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Global platforms are driving FX disruption and payment alternatives

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Globalisation and the ongoing transition to the Internet of Things play an important role in economies the world over.

Advancements in mobile devices and high internet penetration, along with the continued evolution of digital freelance marketplaces and platforms, has connected people scattered across the globe to give way to the rise of the “gig economy.”

People are now sharing and sourcing goods and services that can span nations, time zones and currencies.

Digital platforms, such as 99Designs or Freelancer.com, allow independent workers to find one-off projects or full-time roles, market their skills and manage clients anywhere in the world. A web designer in India can secure a job creating a website for a small business based in New Zealand, a Singaporean brand can leverage an Australian influencer to market its product locally, and so on.

Freelance work is not just shifting paradigms in the way we live and work, but also in how we pay and get paid. While geographic location is no longer a barrier in finding work it does present its challenges when it comes to settling payments.

Foreign exchange and the rise of global mass payments

Ensuring the delivery of payments to outsourced workers in the ever-increasing global services marketplace comes with its challenges. Namely, understanding regulations on funds movement from country to country and the impact of fees, often on both the senders’ and receivers’ sides, a unique feature of this two-sided business model. This differs from the traditional cross-border commerce model, where foreign exchange (FX) was often optimised only on one side of the transaction.

In the older paradigm, FX trading was done almost exclusively by banks. Then came the emergence of non-banking FX brokers, the arrival of the international wire through the global Society for Worldwide Interbank Financial Telecommunications (SWIFT) network, and, eventually, the birth of payment processing companies, such as PayPal, to facilitate cross-border payments with integrated currency conversion. The cost of FX was almost accepted as part of the cost of doing business. 

However, many global marketplaces, all affected by FX, are moving away from traditional FX processes and embracing localised payouts. This is primarily being driven by the fact that money, and the way it is exchanged, continues to evolve following advancements in technology and changing consumer behaviour.

If you look at this from the lens of a two-sided marketplace’s buyers, PayPal’s 2018 global Cross-Border Consumer Research report found that three out of four consumers polled would prefer having an option to pay for their purchase in their local currency while six in 10 check conversion rates before making a purchase.

Similarly, many sellers inevitably also prefer to receive payments for their goods in their local currency rather than taking a hit on their bottom line because of FX. This is where a solution that offers local payouts can provide a competitive advantage to the global marketplace.

The competitive advantage of local payouts

Facing pressure to keep up with the global on-demand economy and mentality, digital platforms and marketplaces must also consider how their payments processes can keep up. They can help customers minimise FX fees and volatility by optimising payments systems to support full end-to-end local payment experiences.hyperwallet-office-locations-header

Local payouts move between local banks and therefore offer a more transparent, cost-effective and efficient solution that lends to an overall improved experience for both sides of a transaction.

Compared to the traditional FX route, this enables platforms and marketplaces to give sellers, vendors, and freelancers the benefit of receiving funds when, where and how they want in an expedited timeline with less burden on all parties. 

FX providers, then, face increased pressure to offer more competitive rates with the concurrent rise of local payouts. But might global marketplaces be a lost revenue use case for FX? With the continued rise of payees expecting to be paid quickly, conveniently and in their local currencies, it’s inevitable that global marketplaces could be phased out as an FX use case, replaced by more scalable local payout systems.

Difficulties of building a platform that offers local end-to-end payments

As important as local payments are to these marketplaces and platforms, most do not have their own established network of banks around the world.

The simple reason is that to do so on its own, a platform would have to open and maintain multiple banking relationships as well as build its own infrastructure and form an in-house team to ensure they follow local banking regulations and compliance. Such operations are ultimately very complex and time- and resource-intensive.

Platforms and marketplaces looking to satisfy payments to freelancers and others who are spread out across the globe might find it simpler to partner with a payouts partner with an established, global financial network that can be leveraged to fulfil payment needs easily as they expand operations into new markets.

Looking ahead

The payments ecosystem will keep progressing in pace with fintechs, technological advancements and further disruption. To fully realise the market potential of globalisation and increase their reach, platforms must consider embracing and implementing a robust payment solution that satisfies both sending funds and receiving funds while also taking into consideration what payment methods are prevalent in-region.

There are a number of players that have either entered or expanded into the market to simplify payments processing through a localised approach.

PayPal, for example, has been making great strides to build out its localised, country-specific payment options. The company, which recently acquired Hyperwallet, announced the global launch of its PayPal Checkout with Smart Payment Buttons. The new feature allows sellers in different countries to customise and easily present checkout buttons for alternative payment methods without having to integrate with a number of different payment services.

In today’s hyper-connected world, businesses aiming to be truly global should consider how to adapt their models to local markets. By doing so, digital platforms can help improve both their domestic conversion processes as well as their chances of successful geographical expansion into new, lucrative markets.

Simon Banks is a director at Hyperwallet

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