15/01/2024
What Canadian Businesses Need to Know About International Payments
An International Payments Primer for the Canadian Business
Canadian businesses are some of the most dynamic in the world, impacting global commerce in meaningful and innovative ways. Facilitating global commerce requires the movement of capital via international payments. You may be a customer making an international payment for your goods or a vendor receiving payment from customers abroad. This whitepaper aims to educate Canadian businesses on how to better manage and save money from their international payments, turning FX risk into FX opportunity.
Landscape: What are my options?
If you have to make a payment to another country in another currency, chances are you’ll be paying from your Canadian or US dollar accounts held in Canada. This necessitates the conversion of your funds into the currency preferred by the overseas recipient or beneficiary. This rate of conversion is what we call the foreign exchange or FX rate. There are several methods available for executing this kind of transaction – let’s explore a few:
A. Pay by credit card
VISA, MasterCard, and other card networks will transfer the payment in real-time, but for large-value payments this means a significant fee (~3%) from the networks that the vendor pays (sometimes transferred to the customer). Additionally, the FX rates are unlikely to be competitive.
B. Use your bank
A reliable, albeit slow, service from a safe Canadian banking institution. However, you are unlikely to secure a competitive FX rate from a traditional Canadian bank and the speed of the payment may be slower than you would expect.
C. Use an FX specialist
Registered as money service businesses, these entities specialize in facilitating larger-value cross-border payments. They do not have the regulatory scrutiny that a bank does (read: not as safe and reliable) and often win business based solely on being price competitive for the initial “teaser” rate.
D. Use an alternative payments provider
Some businesses send international payments via cryptocurrency payments. This involves converting CAD to a cryptocurrency and sending the crypto overseas, where it is converted into the local currency. While these payments are fast, we do not advise using this service due to the unregulated nature of the entities operating these businesses, the wild fluctuation of cryptocurrency prices, and because these methods of payment are largely untested in high volume or mainstream scenarios. Finally, fees may range wildly from different providers.
Payment Differentiators: What makes an international payment service “good”?
It depends on what you prioritize in your payment relative to the price and service being offered at the institutions you do business at. Here are a few considerations:
1. Speed: How fast is the money getting to its destination?
Most institutions are able to fulfill international payments to the most common trade destinations (i.e. US, Europe) at par with one another. This is because almost all providers leverage the same rails. However, payments to more exotic destinations are slower with traditional providers that have not made the investments and cultivated the relationships necessary to provide speed for non-standard payment destinations. Sometimes the time it takes for a recipient to receive a payment can be several days to a week, which is a far cry from client expectations today.
2. Price: How much am I paying for this transfer?
There are two primary costs to consider: the foreign exchange (FX) rate and the fee. It’s common to see traditional providers setting high FX rates for standard pricing due to a lack of awareness in many Canadian businesses as to the extra costs they are paying to their bank. Some providers offer a better FX rate only to make up the difference in the payment fee. There are also costs to consider with regards to speed – faster usually means more expensive. It’s important your provider can offer you the combination that is right for you, at a competitive price.
3. Safety: Can I trust my service provider to safely fulfill my international payment?
Canada has many types of financial institutions: credit unions, money service businesses, and banks, to name a few. Each type of financial institution or money transmitter has differing levels of regulatory compliance that it must adhere to. It’s important to consider an institution with a strong reputation, a robust compliance regime, and good standing with their regulator. For a payment provider to earn your trust they should demonstrate a high degree of transparency and be open to reviewing why their institution can offer the best solution for you.
Choose EBC: The safety of a Bank, the pricing of a Brokerage
EBC is the only Canadian bank that specializes in FX services. Regulated by OSFI, we offer the security and safety of a bank with the pricing of an FX brokerage.
Schedule 1 Bank
EBC is a Canadian Schedule 1 Bank regulated by the Office of the Superintendent of Financial Institutions (OSFI), a leading, globally recognized banking regulator. We maintain strong compliance management and governance programs overseen by our independent Board of Directors, comprised of many banking and payments industry veterans.
FX Specialist
We are staffed with seasoned FX specialists that are attuned to the needs of Canadian businesses and can tailor FX solutions per your needs. Should you require it, our team can become an extension of your accounts payable function, fulfilling your payments needs to the level you require, and at a very competitive price point.
We are Customer First
We pride ourselves on our concierge service and the simplicity and ease with which we enable our customers to complete their payments. It’s why we’ve consistently achieved industry-leading Net Promoter Scores (NPS) above 80 (2023 survey: 85 NPS). This compares favourably with the industry average of 30. Try EBC for yourself to see the difference.
