Global Banking for Businesses

Banks and innovation are helping companies as they tackle the challenges that come with conducting business overseas.

By Jim Pytell, Managing Editor On Jul 5, 2022

It is no secret that the economy is becoming increasingly interconnected across borders. According to the Federal Reserve, cross-border transactions – currency transactions between people or businesses that are in different countries – totaled approximately $29 trillion in 2019, and are projected to grow to around $39 trillion by 2022.

In order to remain competitive in the global marketplace, companies doing business overseas want their transactions to be as instant, secure and transparent as possible. Today, digital innovation in the financial services space, coupled with the services that banks offer, is making it easier for companies to meet these goals.

Oliver Lewis, executive vice president and head of commercial banking at Fair Lawn-based Columbia Bank, says that the most common form of assistance that his bank’s clients look for in the realm of global banking is paying overseas vendors.

“Businesses need a good online reporting tool that has robust capabilities to make payments,” Lewis says.

Services in this area include wire transfers, where money is electronically transferred between people or businesses in which no physical money is exchanged; and foreign exchange payments, which involve the conversion of money from one currency to another, between a business and its suppliers.

Another service that banks can provide to ensure that suppliers get paid is a letter of credit, which is a contractual commitment by the foreign buyer’s bank to pay once the exporter ships the goods and presents the required documentation to the exporter’s bank as proof.

As a trade finance tool, letters of credit are designed to protect both exporters and importers, and can help companies win business with new clients in foreign markets. This means the exporter gets a guarantee of payment while offering the importer reasonable payment terms.

The buyer obtaining the letter of credit can help put the seller at ease in the deal, especially if they’ve never worked with the buyer before. However, letters of credit are costly, and can cause delays in the transaction if changes need to be made.

“The need for letters of credit has diminished over the years as companies have built long-term relationships with suppliers, and in turn built trust,” Lewis says. “Most [of our] clients have gone to payment terms similar to what you have if someone ordered from a different part of the US, for example.”

Innovating the Cross-Border Payment Experience

Technological innovation is also playing a big role in improving the cross-border transaction experience for businesses.

Andy Joyce, head of North America cross-currency solutions at J.P. Morgan, says that as the industry continues moving forward, it is now looking beyond traditional clearing rail advancements and leveraging technologies like SWIFT global payments innovation (GPI), virtual account management, and application programming interfaces (API) connectivity to enhance the beneficiary and sender experience.

“For the beneficiary and sender, API connectivity helps provide greater visibility and transparency into the when and how of their payment status. For the sender, they can see foreign exchange rates upfront before sending a payment. When an issue arises during a payment, beneficiaries can track the payment and receive updates in real time. Once implemented, beneficiaries and senders can better manage their cash positions wherever they operate a bank account, which can help lead to greater predictability.”

Additionally, Joyce explains that virtual account management can provide clients with the flexibility to manage cash flow across currencies through a centralized account structure.

“With centralized account structures, businesses can obtain better payment sequencing and manage detailed reporting under one umbrella,” he continues. “Through this structure, companies can easily transfer and/or concentrate their balances held in one account in one currency to another account in another currency, or fund local payments using a centralized account. This enables businesses to maximize their liquidity, reduce their risk exposure, and operate in the currencies that make most sense for their business.”

Supply Chain Challenges

According to the latest forecast from the American Bankers Association’s Economic Advisory Committee, international trade is expected to remain weak because the nation’s major trade partners in Europe and Asia are suffering from military conflict, COVID-19 and high energy prices.

Lewis says that providing flexibility to clients is important to help them tackle various challenges brought on by issues with the supply chain.

“We can help businesses get the approvals they need or get access to the cash they need to buy things in advance,” he says. “We’ve also given increased lines of credit so that a [business] can store more goods in its warehouse.”

In cases where a client needs to find a new place to source products or materials due to, most recently, pandemic-related shutdowns or war, Lewis says that it is important for businesses to know that the bank is there for them and that it can make payments into any new country that is chosen.

The ability for a bank to pivot and make quick decisions is extremely helpful for companies, especially given the current landscape, and is one advantage that smaller banks have over larger ones.

“We are small, nimble and can provide capital quickly and make decisions on large lines of credit very quickly because we don’t have that many layers,” Lewis says of Columbia Bank.

Conclusion

While doing business overseas presents its challenges, banks continue to expand their offerings to help ease the process for businesses big and small. And, over time, technological innovation seems poised to completely transform how international business is done.

“The push to make end-to-end money movement more instant, secure and transparent across borders has the payment industry continuously looking to improve the user experience,” J.P. Morgan’s Joyce says. “Embedding digital innovation into traditional clearing rails to improve existing technology is one example; creating new solutions, like real-time payments and wallets, is another. This is driving current digital trends and will continue to set the agenda into the future – all of which will produce new technology and payment methods and the emergence of a variety of non-bank payment providers.” 

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