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Payments

The Pitfalls of Sending Money to China

Remitsy CEO Richard Bensberg recently spoke with Renaud Anjoran. Renaud runs the excellent QualityInspection blog where he writes about the many issues faced by companies sourcing products from China.

On his blog you can find general advice for importers, with a special focus on quality management, helping small and medium-sized buyers understand their suppliers better, adopt the right strategies, and use the right tools. Renaud himself has seen his fair share of payment issues and so was keen to get our comments on the topic.

Sending money to China is often complicated because inefficient archaic international payments

When you are sending money to China via international bank wire it is expensive, slow and complicated process.

In the interview, Richard explains there is no such thing as a “typical payment”. The method used to process an international payment still varies a lot depending on the input and output currency, and the countries and banks involved.

Domestic payments are generally quite efficient, but international payments – which are still using the SWIFT network – are slow:

“SWIFT was originally built in 1973 – long before the creation of the Internet. When money is sent overseas, physical assets don’t have to move. Instead, SWIFT acts as a messaging system between banks to clarify the ownership of assets on their books”

As Richard explains, SWIFT network is simply a messaging system. And in the case the payment gets stuck somewhere, it needs to be tracked down. To track the payment your bank needs to send follow-ups to find out what happened to the initial message. And the only way to get them to do this?

Get on the phone to your bank and ask for the Wire Transfer Department. And solving these issues can take up to several weeks. That can severely hurt businesses. During this time products are delayed and the funds are locked up in the system. This can be a killer for an importer’s cash flow and lead to some really angry customers. Luckily, with Remitsy these sending money to China headaches  are over.

The full article is available here.




Oliver LompartOliver Lompart

Payment in Progress – The Future of Online Payments

Payments in progress, China fintech, payments in China, WeChat Pay, Alipay etc.

Third-party online and mobile payments in China are set to grow over 30% in 2016 and reach 5.3 trillion RMB by 2017. China is already leading the world in fintech – particularly in the mobile payment and P2P lending sectors.

We like to think we’re a key part of the China’s fintech story, so together with fellow startups Clearcut and Megi we decided to host the event “Payment in Progress” at our home base Tech Temple. Speaking to a packed standing-room-only audience, we discussed how payments have changed throughout history, and the world along with them. We covered everything from Western Union, to Alipay, to the blockchain.

payments to China, Richard Bensberg, Remitsy, TechTemple

Richard Bensberg, CEO of Remitsy, talking at Payment in Progress event at TechTemple in Beijing

Payments – An Industry That Affects Us All

The first speaker of the night was our CEO, Richard Bensberg. Richard gave a very brief crash-course on the history of payments and the lessons we can learn from it. He then went on to show how fintech startups are taking bites out of traditional banking services, focusing on areas where bitcoin and blockchain technology can be a game-changer. Finally, we looked at a Remitsy customer case study, demonstrating how the traditional payment channels to China are completely failing businesses, and contrasting to how easy payments are via Remitsy.

Sending money to China with PayPal is expensive. Our client Robert paid £42.01 on £500 payment to China. That is 8.4% of the send amount.

Payments in Progress

Next speakers were Bob Bogaert and Jonathan Ennslen from the startup ClearCut, which is focused on events management – everything from creating an event listing through to providing payment methods tailored for China. From their point of view, changes in social messaging (think WeChat!) have been a key drive in the mobile payment revolution. In China, the average time spent on mobile per day is 200 minutes and about half of this time is spent on messaging apps provided by Tencent (35% WeChat, 10% QQ).

Speaking of progress, Bob thinks that we don’t realise the progress because it’s incremental. It is like accelerating on a bullet train, with a constant force propelling you. You can feel a little push in your back, but nothing shocking. And then before you know it, you’ve hit 300km per hour.

Likewise, in China, the total value of online transactions are estimated to reach more than one and a half trillion USD by the end of the year. And this number should double in the next 5 years.

Alipay, WeChat pay, China fintech, payments in China

Value of online payments in China is about USD$1.5 trillion with Alipay leading

Accounting for Small Businesses Operating in China

The last speaker of the night was Michael Chiao from accounting startup Megi. There are countless issues that SMEs in China are facing in accounting: dealing with the complications of China’s business compliance; accounting structure and internal controlling processes; staff payroll and welfare. These are all time-consuming activities that take time from what matters the most: growing the business. Megi’s software aims to automate these issues by connecting small businesses with a “virtual CFO” who examines financial records offsite and thus reduces the business’s accounting costs.

We would like to express thanks to the co-organizers of the event AustCham, BenCham and BritCham (CBBC).




Oliver LompartOliver Lompart

Breaking the US Dollar Addiction

This article first appeared in June’s issue of FOCUS Magazine, the official publication of the China-Britain Business Council and British Chamber of Commerce in China. Learn how you can read the current issue here

Many British companies pay their Chinese business partners in US dollars, despite the fact they operate in British pounds. But for businesses based outside the US, relying on dollars can lead to hidden fees and unseen risks that can hurt your bottom line.

US dollar alternatives, USD, GBP, RMB, sending money to China, paying supplier in China

Don’t be limited by US Dollar. There are now other alternatives for payments to China (Picture: FOCUS Magazine)

Why Do We Use Dollars?

For developed economies, it’s more convenient. Businesses purchasing goods or services know their supplier abroad will accept dollars, and suppliers quote invoices in dollars because they know their partners can pay in them. But UK companies getting paid in pounds, and Chinese companies buying raw materials in RMB are both paying currency conversion fees for these same dollars.

The Hidden Cost of Conversion

Savvy travellers steer clear of airport currency conversions, but few businesses question banks when making overseas transactions. Businesses need to be diligent in performing their own conversion calculations and ensuring they understand the mid-market rate. This is the mid-point between the buy and sell price in the currency markets, increasingly known as the real exchange rate. Deviance from this rate means that money is being lost in the transaction. In the UK, converting from pounds to dollars means losing between one to four percent depending on the amount. Smaller payments lead to greater fees, which means small and medium-sized businesses pay the most. And while companies usually account for every expense, few record their exchange rate loss or their payment processing costs. Things are even more confusing on the supplier side, where the dollars received must be converted to RMB. Luckily, converting foreign currencies within China is a far cheaper transaction, with currency conversion losses ranging between 0.5 to one percent.

Putting a Price On Currency Risk

Owing to varying exchange rates, suppliers need to protect themselves from USD-CNY currency fluctuations. The time between issuing their invoices and receiving payment can take two to three months – and anything can happen. In August 2015, the RMB was devalued by over three percent in just two days. Buyers in the UK should also worry about currency risk. If British companies do not maintain US dollar accounts (at the expense of cash flow), a depreciating pound versus the dollar would mean more expensive goods or services when it comes to the settlement date. Europe’s more mature financial markets allow companies to hedge products to fix an exchange rate for a set time in the future. But Chinese suppliers are often forced to take a cruder approach; they increase the invoice’s value to include a ‘buffer’ against any potential currency fluctuation. In general, this currency risk hedge used by suppliers is around 5 percent. If the RMB devalues against the dollar, then the supplier wins twice – but is unlikely to pass the savings on to you.

Costing It Up

Taking all this into account, value leaks from every transaction. Small business might lose up to 10 percent per invoice, just for paying with dollars. The wrong approach is to see part of these losses as ‘not our costs’. The invoice price versus production cost is all that matters. By reducing your suppliers’ costs you should also decrease the costs of the goods or services being purchased.

Obstacles to Change: Tax Avoidance and Inertia

One factor behind Chinese suppliers’ preference for US dollar settlements is tax benefits. Exporters in China may set up offshore bank accounts in jurisdictions such as Hong Kong, Singapore and Taiwan. After receiving payments to these locations, the Mainland company re-invoices the offshore company at a lower price, leaving the majority of profits in offshore accounts – which, owing to looser financial regulations, are more liquid and flexible. Furthermore, the exporter only pays taxes on the small margin between their expenses and the new invoice. Despite the conversion costs, tax savings are a big incentive for suppliers to avoid seeking any other solution. Unfortunately, this can sometimes scupper attempts to improve the payment process.

Breaking the US Dollar Addiction, US Dollar losing its power, US Dollar and RMB, CNYUSD

Breaking the US Dollar addiction in trade with China

Times are changing, however

China’s stellar economic growth is slowing, and regulators are realising that well-earned export profits are languishing outside the country’s coffers. On-shore settlement will soon be the only available option for payments to China, and suppliers will be looking to optimise margins. The other big obstacle to change is familiarity. Processes have been established around using US dollars in trade, and asking either company to upend years of tradition can be challenging.

What Are The US Dollar Alternatives?

As a British company making purchases from China, the obvious alternatives are RMB or pound settlements. Either option means that payments are only subject to one conversion loss, and one dimension of currency risk.

The Rise of the Redback

Increasingly, companies are turning to RMB settlement. By paying in RMB, the supplier no longer has to worry about currency fluctuations, and discounts should be more easily negotiated. According to a 2014 HSBC survey, 55 percent of Chinese suppliers are willing to give discounts of up to five percent if the buyer can settle in RMB. A prime example is British supermarket chain Tesco. Realising the possible savings gained through clever currency management, the company has insisted that all Chinese suppliers accept RMB settlement. By controlling the payment process, Tesco has minimised the value leakage during transactions.

Pounds Are Good Too

While Chinese suppliers should technically prefer RMB settlement, it’s not always an option – and in this case, UK businesses should push for invoices in pounds. This still pins the currency risk on the supplier, who will implement the usual price buffering. However, at least the payment undergoes only one conversion, which ideally should be performed within Mainland China where exchange rates are better.

Weighing Up Your Options

The US dollar is still, without a doubt, the world’s dominant currency, but thanks to a fast-evolving cross-border payment space, it is no longer the only option. Investigating new payment solutions takes time, but long-term rewards will more than cover the investment in research. It is no longer acceptable to ignore the costs of dollar overuse. By taking responsibility for the total cost of cross-border payments, businesses can improve their bottom line.




Neil WoodfineNeil Woodfine

Blockchain Powered Payments to China

Recently we had a couple of interviews with Juliette Boulay from Daxue Consulting (link) and the guys from LNP China (link) when we chatted about how Remitsy was started and how we work. We thought it’d be a good idea to share some of the highlights on our blog!

Why Remitsy payments are powered by the blockchain

Everywhere we go, people are asking us about blockchain and what it is. You have surely heard about blockchain as well, but might wonder how it really works and how it helps Remitsy to transfer your money to China. We are lucky to have Richard and Neil on the team, as they are some of the few blockchain experts in China.

A blockchain system can give businesses a lot more confidence when making transactions. The blockchain is essentially a ledger – which is distributed across all users of the system. If someone makes a transaction, everyone’s version of the ledger is updated. And each user is automatically checking all others to make sure a mistake hasn’t been made. Every transaction is time stamped so nothing can be changed subsequently. This results in a very transparent and secure payment system, that no longer requires a centralized third-party to verify each transaction.

Blockhain Powered Payments to China, sending money to China, paying supplier in China, business payments

Your Remitsy payments to China are also powered by the blockchain!

What we do is take advantage of blockchain technology’s ability to digitize value across a decentralized network, and thus make funds accessible almost instantaneously anywhere around the world. In other words, this allows us to convert from one currency into another via a record on the blockchain – for example making GBP in the UK available to us as CNY in China within seconds. This method is so efficient that it allows us to convert currencies at the real exchange rate (the mid-market rate used across the financial sector).

Bank fees and costs of other payments solutions

When we started Remitsy, our original aim was only to disrupt the traditional banking sector’s dominance in the business payment market. But we quickly realized that a lot of small business were using PayPal and other online platforms to complete their international payments. Even though the processing fees, exchange rate spread, and withdrawal fees adding up to 9% of the total invoice value! And we thought banks were charging a lot! The fact that businesses are forced to choose these payment options is evidence of the huge inefficiencies of modern international payments, and we want to solve it.

As Richard says:

The most important thing is that companies have got to understand their costs. Companies will just accept charges that are given to them by their banks, but if you look at exactly what you are being charged, you will realize you can usually save a fair amount. Also, foreign companies don’t realize that when Chinese companies receive foreign currency they will be hedging their currency risk. Usually, they will add 5% to the price of their invoices in order to cover potential exchange rate fluctuations.




Oliver LompartOliver Lompart

We’ve finally put together our video from the Cross Border Summit in Shenzhen (thanks for waiting!). Our colleague Neil, Larry Salibra (CEO @ Pay4Bugs) and Mike Michelini (CEO @ Global From Asia) discuss how the fintech revolution can improve your bottom line.

In this video you will learn about:

  • Key terms in cross-border payments – what do you need to know to sound like a pro?
  • Leveraging the pros and cons of a multiple-currency business
  • Walls online – banking regulations explained
  • Payment compliance and why your payments might have been red-flagged
  • ACH (Automated Clearing House) – what is it and who uses it?
  • SWIFT – overview and why we should care (including Mike’s own bad experiences with SWIFT!)
  • Bitcoin – what is it? Isn’t that the “funny money”? How can businesses use it?
  • Bitcoin in China & Hong Kong – what are the latest solutions?
  • PayPal in Hong Kong – dealing with currencies and verification.
  • Blockchain – debunking the hype. What is it? What are the latest news? With bitcoin or without? How the fintech revolution can save you money?
  • Using fintech in your business – this all sounds great, but how to apply it?
  • What options are there for sending money to China?

Cross Border Payments and Banking Panel Discussion

For your convenience, we have uploaded Cross Border Payments and Banking Panel Discussion also on Youku.



How the Fintech Revolution Can Save You Money

We’ve finally put together our video from the Cross Border Summit in Shenzhen (thanks for waiting!). Our colleague Neil, Larry Salibra (CEO @ Pay4Bugs) and Mike Michelini (CEO @ Global From Asia) discuss how the fintech revolution can improve your bottom line. In this video you will learn about: Key terms in cross-border payments [...]

Oliver LompartOliver Lompart

Remitsy at the Cross Border Summit in Shenzhen

Recently the Remitsy team headed down to China’s cross-border business nexus, Shenzhen, to attend Global from Asia’s Cross Border Summit.

Cross Border Summit coffee, payments to China, Remitsy, fintech panel, B2b

Remitsy are payments on caffeine, so we couldn’t miss a chance to take care of the coffee at Cross Border Summit

It was awesome to get the chance to speak to up-and-coming cross-border business owners from around the world. We learned a lot about the current trends in international e-commerce (which is clearly booming right now!) and the challenges faced in selling to customers across the globe.

Cross-Border Payments & Banking

Neil Woodfine (Remitsy’s COO) joined Larry Salibra and Mike Michelini in a panel discussing the complexities of cross-border payments and how the latest fintech solutions can be used to save businesses time & money. A major takeaway from the chat was that it only takes a bit of research and a few small changes to your payment process to make a business seriously more competitive.

We shot a video of the talk and will release a video of the event on Youtube soon. So watch this space!

Find Remitsy in this short video from Cross Border Summit in Shenzhen brought by HK News:




Oliver LompartOliver Lompart

Take Control of Your Payments

It’s better to see something once than to read about it a thousand times.

Therefore we have created a handy visualization on payments to China. We hope this will help put things into perspective – on the one hand classic payments via banks, on the other payments through Remitsy.

The standard method of sending money via banks is over-complicated. An explanation of the payment process flow through the traditional banking system can put even the most ardent insomniac to sleep (or just give them a headache!).

Business owners often don’t know how much they are actually paying for their international payments. But in our opinion it’s not at all their fault – banks and other third party services make it as difficult as possible to figure it out.

We hope this short presentation makes payments to China easier to understand, without the headache!

Enjoy!




Oliver LompartOliver Lompart

Cross-Border Payments to China (Podcast)

Richard was recently hosted at the Global From Asia podcast, run by Mike Michelini. Global From Asia helps companies with their business in Asia. Their services range from company formation in China and Hong Kong to business insurance and tax advice.

For anyone interested in business with China, The Global From Asia podcast is an invaluable source of knowledge and I’d highly recommend it. It’s full of practical information on various topics with experts in respective industries.

Cross-border Payments to China. Podcast with Mike from Global From Asia.

Listen to the Global From Asia podcast on cross-border payments

In the latest podcast, Richard and Mike discuss cross-border payments for businesses. Richard talks about how he got into the payments business, before going on to discuss with Mike the state of the international payment system. Mike’s not a stranger to payment issues with China and was pleased to be able to dig deeper into the reasons behind why some of his payments were getting bounced or delayed.

We’ve prepared a special offer for listeners of the podcast, so be sure to check it out! You can listen to the full podcast below 👇🏻, or you can pick it up on iTunes for your commute to work. Of course, it’s also available on the official Global From Asia site, where you can also find some extra materials (link).


Cross Border Summit

Continuing our work with Mike, we’ll be speaking at the Cross Border Summit on April 16th in Shenzhen. This event is unmissable for small business owners selling from Asia. You can learn more about the event here. Look forward to seeing you there!




Oliver LompartOliver Lompart

International Business Payments are Expensive and Slow

“Banks have been doing international settlement much the same way since 1971,” says Richard, founder of Remitsy, in an interview for UK Investor Magazine.

Richard is a strong believer in the innovations in consumer payments, which are now more convenient than ever. But when he looks at business payments, he is a bit less positive. According to him, solutions from banks just aren’t up to scratch, where charging between 3 – 8 percent for international business payments is par of the course. In addition being expensive they are slow. It can take up to five working days for payments to arrive…five working days. There are also frequent cases when payments get “lost in the system” and you’re looking at a very complicated process to get it “unlost”.

Richard Bensberg, founder and CEO of Remitsy commenting on international business payments

Richard Bensberg, CEO of Remitsy

It happens because banks are using old technology and run an expensive service:

“Banks have been doing international settlement much the same way since 1971 – and even where they have leveraged new technology to improve their products, as a user it often feels clumsily crowbarred into legacy systems.”

Business Payments are Changing

Recently there’s been a lot of news on banks such as Barclays and Bank of America (and others) experimenting with blockchain technology. But Richard thinks that the real innovation won’t be coming from the traditional banks:

“Whilst it is clear that banks now see the potential of the blockchain, I think we’ll continue to see the most cutting edge implementations coming from leaner fintech companies. That being said, banks are more than the sum of their technology, and Remitsy are not looking to replace the bank. But we have all heard that software is eating the world, and I see payments as the banks’ bread and butter. And we are hungry!”

You can read the whole article from UK Investor Magazine here.




Oliver LompartOliver Lompart

The Truth About International Payments

How much do your international payments cost? You’d be surprised!

According to research from Goldman Sachs, the average cost of an international payment (and profit of banks on it) is 6%. And that’s not the only cost to be considered. Add in the time spent preparing the transaction, time spent waiting for the payment to arrive and the potential risks involved.

Payments are mysterious

International payments are big business for banks and others. Paying suppliers can be troublesome

Paying a supplier, outsourcing services abroad, or expanding to the market in another country? In today’s connected world, these transactions are now done on daily basis. But sending and receiving money internationally can be a huge burden for your company.

The Business of Business Payments

International business payments are different from other transfers of money abroad. Aside from the extra paperwork involved, international business payments have a direct effect on the profits of you and your business partner. And they also impact the rest of the business processes: production cannot start; goods cannot be loaded; services cannot be rendered… until the money arrives.

I’m Only Paying the Processing Fee, Right?

There are three costs for businesses when sending money abroad. Processing fees, hidden exchange fees and time costs.

The processing fee is a visible cost for the company. It is usually a fixed amount per payment, a percentage of the amount transferred, or a combination of both. The fee varies based on where your supplier is located, what currency you choose and how fast you need it.

Let’s look at an example. Barclays’s fees for an international payment start at £25 (outside of SEPA) (2). But then there are also fees on the supplier’s side, which are much less clear and often not specified. For example, in the UK if you were to receive money from abroad in a different currency, Barclays would charge you an additional £6.

International payments. Exchange rate fee

No fees! Zero percent commission! Sounds like you are saving a lot of money, doesn’t it?

Do you also wonder how it is possible that the exchange rate you look up on the internet is never the same as the one offered by your bank? That’s the second way of charging you for the international money transfer.

Why don’t banks use the official, market-determined exchange rate? Because banks are smart. Internally they use it, but for customers, they add a percent here and there. They know that most people are happy to overlook these charges or don’t even know about them. Out of sight, out of mind — banks are taking advantage of our unawareness.

If you want to use real exchange rate, look for the mid-market rate. You can find this through websites such as XE and Oanda. The mid-market rate is the true exchange rate — unlike the adjusted exchange rates quoted by banks and brokers.

Difference between exchange rate used by HSBC and true mid-market rate available at XE.com

Difference between exchange rate used by HSBC and true mid-market rate available at XE.com

Let’s look at HSBC and their exchange rate. Imagine business owner in Hong Kong who needs to pay his business partner in UK 10,000 GBP. On 17th December 2015, he would have to pay 11.6242 HKD for every GBP. It is worth mentioning that this is “better” business exchange rate, which is only available for online transactions with minimum transaction amount of USD 10,000 or its equivalent (source). At the same time, real mid-market exchange rate from XE.com was 11.5919 HKD per GBP. With HSBC exchange rate business owner from Hong Kong would have to pay 116,242 HKD (and other bank fees as well). If HSBC was using real mid-market exchange rate, you would only have to pay 115,919 HKD. This is roughly 250 HKD (20 GBP) difference.

Time is money. The third cost of your international payment is time. Not only your time battling with extensive bank paperwork, but also the transfer time, when the payment is on its way to your business partner. During this time, these funds are frozen, so they can’t be used by you nor the receiver.

Production and shipping may be delayed if funds do not arrive on time (things get even worse if the payment gets lost in the system!). This can lead to upset customers and has serious consequences for either party’s cashflow. Any business owner knows how stressful it can be to wait for money to arrive.

Innovation in International Payments

In the past few decades technology has changed our lives and made many things easier. But international business payments still remain largely untouched by innovation. We are still sending money to our suppliers mostly “the old way”, using the system that was developed in 1971 before the internet. That old way is expensive.

And why would banks want to change? International money transfers are good business for them. The market is valued at more than half a trillion dollars and is expected to grow further. Goldman Sachs estimates that the banking industry’s total revenue from international money transfers is around 30bn USD. This is the value created by businesses like yours, taken by the banks — just for moving your money from A to B.

However, personal international money transfers are seeing more innovation. Companies like Transferwise and Xoom are now common choices and are seeing increasingly fast adoption. Why?

Imagine an individual working abroad, who is sending money every month to his wife and child at home. This person has strong motivation to save on his international payment costs so that his family can buy more things. By using Transferwise instead of a bank, he saves up to 90% on fees. And because they use the mid-market rate he knows exactly how much it cost.

On the other hand, businesses often don’t even think about doing things differently. If you have always sent money abroad in the same way, you may not be aware there are now other, better ways of doing it. Don’t businesses also need to look for savings?

Money Saved is Money Earned

We spend a lot of time trying to increase our revenues and profits. We come up with sophisticated sales strategies, marketing campaigns and company’s processes to achieve it. Each expense is meticulously accounted for. And yet when you ask a business owner or accountant how much their payments are costing, more often than not they don’t know.

How much does it take for a business to add 2–3% to its margins? Maybe just paying more attention and switching your international payment method can add that kind of savings and more.

After all, a penny saved is a penny earned.




Oliver LompartOliver Lompart