branch or through a remittance centre. Similar companies that run their own cross-border payment networks such as Wise, a billion-dollar Fintech company based in London, have changed the game of international remittances – making them a popular alternative to traditional banks and a first-choice option for many businesses and consumers. Wise's cross-border payment system for businesses operates in a similar fashion to its consumer-to-consumer international money transfer offering. The company owns a network of local accounts around the world with recipients being paid from Wise's local account, meaning money never crosses borders. This makes sending money cheaper and faster than traditional foreign exchange methods

Due to the eradication of various costs that are involved in a traditional bank transfer, Fintechs have the competitive edge of providing better exchange rates to their end users. Customers are also able to choose from their desired payment method – credit card, debit card, and other non-traditional payment options such as Google Pay and Apple Pay. Fintechs are also eligible for providing multi-currency accounts meaning whenever a receiver gets their money, it is in the same currency, getting rid of the need to worry about exchange rates. Apart from these advantages, the cherry on top is the inclusion of A.I. (artificial intelligence) in cross-border payments. Big Data provides vital insights related to transaction frequency, devices and locations, to name a few; giving Fintechs an opportunity to study their audience (Theunis, 2021).

In conclusion, the new technologies that Fintech companies are bringing to the table can aid in making cross-border e-commerce a substantial amount easier by working in co-operation with banks or in competition with them. Many large banks have begun to feel somewhat pressured by Fintechs, with JPMorgan Chase announcing earlier this year that they were using blockchain to improve money transfers between financial institutions globally. Overall, it is very likely that the role of Fintechs in cross-border e-commerce will only increase in influence and importance.