Global Payments: What Happens After You Click “Send” · ©2016 – Treasury Alliance Group...

©2016 – Treasury Alliance Group LLC/INTL-FCStone – All Rights Reserved

Global Payments: What Happens After You Click “Send”

Treasury Alliance Group LLC www.treasuryalliance.com

INTL FCStone Ltd www.intlfcstone.com

April 7, 2016


Useful Maxims

•  When sitting at a game of high stakes poker, identify the sheep and the wolves –  If you can’t tell the difference, leave the game immediately

•  When making global payments understand the process and deal with trusted counterparties –  See “high stakes poker”

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Global Payments

•  There are hundreds of international and domestic payment systems

•  Global payments is a large and growing market with many new entrants

•  Trillions of dollars are moved daily •  Not all of it without incident

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Things to Think About

•  A large global bank used a network of banks in MEA with their own clearing codes to mask dollar-denominated transfers to sanctioned entities – they were fined $8.9 billion

•  Another international bank was fined $340 million after being accused of hiding $250 billion in transactions with Iran

•  Crypto currencies enable low cost transfers between regular individuals along with human, arms and drug traffickers, how will authorities know the difference

•  A non-bank payments provider was assessed a $700,000 penalty by the US for violating requirements of the Bank Secrecy Act and operating as a money services business

•  Sanctions add significant civil and criminal penalties to violations of regulations such as FCPA, AML, FBAR, FATCA – and other – overseen by ORAC, FINCEN, CFPB – and others

•  …and this is just in the US

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Webinar Outline

•  Infrastructure •  Issues

–  Compliance –  Regulation –  Technology

•  Scenarios and best practices •  Actions

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INFRASTRUCTURE


Participants

•  National institutions –  The central bank, government ministries, tax authorities,

banking system, telecommunications, commercial practices, and legal system

•  Quasi governmental institutions –  BIS, IMF, World Bank

•  Multinational institutions –  SWIFT, ITU, and ICC

•  Conventional banks; global, regional and local •  Hybrid entities

–  Dwolla, Bitcoin, Moneygram, PayPal, nCourt, Apple, Bancbox, Global Payments

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Quick Wikipedia

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2C2P, Adyen, Alipay, Amazon Payments, Atos, Authorize.Net, BIPS, BitPay, BlueSnap, BPAY, Braintree, CentUp, Creditcall, CyberSource, DataCash, DigiCash, Digital River, Dwolla, ecoPayz, Edy, Elavon, Euronet Worldwide, eWAY, First Data, Flooz, Fortumo, GoCardless, Heartland Payment Systems, Hyperwallet, IP Payments, Klarna, Live Gamer, ModusLink, Molpay, Mpay, MPP Global Solutions, MultiSafepay, Neteller, Nochex, Ogone, PagSeguro, Paymentwall, Payoneer, PayPal, PayPoint, Paysbuy, PayXpert, Payzone, PlaySpan, Popmoney, Realex Payments, Red Dot Payment, RuPay, Sage Group, Skrill, Square, Inc., Stripe, TFI Markets, TIMWE, TransferWise, True Money, Ukash, Verifone, Vindicia, WebMoney, WePay, Wirecard, WorldNet, TPS, Worldpay, Xsolla


Anatomy of a Global Payment

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Hawala: The Old Way

Parent in Karachi

Hawaladar in Karachi

Hawaladar in London

Child in London

Delivers Cash

Receives Code Receives Cash

Provides Code

Provides Code

Net Transfer

Advise Receipt


ISSUES

©2016 – Treasury Alliance Group LLC/INTL-FCStone – All Rights Reserved Page 11

Issues to Consider

Central Bank Clearing

Concentration Bank A’s Foreign

Correspondent

Concentration Bank B’s Foreign

Correspondent

A B

A’s Bank B’s Bank

Location of beneficiaries

Bank access systems

Timing and finality of payment

Counterparty risk

Geographic distance

Trust

Language

Time zone


Fundamentals of FX

•  2 way prices •  Players

–  Brokers –  Dealing banks –  Other banks

•  Factors to consider –  Size of transaction –  Currency volatility –  Spreads –  Other


Cost and Speed

•  Access method –  Electronic initiation –  Oral transaction –  Competitive platform

•  Counterparties –  Not just the correspondent bank, but which branch

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Compliance

•  KYC and KYCC –  About KYC

•  AML –  What is AML

•  OFAC –  What is OFAC and why it matters –  OFAC screening

•  Local regulations –  Central bank reporting –  Payor and payee reporting


Low Bid Mid Ask Execution Wgt Ave High

-3 bps

-2 bps

-1 bps

+2.5 bps

More About FX Pricing


Big Data Analysis

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SCENARIOS AND BEST PRACTICES


Scenario: Funding Foreign Subsidiary

•  Nigerian subsidiary asked US HQ for USD $1 million so they could purchase Nigerian Naira (NGN)

•  HQ wired USD $1 million to the subsidiary’s bank in Nigeria

•  The Nigerian bank converted the $1 million at a rate of 197 NGN to the USD

•  The market rate was 199.85 for a difference of 1.5% or $15,000


Best Practice

•  Watch the market •  Lock in exchange rate upfront •  Identify all fees prior to transaction •  Ask your provider if they have 100% control

over the rate •  Ask your provider if there are different rates for

different volumes

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Scenario: Vendor Payment in Brazil

•  Obligation to pay service provider in Brazil BRL 2 million (USD 526,000 at indicative rate of 3.8)

•  Send USD to cover the BRL amount but the market changed, rate is 3.75

•  Vendor receives BRL1,972,500 BRL and is not happy


Best Practice

•  Send foreign currency where possible •  Rate transparency, all inclusive costs, and

shopping opportunity •  Sometimes forbidden by regulation •  If your provider can’t explain the process

accurately upfront, look for another provider that directly deals in the market

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Scenario: Non-Receipt of Funds

•  US business sent USD 150,000 to China •  The sending bank delivered the funds to the

wrong branch of beneficiary’s bank •  The receiving bank took several weeks to correct

the error •  Sender and vendor are both upset •  Best practice: verify the address and bank

routing carefully, close is not good enough

Page 22


Scenario: Revenue Shift

•  Parent sending USD to Bangladesh branch of major bank to fund subsidiary in BDT

•  Parent sees a lower for the BDT in the US and so delivers BDT to Bangladesh instead of USD

•  Bangladeshi loses revenue from the FX spread and “slow walks” submission of the Form C to the central bank delaying funding to subsidiary

•  Best practice: Change bank in Bangladesh, offer compensating business or accept inefficiency of sending USD

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Scenario: Handcuffs

Page 24

•  Company sends USD to Angola but receives poor exchange rates and poor service

•  New treasury manager demands better pricing and faster service and goes to Angola to “work with” the banks

•  Bank politely declines to make any changes knowing the company has no other options

•  Best practice: Know what can be done and search for least bad options


Scenario: Subcontracting

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•  Company uses a third-party provider for sending foreign currencies

•  This works well in major currencies where a system provides automated quotes

•  For minor currencies the company must call for a rate •  The provider promises to respond with a quote and

proceeds to use another provider for the money movement receiving poor price and worse service

•  Best practice: Know your requirements and how vendors will meet them


ACTIONS


Best Practices

•  Multiple exchange rates –  Phone, Email, Electronic Platform (single and multi) –  360T, FXall, Bloomberg –  Make sure rates are “tradable”

•  -Local office/HQ bank –  Check both

•  -FX payment specialists –  Can minimize correspondents –  Useful for exotic Payments –  Maintain exchange rate sites


Actions

•  Understand your risk tolerance •  Rigorously identify all FX exposures

–  There is almost certainly more than you think

•  Map the current payments processes •  Evaluate your counterparties

–  Include financial institutions, systems providers and others

•  Select appropriate solutions •  Monitor and evaluate

Page 28


Furthermore

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To obtain a copy of these slides and a certificate of completion for CPE or other financial certification please go to www.treasuryalliance.com/webinars/cpe.pdf www.treasuryalliance.com/webinars/slides.pdf

Join fellow alumni from this and other Treasury Alliance Group programs in networking about the issues discussed and simply keeping in touch. Go to: http://www.linkedin.com/e/gis/81318/37CD3F56BA8F


Daniel L. Blumen, CTP, Partner

Phone (630) 717-9728 [email protected]

Treasury Alliance Group LLC www.treasuryalliance.com

Greg Leven, VP of Global Payments

Phone (816) 410-3286 [email protected]

INTL FCStone Ltd www.intlfcstone.com

Contact Information

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Global Payments: What Happens After You Click “Send” · ©2016 – Treasury Alliance Group...

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