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Democratizing International Funds Transfer for Credit Unions

Democratizing International Funds Transfer for Credit Unions
Posted: Oct 18, 2016
Comments: 0
Author: David Stern

Helpful Insights by Transpay's Manager of Strategy and Partnerships

While consumer confidence in traditional banks have waned, shares and deposits in federally insured credit unions grew past $1 trillion in the fourth quarter of 2015. For more than 100 years credit unions have provided affordable financial services for US consumers, ranging from checking accounts to auto loans.  However, one internalized service that a majority of credit unions still lack is the ability to send payments internationally in a cost-effective manner. The regulatory hassle and limited returns have largely dissuaded credit unions from getting their own SWIFT/BIC code. Instead, credit unions turn to correspondent banks to complete international wire requests.

This too is riddled with challenges, as banks in recent years have regularly closed the correspondent accounts of credit unions, in an effort to de-risk and comply with AML requirements. For the banks that still offer correspondent accounts, the payment process can be time-consuming and offer limited transparency on transfer status and delivery success. What’s more, credit unions also run the risk of losing account holders to those same correspondent banks.

This doesn’t mean that unions should abandon the international payment race however. International funds transfer is big business; according to Boston Consulting Group, bringing in 25% of global banking revenues for in 2015. This potential windfall, coupled with the opportunity to boost retention and customer satisfaction should motivate credit unions to not work harder, but smarter.

Increasingly, alternate payment providers are stepping up to fill in the gaps for credit unions in need of international payouts. Thanks to the booming fintech industry several companies have been able to strip away the complexities of international funds transfer, enabling credit unions and other financial institutions to offer foreign exchange and international payments to account holders.

So, what should credit unions consider when evaluating a payment partner? To start the three C’s: cost, compliance, and coverage.

Cost: International payments introduces a new source of non-interest revenue with capital investment, but the economics for senders need to make sense. When outsourcing, unions should be sure to select a transparent service provider that has the ability to provide value pricing options to ensure that the best rates and delivery times are met. Inquiring about transfer processes – if it’s internalized or farmed out – and integration options can shine the light on any hidden fees.

Compliance: Outsourcing international fund transfers not only provides credit unions with a payments engine but the regulatory coverage to carry out international transfers. Unions should review compliance documentation and licensing for their partners to ensure their partners’ standards match their own.

Coverage: Payment provider’s should offer both developed market corridors as well as the ability to offer popular remittance corridors like the Philippines, India and Nigeria to help attract new clientele.  For major credit union’s it will be the hard-to-reach markets and ability offer cost effective access to minor and major esoteric currencies that can be the difference maker for a credit union and their account holders.

Implementing the right international payment solution provides credit unions with access to infrastructure that can transform time-intensive and costly international transfers into a faster and seamless experience. As credit unions continue to support consumers around the US, having direct access to the international market can help to secure future revenues and long-term customer relationships.

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David Stern

David SternDavid Stern

David Handloss-Stern is the Manager of Strategy and Partnerships at Transpay, a leading B2B/B2P payments company.

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