Why SMEs are wary of using cross-border payment platforms

Online Purchasing Payment E-commerce Banking. [Courtesy,]

The possibility of being defrauded and unfavorable foreign exchange rates are some of the reasons why small and medium enterprises (SMEs) are reluctant to utilise online cross-border payment methods. 

A new report by payment services provider Mastercard also lists poor customer support and funds taking too long to be received as the other reasons why they shun the mode of payment.  

The report says digital wallet mobile apps are the most preferred mode of transaction for SMEs when dealing with cross-border payments followed by bank websites and bank mobile apps. Cash is the least preferred method.  

The Borderless Payments Report 2023 notes that SMEs prefer to make cross-border payments online rather than using in-person methods. 

“Usage of digital apps has increased the most significantly since 2021, up six percentage points, with the greatest growth coming from the UAE (up 27 per cent ) and Canada (up 13 per cent),” the report says.  

According to most respondents, the report says, online cross-border payment methods—via a mobile app or website—have had a positive impact on business performance, helping them increase efficiency, drive growth and improve cash flow. 

“Online cross-border payments are seen as a lifeline for small businesses. Nearly seven in 10 SMEs agree sending online payments allowed the business to survive the Covid-19 pandemic,” the report adds.  

This report was commissioned by Mastercard earlier this year and the survey was conducted across 15 countries in North America, Latin America, the Asia-Pacific region, Europe, the Middle East and Africa. 

The survey involved 7,627 consumers (18+ years) who sent or received a cross-border payment from someone in another country in the past 12 months, some 2,333 SMEs (1–249 employees) who use banking services for their business and currently pay suppliers/services in another country and 1,309 gig workers who have sent or received a cross-border payment in the past 12 months.  

The report lists security, speed and transparency as the top three priorities for a cross-border payment solution for SMEs. 

“Data security leads the list, reflecting their fear of fraud,” the report says.  

Mastercard notes that nearly four in ten SMEs would like cross-border funds delivered within 24 hours or less—a significant improvement over the current turnaround time of two to five days and closer to the near-instant speed of domestic payments. 

“The leading pain point for four in 10 SMEs who currently make online cross-border payments is fear of fraud,” the report states.

“A perceived high risk of fraudulent activity is also the leading barrier preventing more than one-quarter of SMEs from even trying to make or receive online cross-border payments.” 

Mastercard recommends reassuring SMEs about the security of cross-border payment processes and providing highly visible fraud-protection features, like fraud monitoring and know-your-customer (KYC) tools, which can be market differentiators, particularly among small businesses that do not use online solutions for cross-border payments. 

The report says confirmation and trackability are important to maintain good supplier and worker relationships. 

Additionally, competitive exchange rates and good customer service rounds are important for these businesses. 

However, a competitive foreign exchange rate does not rank top among the list of six important factors when choosing an online payment solution.  

The most important is the security of personal and financial information followed by 24-hour delivery of funds, confirmation of funds being received, tracking of the status of transfer, competitive foreign exchange rates and customer support. 

Conversely, competitive foreign exchange ranks among the top concerns of online cross-border payments. 

The list opens with fear of fraud, poor transfer or foreign exchange rates, lack of transparency on how much the transfer costs will be that affects the received amounts, delivery of funds taking too long and, the destination country or market having so many restrictions. 

Others are few options to deliver funds via the recipient’s preferred method, lack of a mechanism to track when funds will be received, poor customer support, inability to use a trusted money transfer provider and, difficulty in using mobile apps or websites. 

The report documents that while there is considerable variation in costs from region to region, four in 10 SMEs complain about poor exchange rates and high transfer fees with their online payment solutions.  

“Their anger is understandable,” the report says. It notes that some cases, a cross-border payment can cost up to 10 times more than a domestic payment. 

This extends to transaction costs with over one-third of SME respondents also saying there was a lack of transparency around the online payment costs. 

The survey also found that more than one-third of SMEs have experienced late or failed payments when making cross-border transactions—a percentage that rises to half of SMEs in Saudi Arabia and India. 

“Among those who have experienced this issue, not being able to pay suppliers on time is the most common consequence,” the report says.  

Around a third of SMEs are reported to have also been unable to buy essential supplies and/or suffered reputational damage as a result of late payments.  

“Moreover, almost half say that these delivery difficulties have made them less confident using cross-border payments and more likely to use domestic suppliers instead,” the report adds. 

Poor service provision by payment platforms remains a serious threat to small business success in Kenya and across the globe, a past Mastercard survey found.

The findings are consistent with the Borderless Payments Report of 2021, which noted the trend is bigger in digital cross-border payments, where about 45 per cent of SMEs and 42 per cent of consumers fear they might become victims of fraud.

This was the feeling among 7,586 consumers in the UK, UAE, Saudi Arabia, South Africa, China, Singapore, India, US, Canada, Mexico, France, Germany, Brazil, Colombia and Chile and another 3,074 representatives of micro, small and medium-sized enterprises in each of these markets.

Payment service providers were also been blamed for poor pricing, where about 40 per cent of consumers and 45 per cent of businesses say cross-border payment systems provide poor foreign exchange rates, high transfer fees, or both.

“About one-third say digital platforms are not transparent enough about how much transfers will cost and how much money will be received,” the report said.

According to the survey, one in three consumers said cross-border payment platforms have limited options for delivering funds by the recipient’s preferred method.

This is despite the majority of businesses saying sending digital cross-border payments would improve the efficiency of any business (79 per cent), help the business grow (72 per cent), improve cash flow (69 per cent) and allow the business to survive (69 per cent).

Almost 40 per cent of businesses said they do not always get a receipt when they send online payments. About 30 per cent say they cannot track their transfer status or estimated arrival.

The survey found that three-quarters of consumers who send cross-border payments said they would be more inclined to use online platforms if they were faster.