If you've ever exported goods or services, you'd know its not a smooth process. Share bank details -> wait for transfers -> deal with paperwork and on top of it pay 5-10% in fees across layers (SWIFT + intermediary bank + forex markup + conversion + FIRC issuance fees).
Or use PayPal but lose 5-10% in fee across layers!
This is a big pain point for (1) freelancers & services providers and (2) SME exporters. The numbers are big - India sends out goods & services worth $800bn and a sizeable chunk (>25%) of this is by SMEs.
The traditional banking / PayPal setup looks like this:
• Fees: 5-10% of the transaction value;
• Time: anywhere from 3 days to 2 weeks, depending on the currency pairs, countries & banks involved;
• Documentation: manually submit PO & Invoices to the bank + follow-up for Foreign Inward Remittance Certificate (FIRC) issuance (required for compliance).
This has opened up an opportunity for Fintechs like Skydo, Cashfree (Global collections) and Xflow to provide a cheaper, faster alternative to receive business payments from abroad.
Here's what the solution looks like (taking Skydo's example):
• You signup with Skydo & they open a collection a/c for you in different countries/currencies;
• You share the collection bank details with the sender, who will do a local wire transfer (equivalent to our NetBanking or IMPS);
• Skydo reconciles, collects the funds & settles the proceeds in INR to your regular bank account within 48 hours.
These companies typically operate with a PA-CB (Payment Aggregator - Cross Border) license, which means they are authorized to aggregate B2B forex inward payments into an Export Collection Account and then settle it your local bank account.
Unlike direct SWIFT transfers, where each transaction has to be negotiated by each receiver with respective banks, players like Skydo have a volume edge. So they're able to pass on mid-market pricing and a flat $19-29 fee. Most other players too work within a 1-2% fee.
Compare this with PayPal, Payoneer or banks, where you pay a 4-9% processing fee and 1-3% in conversion rates. At scale & frequency, the savings become material!
The only major drawback is that your client will have to pay via wire transfer & will not be able to pay via a credit card. For large value transactions, one may argue that wire transfer is a safer option in terms of chargeback frauds.
What can make the proposition more valuable?
If a really low-cost credit card stack can be built on top of this, it may open up a lot more use cases. I'm thinking: an international payments option for Indian Shopify stores?