“Fog in Channel – Continent cut off.” This famous old newspaper headline perfectly illustrates the UK’s unique geographical position and (only partly self-mocking) sense of its place in the world. Fog may no longer be a barrier to trade with Europe, but in its place we have two far more existential challenges: Brexit and Covid-19, the latter leading to 6,000 store closures in the first half of 2020 alone. Entrepreneurs can rightly feel mocked by fate to have both crises foisted on them at the same time.
But what makes things even crueller for SMEs is that the answer to the pandemic – expanding into new markets and winning more customers abroad – is now much more difficult following the UK’s departure from the European Union. Only this week, for example, it was reported that half of lorries bringing goods into Britain are returning to Europe empty, as UK firms delay resuming exports until there is greater clarity on new customs regulations. But it’s not just tariffs and trouble at the border that’s “cutting off the Continent”. The cost and complexity of receiving payments from overseas is an even bigger and more immediate challenge preventing SMEs from trading not only with the EU but the rest of the world.
Large enterprises have the time, expertise and economies of scale to create payment channels anywhere in the world, which helps to explain why major retailers like Amazon saw record profits in 2020. On the other hand, smaller businesses often have to rely on expensive consumer-grade SWIFT transfers for international payments, with high fees often hidden in the international exchange rate.
For SMEs, already operating on the finest of margins, these fees and the impracticality of setting up overseas payments channels often make foreign trade more expensive than it’s worth. In fact, it’s not uncommon for smaller firms to lose money on international payments. Far from facilitating trade and creating the long-promised “global village”, international payments have proven an almost insurmountable obstacle to entrepreneurs that want to expand beyond their borders.
Payments need not be a barrier to international growth. All it takes is a little research, and you can finally open your business up to the world. Deepali Arora, the Money Laundering Reporting Officer at MoneyNetint explains how.
Don’t take the scattergun approach to world trade. Not all territories are equal, so take time to research which markets you prioritise. Factors to consider include the number of potential customers and how many speak English (so you won’t have to translate your website), appraising your competitors, and ascertaining whether local supply chains can manage delivery safely and reliably.
Choose a payments partner with existing in-country relationships
Business owners should look for a payments provider that already has relationships with local banks, regulators and payments networks. This enables them to piggyback on established payments channels and take advantage of significantly lower fees.
Local currency wallets
Small businesses lose a huge proportion of their profit through foreign exchange rates, which account for as much as 96% of the fees banks charge for international payments. A good payments provider, however, will provide local currency e-wallets associated with a private IBAN or account number, so you can make or accept payments without losing money on the exchange rate.
Lack of transparency can cause a significant number of potential customers to abandon the purchase pathway before the all-important first sale. It’s vital that new customers know who they’re transacting with, so make sure that all payments are requested and made in the name of your business, not your payments provider or other third parties.
Think Global, Act Local
Be ambitious for your business, but don’t forget about the practicalities of international trade. If you think beyond your borders but take a little time to support fast and affordable payments in local markets, you’ll be perfectly placed to beat Brexit and Covid – and make the world your oyster.