Larger financial institutions often use FX and international payments as a way to get their foot in the door with a commercial client. Once they’ve established a relationship through conducting international payments, they look for opportunities to capture additional business.
Here’s what’s at risk when your customers are going to big banks for their international payments:
- Loss of Revenue: If your customers start using a competitor for international payments, you may experience a loss of revenue as transaction fees and currency conversion fees which can be an additional source of revenue for regional banks.
- Customer Attrition: Offering international payment services through a competitor might lead to customer dissatisfaction and attrition. As we mentioned above, customers may shift their entire banking relationship to the competitor if they find their services more convenient or cost-effective. For regional banks especially, reducing customer attrition is often a KPI set by executive teams.
- Reduced Customer Loyalty: Providing international payment services through a competitor erodes customer loyalty. Your customers may become less loyal to you, making it easier for them to switch to other banking services as well. Regional banks often pride themselves on their customer loyalty. By not offering this critical service yourself, you’re signaling to your customers that there are limitations to your relationship.
- Data Security Concerns: Using a competitor for international payments may raise concerns about data security. Customers may worry about the safety of their financial information and transactions, especially if the competitor has experienced security breaches in the past.
- Operational Integration Challenges: Integrating with a competitor’s system for international payments may present operational challenges. Compatibility issues, technical glitches, and delays in transaction processing could lead to a negative customer experience. Most regional banks don’t have the ability to integrate into a larger bank’s correspondent system, which makes the process manual and inefficient.
- Regulatory Compliance: Different regions and countries may have varying regulatory requirements for international transactions. Partnering with a competitor might expose you to compliance issues if the competitor does not adhere to the necessary regulations.
- Reputation Risk: Associating with a competitor for international payments could harm your reputation. If the competitor faces controversies or negative publicity, the regional bank may be indirectly affected by the association.
- Dependence on a Third Party: Relying on a competitor for international payment services makes you dependent on the competitor’s reliability, performance, and business decisions. Any issues with the competitor’s services could directly impact you and your customers.
- Limited Control over Customer Experience: You may have limited control over the customer experience when using a competitor’s platform. This lack of control can result in challenges related to service quality, responsiveness, and customer support.
- Strategic Disadvantage: Allowing a competitor to handle international payments will put you at a strategic disadvantage in the long run. It could limit your ability to offer a comprehensive set of financial services and compete effectively in the market.
Before deciding to allow customers to use a competitor for international payments, you should carefully assess these risks and weigh them against potential benefits. Developing a clear strategy, addressing customer concerns, and ensuring regulatory compliance are crucial steps in mitigating these risks.