By Christian Spaltenstein
The impact of COVID-19 has been significant and widespread across all business sectors globally. From displaced workforces to new regulatory barriers, businesses have been faced with unexpected challenges affecting their profitability and in many cases survival. While the struggle to pivot from the existing model is still a looming challenge for many, the Canadian payments sector has responded rather positively to it.
The most recent economic disaster prior to COVID-19 is the 2008 financial crisis, which is credited to have birthed today’s FinTechs. In the aftermath of one of the world’s biggest economic crisis, skilled professionals became motivated to take an entrepreneurial route and began to innovate and reimagine the financial industry.
The importance of digitalization
As with the ongoing pandemic, the importance of digitalization can’t be ignored as more and more businesses shift towards building a cashless economy. Many companies are also realizing the strategic weaknesses in their existing global supply chains, given trade frictions and potentially recurring public health disruptions, leading to the exploration of nearshoring and other rebalancing.
According to a recent report from the Bank for International Settlements (BIS), the G20 has also made enhancing cross-border payments a priority this year, noting that these payments are “vital for economic growth, international trade, global development and financial inclusion,” but are generally “slower, more expensive, less transparent and less accessible” than domestic payments.
According to a recent report by Bank for International Settlements, the pandemic has accelerated payment activity amidst an ongoing decline in the number of correspondent banks. Policy measures to encourage the use of digital finance have been undertaken all over the world.
Therefore, the opportunity that COVID-19 presents to improve access to digital channels is a small silver lining for economies that seek to broaden financial inclusion. Technology adoption and the increasing engagement of non-bank providers have enabled businesses to make payments on a real-time basis, across multiple currencies, geographic regions and markets.
The new data released by Interac Corp. suggests that since mid-March, first-time Interac e-Transfer users (including both consumers and businesses in Canada), increased by 43 percent and the average number of transactions increased by 9 percent compared to the same period last year. It was observed that more than 50 percent of younger Canadians are comfortable with digital tools to manage their payments during the pandemic.
Having the right partner
While new payment technologies have increased competition in the market, diverging technical and regulatory standards have made it difficult for businesses to make connections with different payment systems and markets.
Therefore, the need for flexible global payments technologies and an efficient integrated payments solution to run and support businesses globally has increased. However, making an informed decision when it comes to choosing the right payments partner is critical. This includes:
• Analyze global payments providers’ competence. Businesses seeking a global payments provider must consider the partner’s licensing framework and regulatory experience, along with the reach of their payments platform, the flexibility of the technology and the ability to scale as their business grows. This can help a new FinTech entrant get to “proof of concept” more quickly, giving them an edge over the competitive market;
• Tailored strategies for International expansion. It is important to recognize that global payments solutions can help companies identify and minimize their exposure to fluctuations in the foreign exchange (FX) market. Not every business has the resources or expertise in the global currency markets to develop and implement a dynamic hedging strategy. Working with a specialist can bring that expertise to the business, with approaches designed to mitigate risk and protect the margins; and
• Reduce FX risk and exposure. Businesses need an informed approach to manage global payments and foreign currency risk. API and open banking solutions can help them save time, protect their bottom lines and empower them to take advantage of new opportunities. A trusted partner with international markets expertise can increase a business owner’s confidence in exploring new markets and business-building opportunities in unfamiliar territories.
In my opinion, transformational trends will be seen across the payments landscape in 2021. This would involve information rich real-time delivery, enhanced visibility across global accounts, increased alignment between capabilities and expectations of businesses by effectively leveraging open source technology and big data. The existing transactional friction which may seem unattractive to some businesses will present opportunities to others for truly disruptive solutions to supplement or even supplant the banks as payment solution providers.
As the managing director at AFEX Americas, Christian is responsible for managing strategic direction across Americas region. With an experience of over 28 years in the FX industry, he holds an MBA from Zurich Institute of Business (CEIBS) and an AMP from the Wharton School at the University of Pennsylvania. Prior to this, he worked as the General Manager with Travelex Switzerland.