HomeSponsoredHow traditional banking is holding back globally ambitious startups

How traditional banking is holding back globally ambitious startups

Editor’s Note: This article is part of a sponsorship collaboration with Airwallex. If you’re interested in collaborating with us, get in touch here

So you’re a few years and a couple of funding rounds into your startup. By now, you’ve probably had a conversation with your CFO or Finance team about the necessary operational needs of international expansion. 

You may even have had a conversation with your existing banking provider to understand all that entails when you launch abroad in a few weeks: multi-currency payment acceptance/payout, FX and transfers between entities, global expense management et cetera. If the account manager at your banking provider hasn’t chuckled at you for wishful thinking, they’re probably dreading the upcoming pain of opening localised bank accounts and explaining the exorbitant FX rates you’ll face. That’s if you have an account manager in the first place.

You should feel sorry for your account manager at this point. The fact of the matter is they – and you, more importantly – are constrained by legacy limitations, both of technology and of strategy. The simple truth is that the major incumbent banks, who’ve dominated the global payments market, made a strategic decision many decades ago to prioritise the storage and credit of funds and not their movement. Put differently, they’ve built their services to ensure as much cash stays in their reserves as possible while capitalising on credit lines for customers. 

Time for a startup-suited update to global payments

Modern business thrives on agility. We work virtually, we deliver instant digital services and we ship in hours. We’re open 24/7 and in multiple geographies. When we sit at our desks, we expect ease, simplicity and complete control over the tools we use in business. It means we’re able to launch never-before-seen products into never-before-reached markets as quickly as our cursor can move. So it’s a shame that financial operations can undermine all that agile business: when bank account applications take ages to process, and company revenue stays in limbo for days at a time. 

It shouldn’t be a tall order on the banking front for startups to enjoy international success. We see internal and external hurdles that businesses need to traverse. Internally, you need to build an efficient financial structure that keeps your corporate operations ticking over, while externally your products and services need to be fit for localised consumption; i.e. you need to offer local currencies or payment methods to increase customer engagement and retention. 

The global payment criteria for success

The first consideration will be opening local business accounts and accessing local currencies to pay staff and suppliers while collecting customer funds. The second consideration will be looking at the efficiency of your expanded cashflow structure, particularly around FX and settlement into the home currency; tapping into local currencies will minimise the costly fees of international currency conversions. You’ll then have to figure out how to operate (and scale) your new financial structure with your lean team, without burdening them with manual reconciliation. Lastly, it goes without saying startups want to do all of this in a matter of weeks, not months.

Additionally, you’ll have more specific needs to consider depending on your business type. If you’re an eCommerce business, you’ll need local payment collections and payouts to keep customers happy at checkout and local suppliers paid. You’ll be looking for a solution that can easily plug into your existing back end with minimal build. If you’re a Software as a Service (SaaS) or service business, you’ll be focused on how your treasury can efficiently support and scale your global workforce, both for payroll and minimal manual intervention on reconciliation. If you’re an Online Travel Agent, you’ll be focused on ensuring your end-to-end payment flows across multiple currencies are as cost-effective as possible, while also keeping reconciliations hassle-free for the team.

What to look out for when choosing a global payment and financial infrastructure provider

Most startups will have come to these same conclusions we previously discussed and will be looking at any one of the challenger fintechs who’ve cropped up in the payments space since 2015. However, here are three lesser known considerations to make when choosing a global payments platform to support your growth.

1. Move money like a local

When entering new markets you want to avoid being seen as a foreign company that’s out of touch with local business norms and culture. Nowhere is that more apparent than your payment stack; whether that’s offering the preferred local method for customers to pay and employees to be paid, or offering local currency pay out to suppliers. This not only makes you an attractive company to work with but also improves operational efficiency by avoiding the high fees and admin of frequent currency conversion. This creates local liquidity, allowing both local entities and the group entity to operate as efficiently as they might.

2. The perils of ‘tool sprawl’

Startups can rarely afford the luxury of frequent and regular investment in technology. More often, new technologies come hand in hand with investment rounds, commonly leading to disjointed ‘tool sprawl’. A patchwork of multiple fintech solutions – even if best-in-class – creates inefficiencies and costs, especially if you have high staff attrition and a pacey product roadmap.  Developers will only need to maintain one set of application programming interface (API) integrations, the Finance team will avoid a multitude of individual monthly invoices and set-up fees, and the Product team can move quicker without trying to coordinate the different tools in the stack to ship new launches. And that’s before considering the impact on employee training and new starter efficiency. It pays to find a solution that can do as many functions as possible. 

3. The global-first approach allows for market toe dipping

New market launches take serious investment in product, infrastructure, people and compliance, and make startups reluctant to tap a complementary new customer base and revenue streams. It usually means that startups focus on very few geographies and often consequentially. However, this can leave startups with their eggs all in one basket and unable to capitalise quickly on healthy market conditions elsewhere in the world.

In the same way, a global-first approach should be considered a smart risk management strategy. This approach prioritises international business agility: by leveraging a single global financial infrastructure, your business can dip its toes in new markets, test the waters, and commit when the opportunity arises. For example, a customer could use Airwallex to quickly open a USD account to test the viability of the U.S. market without worrying about local collection and payout. In this way, startups can capitalise on a much wider total addressable market while spreading the potential risk of local market volatility.

Empowering businesses to operate beyond borders, the Airwallex way

There’s nothing like a particularly pertinent origin story to prove our point. Before Airwallex, the founders started a cafe in Melbourne, Australia. They had immense difficulty buying coffee cups from overseas and, in typical entrepreneurial fashion, decided to solve that problem too. 

Fast forward to today and Airwallex has built a global payments and financial platform designed for the needs of the modern startup. It removes the unnecessary friction and cost inherent in the traditional financial system to help entrepreneurs achieve their global ambitions. We manage everything from payments, treasury, and spending to embedded finance – all in one single platform. 

Businesses can open Global Accounts in 60+ countries and 12 currencies, allowing them to collect, hold and send money internationally in multiple currencies from a single platform while avoiding unnecessary FX conversions and fees. Businesses can accept payments from 90+ countries while paying out to 150+ countries in 45 currencies.

To find out how Airwallex can support your international growth, visit the website.

Patricia Allen
Patricia Allen
is the Head of Content at EU-Startups. With a background in politics, Patricia has a real passion for how shared ideas across communities and cultures can bring new initiatives and innovations for the future. She spends her time bringing you the latest news and updates of startups across Europe, and curating our social media.

Most Popular