What is a recurring bill?

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By Mariana Almeida Marques

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Subscription-based business models are popular in many industries and have great advantages for both customers and companies. Rather than one-off payments, subscriptions use recurring payments to collect payments from their customers on an ongoing basis, for as long as the customer wants. Though recurring payments and recurring bills sound very much the same, there is a minor difference between both terms. In this article, we will dive into subscription models, recurring bills and whether your company may need a recurring bill system.   

 

What is a subscription model?

A subscription model is based on continuous payments that can be scheduled for specific periods of time, such as monthly or quarterly. Companies that offer subscription options provide an ongoing service that customers sign up to and can keep using for as long as they want. Streaming services are a very straightforward example of a subscription model, as customers subscribe to the service and pay a recurring monthly bill in order to have access to it at all times. This model often uses Direct Debit, so payments are automatically taken off the customer’s account on a specific day of the month.

There are many other industries that offer this type of model. Insurance products, for instance, can be purchased on a subscription basis where customers pay a monthly fee in exchange for ongoing coverage. This offers more flexibility for customers to modify their policies at any instance or to add on other services to their existing policy.

[/et_pb_text]subscription-based business models may offer great benefits to customers.[et_pb_text _builder_version=”4.9.2″ text_font=”Lato||||||||” text_text_color=”#000000″ header_font=”Lato||||||||” header_text_color=”#000000″ header_font_size=”24px” header_2_font=”Lato||||||||” header_2_text_color=”#000000″ header_2_font_size=”24px” header_3_font=”Lato||||||||” header_3_text_color=”#000000″ header_3_font_size=”24px” custom_margin=”||||false|false” custom_margin_tablet=”” custom_margin_phone=”” custom_margin_last_edited=”on|desktop” custom_padding=”|0px||||” header_3_font_size_tablet=”22px” header_3_font_size_phone=”20px” header_3_font_size_last_edited=”on|phone”]

 

What is a recurring bill?

A recurring bill is a scheduled payment that the customer agrees to in exchange for an ongoing service. Provided that customers authorise it, merchants often set up a direct debit plan so that payments are automatically processed on a scheduled day, either monthly, quarterly, or over the period of time agreed in the contract. As the term states, this bill is recurring and requires no action from customers whatsoever until they wish to cancel the contract. Most household bills work on this kind of system.   

This plan saves customers time, as they only have to introduce their bank details once and don’t have to actively initiate payments. For merchants, this plan allows them to balance their accounts receivable (AR), meaning that merchants have a better idea of how much revenue they make every month and can rely more on customer loyalty. This type of plan requires businesses to focus on customer retention, because profit is made long-term.

 

Recurring payment vs recurring bill

Depending on the industry and even on each company, bills can be fixed or variable. For streaming services, for instance, bills are often fixed, so customers know exactly how much money is taken off of their account every month. If companies want to make any changes to pricing, they will have to give notice to customers. If the pricing is fixed, companies used a simple recurring payment method.

However, payments aren’t always fixed. Think of gas or electricity companies, for instance. The amount of money you pay every month depends on how much gas or electricity you used during that period. In this case, customers sign up to a recurring bill that is still paid on a scheduled regular basis, but the prices may vary. Companies that have offer a wide range of products and whose pricing is based on usage, discounts, tax and additional charges need to set up a recurring bill system. Recurring bill systems are more complex than a fixed-amount recurring payment system.

[/et_pb_text]recurring bills are ongoing, scheduled payments that may vary depending on discounts or tax.[et_pb_text _builder_version=”4.9.2″ _module_preset=”default” text_font=”Lato||||||||” text_text_color=”#000000″ header_font=”Lato||||||||” header_text_color=”#000000″ header_font_size=”24px” header_2_font=”Lato||||||||” header_2_text_color=”#000000″ header_2_font_size=”24px” header_3_font=”Lato||||||||” header_3_text_color=”#000000″ header_3_font_size=”24px” inline_fonts=”Lato”]

 

Does your business need a recurring bill system?

Firstly, businesses only need a recurring bill system when they work on a subscription-based model. Businesses need to consider if their models are consumption or usage-based, how many services or add-on products they provide, the discounts and promotions they may want to offer as well as how much flexibility they want to offer their customers (e.g. you may want to offer customers different billing frequencies). Recurring bill systems allow merchants to customise their offering to suit changing business and customers’ needs, so they may be an advantageous option to consider.

 

How Imburse can help

Imburse enables companies to connect to the entire payment ecosystem. By connecting to the Imburse platform, companies can integrate any payment provider or technology into their IT system, in any market. This allows them to gain access to a worldwide variety of technologies that they can deploy quickly and easily through our platform.

Whether companies are looking to expand their services to other countries, offer more payment methods to their customers or, in this case, introduce a recurring bill system- Imburse enables them to do so in a much faster and more cost-efficient way. If you would like to chat to our team and learn more about how we can help our business, drop us a message below.

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How credit card payment processing works

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By Mariana Almeida Marques

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Debit and credit cards serve the same purpose for customers: enabling them to purchase items or services. However, there are substantial differences between the two. In this article, we will dive into the usages of credit cards and how their payment processing works.

What is a credit card?

A credit card is a physical card issued by a bank that allows you to purchase items, withdraw or transfer money. The deposit you have on your credit card is, however, borrowed money and not your own. Your bank lends you a certain amount of money (credit), which you can use at your own discretion, and have to pay in full at a later time. Banks allow you to make one-off payments whenever your bill is due, pay a minimum amount each month or set up a monthly direct debit so whatever you have spent on a certain month will be paid on the day you chose. This way, you avoid the risk of forgetting to pay your bill on time.

Delays in paying your credit card bill results in accumulated interest and, potentially, late payment fees. Interest is often charged daily, so the longer you take to pay your credit card bill in full, the more money you will have to pay in the end. Your monthly credit card purchases can end up costing you double or triple than what you paid for them initially.

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What is a line of credit or credit limit?

Credit limit is an important term that you will see everywhere when searching for credit cards. This term is used to designate the amount of money that your bank agreed to lend you every month. Each bank has a different credit limit, and oftentimes this limit is also defined by your own financial situation, which your bank will analyse before making a decision. For example, you may be able to borrow £500 or £5000 a month and this will be your credit limit- the maximum amount of money you can spend on your credit card (assuming that you only have one).

Types of credit cards

There are different types of credit cards to choose from depending on your financial situation and goals. If your credit score is low and you want to improve it, for instance, there are specific credit cards that you can use to improve credit (provided that you pay your balance in full and on time).

These are often easier to get than rewards or cashback credit cards, which give you points or cash back for your purchases, or premium cards, which can give you access to various perks, such as access to airport lounges or special events. Some high-end credit cards also offer travel insurance. Note that some credit cards have an annual card fee, which can vary greatly. Usually, the more perks you have with your credit cards, the higher the annual fee.

Debit card vs credit card  

The fundamental difference between debit and credit cards is that the money you have on your debit card is actually yours- you have to deposit money in your card if you want to use it for purchases. With credit cards, the money you have available is borrowed, and you have to pay it in full at some point.

Credit cards usually give more protection against fraud than debit cards, because credit card providers are equally liable/responsible for your purchases. In the UK, under section 75 of the Consumer Credit Act 1974, cardholders can get a full refund from their issuing bank on items priced between £100 and £30.000. If you need a refund on an item, your bank should be able to liaise with the company you purchased the item from and get the money back.

Debit cards don’t offer this kind of protection. However, with your debit card, you don’t suffer the risk of having to pay interest on purchases or late payment fees. Though normally debit cards are free, some premium accounts may come with monthly or annual fees. Equally, some banks offer overdrafts to their customers- which essentially is a form of credit that customers will have to pay back.

[/et_pb_text]Your credit score will influence the types of credit card you can get.[et_pb_text _builder_version=”4.9.2″ _module_preset=”default” text_font=”Lato||||||||” text_text_color=”#000000″ header_font=”Lato||||||||” header_text_color=”#000000″ header_font_size=”24px” header_2_font=”Lato||||||||” header_2_text_color=”#000000″ header_2_font_size=”24px” header_3_font=”Lato||||||||” header_3_text_color=”#000000″ header_3_font_size=”24px” inline_fonts=”Lato”]

How does credit card processing work?

Credit card processing works very much in the same way as debit. There are three main stages of payment processing: the verification, authorisation and settlement. When a customer pays with their credit card in person or online, the merchant’s bank sends a request for funds to the issuing bank. The issuing bank and processor are responsible for verifying the identity of the cardholder, ensuring both that the cardholder is legitimate and all the details are correct, and that they have enough credit to purchase the item.

After the payment is verified and if all information is correct, the cardholder receives a notification stating that the payment was authorised. From here, the payment processor and card network work together to transfer the funds from the issuing bank to the acquiring bank, who settles the transaction and ensures that the funds are deposited in the merchant’s account. Note that because it is a credit payment, the issuing bank is paying the acquiring bank with its own money. Customers can check the amount that they owe their bank through their online banking app, and have to pay their issuing bank in full whenever the bill is due. Have a look at our blog post if you are interested in learning more about payment processing fees and how they work.

About Imburse

Imburse connects companies to the global payments ecosystem. By connecting to us, companies can integrate any payment provider or technology available worldwide for collection or pay-out. Moreover, they can do so in a matter of weeks, saving money, time and resources. Whether you would like to offer credit card payments to your customers or any other type of payment method, you can do so through Imburse at a touch of a button. If you would like more information about Imburse or access to a free demo, contact us below.

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Top credit card processing companies

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By Mariana Almeida Marques

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Credit cards are amongst the most popular payment methods worldwide. In the US, 70% of the population owns at least one credit card (Shift Processing report). Offering credit cards as a payment method for your customers may open a lot of doors for your business and enable you to quickly enlarge your customer base.

By connecting to Imburse, you can start taking credit payments from your customers in just a few weeks. Our platform enables you to integrate any payment provider or technology you want, so the options are endless. Aside from having total freedom of choice, integrating new providers and technologies through Imburse is an easy, quick and cost-effective process, which gives you the flexibility to adapt fast to customer demand and market changes.

In this article, we will enlist some of the most popular credit card processing companies. You can instantly connect to these processors, or any others in the market, through the Imburse platform. Have a look at our previous article if you want to know more about what is a credit card and how it works. Before choosing a credit card processor for your company, we will look into the credit card networks available.  

[/et_pb_text]credit cards processing involves a wide range of fees.[et_pb_text _builder_version=”4.9.2″ text_font=”Lato||||||||” text_text_color=”#000000″ header_font=”Lato||||||||” header_text_color=”#000000″ header_font_size=”24px” header_2_font=”Lato||||||||” header_2_text_color=”#000000″ header_2_font_size=”24px” header_3_font=”Lato||||||||” header_3_text_color=”#000000″ header_3_font_size=”18px” custom_margin=”||||false|false” custom_margin_tablet=”” custom_margin_phone=”” custom_margin_last_edited=”on|desktop” custom_padding=”|0px||||” header_3_font_size_tablet=”22px” header_3_font_size_phone=”20px” header_3_font_size_last_edited=”on|phone”]

 

Credit card fees

Credit card fees are generally higher than debit card, and you may pay a lot of additional fees for credit card processors. If your business is fully digital, you avoid all the equipment costs for the hardware needed. However, you won’t be able to avoid the standard transaction rates and service fees. These rates and fees vary greatly depending on the customers’ card network or bank.

Visa and MasterCard have lower transaction rates than American Express, hence being more widely available. Some small businesses don’t want to accept Amex due to their higher rates. Note that whilst Visa and MasterCard are card networks partnering with a bank (such as Chase and Capital One) to offer credit cards to customers, Amex works as both card network and bank.

 

American Express fees

Amex transaction rates range from 2% to 3.50% plus a few pennies (usually between $0.05 and $0.15) per transaction. This depends on the size of your business and the type of industry it operates in. Aside from the transaction rates, you will encounter fees for service, authorisation, settlement, security, regulation and chargebacks. So, as you can see, there is a long list of expenses to go through should you want to start accepting Amex cards.   

 

Visa and MasterCard fees

As we discussed below, both Visa and MasterCard are solely card networks, so all the other additional fees depend on your customers’ bank and the payment processor you choose to partner with. For example, payment processors usually charge set up fees and monthly service fees. On average, Visa and MasterCard charge between 1.50% and 2.50% per transaction. The type of credit card also influences merchant fees: business cards are generally the most expensive to process, along with rewards cards.

 

Discover fees

Thought not as widely known as the other three credit card players, Discover is also a credit card issued by Discover Bank. It is issued in the US but available to use in 200 countries across the globe. The Discover website states that this credit card has “moderate acceptance” in the UK and in the US, it is actually more accepted than American Express. Its transaction fees vary from 1.50% to 2.30%, quite similar values to Visa and MasterCard.

[/et_pb_text]card payment systems allow merchants to take credit card payments.[et_pb_text _builder_version=”4.9.2″ _module_preset=”default” text_font=”Lato||||||||” text_text_color=”#000000″ header_font=”Lato||||||||” header_text_color=”#000000″ header_font_size=”24px” header_2_font=”Lato||||||||” header_2_text_color=”#000000″ header_2_font_size=”24px” header_3_font=”Lato||||||||” header_3_text_color=”#000000″ header_3_font_size=”18px” inline_fonts=”Lato”]

 

Top credit card processing companies

Now that you have a broader understanding of credit card processors and how fees can vary, we will look into a few options of credit card processors for your business.

Adyen: Adyen has an easy-to-follow pricing list published on its website that explains all the fee variations. In sum, Adyen’s transaction fees depend on where the company is based and the type of cards they want to accept. Accepting Amex in Europe, for instance, would cost merchants 3.95% plus €0,10 per transaction.

Square: Square is aimed at growing businesses and offers its own hardware tools too. It charges a flat rate per transaction that varies depending on the industry your business operates in (it ranges from 2.5% to 3.5%) and no monthly fees.

PaySafe: PaySafe offers custom pricing and a month-by-month contract. The pricing isn’t available on their website, so you need to contact the team to get this information. It takes two days for the funds to be deposited in your account.

Stripe: Stripe charges a flat rate for transactions (1.4% plus 20p for European cards and 2.9% plus 20p for non-European cards). You can also opt for customising your own package. There are no set up or monthly fees. Stripe, similar to the other providers mentioned above, offers a wide range of additional tools and supports other payment methods.

 

About Imburse

The Imburse platform offers connection to any payment provider and technology in any market. You can quickly switch between providers or add new ones depending on business and customers needs, effectively saving a lot of valuable time, costs and your own resources. We do all the heavy-lifting, so you can allocate your resources and funds to more relevant business areas whilst still ensuring that you are providing your customers with the best payment experiences. If you would like to know more about Imburse, reach out to our team below.

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Guide to payment tokenisation

[et_pb_section fb_built=”1″ custom_padding_last_edited=”on|phone” _builder_version=”4.4.4″ background_enable_color=”off” custom_padding=”||||false|false” custom_padding_tablet=”30px||30px||false|false” custom_padding_phone=”0px||30px||false|false” da_disable_devices=”off|off|off” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_row _builder_version=”4.4.4″ width=”90%” max_width_tablet=”” max_width_phone=”” max_width_last_edited=”on|phone”][et_pb_column type=”4_4″ _builder_version=”4.4.4″][et_pb_text _builder_version=”4.9.2″ text_font=”Lato||||||||” text_text_color=”#000000″ text_font_size=”12px” header_3_font=”Lato||||||||” header_3_font_size=”24px” custom_margin=”||||false|false” custom_margin_tablet=”” custom_margin_phone=”” custom_margin_last_edited=”on|desktop” custom_padding=”|0px||||” header_3_font_size_tablet=”22px” header_3_font_size_phone=”20px” header_3_font_size_last_edited=”on|phone”]By Mariana Almeida Marques
[/et_pb_text][et_pb_text _builder_version=”4.9.2″ _module_preset=”default” text_font=”Lato||||||||” text_text_color=”#000000″ header_font=”Lato||||||||” header_text_color=”#000000″ header_font_size=”24px” header_2_font=”Lato||||||||” header_2_text_color=”#000000″ header_2_font_size=”24px” header_3_font=”Lato||||||||” header_3_text_color=”#000000″ header_3_font_size=”24px” inline_fonts=”Lato”]Tokenisation may seem like a complicated topic, but it is certainly worth being aware of its meaning and how it is used. As mobile payments become more popular, there is a pressing need for extra security in payment processing. In this article, we will discuss all things payment tokenisation, including how it works and how it can help merchants and customers.

What is Tokenisation?

Tokenisation is the process of substituting sensitive data for a randomly generated number called a token. Tokenisation can be used in multiple industry for a variety of data, including addresses, passport numbers or social security numbers. The main purpose of tokenisation is to protect this sensitive data and prevent it from being stolen. Data protection is a highly relevant topic nowadays and a huge focus for companies that deal with sensitive data on a regular basis, whether that be banks, public institutions or healthcare organisations, amongst others.

In payments, tokenisation means substituting customers’ card details by a token. This token will pass through all the payment players (networks, gateway and processors) so that the payment can be processed. Customers avoid getting their bank details stolen or replicated because these details won’t actually be shown at any point during the payment process- only the token is shown. The actual card details are stored in a digital token vault. This brings us the next question:
[/et_pb_text]secure payments[et_pb_text _builder_version=”4.9.2″ text_font=”Lato||||||||” text_text_color=”#000000″ header_font=”Lato||||||||” header_text_color=”#000000″ header_font_size=”24px” header_2_font=”Lato||||||||” header_2_text_color=”#000000″ header_2_font_size=”24px” header_3_font=”Lato||||||||” header_3_text_color=”#000000″ header_3_font_size=”24px” custom_margin=”||||false|false” custom_margin_tablet=”” custom_margin_phone=”” custom_margin_last_edited=”on|desktop” custom_padding=”|0px||||” header_3_font_size_tablet=”22px” header_3_font_size_phone=”20px” header_3_font_size_last_edited=”on|phone”]

What is a token vault?

The world “vault” says it all: a token vault is a secure and centralised server used to store all the customers’ information, including all the tokens and the card details they represent. This vault is monitored by a TSP, or Token Service Provider, who is also responsible for maintaining all the security measures necessary to protect the data and for complying with standard regulations.

TSPs can be fully independent, or they can be integrated with gateways, PSPs or card networks. Choosing to integrate and manage a token vault inhouse requires large financial investments as well as a lot of resources, though it helps you avoid tokenisation fees down the line. However, besides the initial investment, there is also a long-term responsibility of storing card details and ensuring full compliance with financial regulations.

 

How does Payment Tokenisation work?

The payment tokenisation process happens right in the beginning of payment processing. If you are interested in knowing more about how payment processing works, click to see our previous article. Essentially, this process has three main stages: the verification, the authorisation and the settlement.

When a customer initiates a payment in an ecommerce app, for instance, he will submit his card details. This sensitive data is transmitted to Token Service Provider, who substitutes it by a token. His card details won’t actually be passed through the payment network, and nobody will have access to it. Instead, the payment players can only access the token.
[/et_pb_text]Tokenisation is a key component of online security.[et_pb_text _builder_version=”4.9.2″ _module_preset=”default” text_font=”Lato||||||||” text_text_color=”#000000″ header_font=”Lato||||||||” header_text_color=”#000000″ header_font_size=”24px” header_2_font=”Lato||||||||” header_2_text_color=”#000000″ header_2_font_size=”24px” header_3_font=”Lato||||||||” header_3_text_color=”#000000″ header_3_font_size=”18px” inline_fonts=”Lato”] 

Benefits of Payment Tokenisation for merchants

Online security

The most obvious benefit of payment tokenisation is online security. Mobile payment technologies seem to be the future of payments, and hackers are becoming increasingly good at stealing information online. Tokens cannot be decrypted, which means that even if hackers managed to access it, there is no direct link between the token and your actual card details, so having the tokens would be useless. This protects customers and merchants from having their details stolen and potentially losing money.

Regulatory compliance

It also makes customers feel safer when they purchase products online, knowing that their details won’t be accessible to anyone. Tokenisation is also a mandatory process for companies to have in place in order to comply with regulations, particularly PCI DSS. If merchants choose to outsource this process to a payment gateway or processor, they eliminate some of the responsibility to comply with PCI regulations, as this responsibility would fall onto the third-party they chose to partner with.

Customer satisfaction

Another great benefit of payment tokenisation is the possibility for one-click checkouts. Tokenisation allows customers to safely store their card details in an ecommerce site, so they can later make other purchases without having to insert their details again. This naturally creates a much faster and easier payment experience for the customer, who is more likely to go back and purchase more items from the same shop. Long checkout experiences are known to prevent customer retention, as they leave customers dissatisfied with their experience and eager to abandon the site to shop somewhere else. Tokenisation effectively solves this issue.
[/et_pb_text]Tokenisation protects customers and merchants.[et_pb_text _builder_version=”4.9.2″ text_font=”Lato||||||||” text_text_color=”#000000″ header_font=”Lato||||||||” header_text_color=”#000000″ header_font_size=”24px” header_2_font=”Lato||||||||” header_2_text_color=”#000000″ header_2_font_size=”24px” header_3_font=”Lato||||||||” header_3_text_color=”#000000″ header_3_font_size=”24px” custom_margin=”||||false|false” custom_margin_tablet=”” custom_margin_phone=”” custom_margin_last_edited=”on|desktop” custom_padding=”|0px||||” header_3_font_size_tablet=”22px” header_3_font_size_phone=”20px” header_3_font_size_last_edited=”on|phone”]

Tokenisation vs. Encryption

Both tokenisation and encryption processes have the same goal of protecting customers and merchants’ information online. However, they work quite differently. Encryption involves transforming a readable number or text into unreadable data using a cryptographic key. Keys can be public or private, and both the customer, merchant and payment players will have access to it. The encryption is done based on mathematical values. Because the data is unreadable at first sight, the encryption seems random. However, anybody that gains access to the key can decrypt the data and turn it back into the original data.

Tokenisation, on the other hand, doesn’t involve any mathematical process. Tokens are always generated at random and have no link to the actual card details whatsoever, so they can’t be decrypted. The only link to the actual card details is stored in the token vault. The two main differences between tokenisation and encryption is that tokenisation is generated at random, whilst encryption is generated through a key that uses mathematical algorithms. Tokenisation is irreversible, whilst encryption is not.

About Imburse

Imburse offers connectivity to the entire payments ecosystem. By connecting to Imburse, companies have access to all payment providers, tools and technologies available in any market. They can integrate any provider or technology they want into their existing systems in a matter of just a few weeks, effectively saving time, money and resources. With Imburse, companies can enjoy the flexibility to quickly adapt to changes in the industry and in customer demand, whilst gaining access to all the tools and features they need to continue to exceed customers’ expectations.
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How the card payment system works

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For customers, paying for goods is as easy as swiping their card in a terminal or entering their bank details online. Card payments, however, are much more complex than that. We have touched on how payment processing works before so, in this article, we will focus on card payments.

 

What is a card payment system?

A card payment system is, essentially, technology that supports card payments. An online payment system is comprised of various technologies that enable merchants to take payments online. Similarly, a card payment system allows merchants to take card payments from their customers. Without one, merchants simply wouldn’t be able to accept debit or credit card payments. Note that the term “card payment system” isn’t particularly popular, mainly because most payment systems support card payments already.

 

Who is involved?

Much like in a bank-to-bank transfer, both Issuing and Acquiring banks are involved. The Issuing bank is the customer’s bank, and the Acquiring bank is the merchant’s bank. Payment processing starts with the Issuer and finishes with the Acquirer, who settles the transaction. However, bank-to-bank transfers are processed by the national clearing house, whilst card payments are not.

In card payments, the payment is processed via the card network of the customer’s card. Each card has a network or association- you may be familiar with Visa, MasterCard or American Express. Aside from the banks and card networks, there is a payment gateway and payment processor. Some companies may also integrate additional tools to reinforce, for instance, stronger customer authentication.

[/et_pb_text]card payment systems allow merchants to take credit card payments.[et_pb_text _builder_version=”4.9.2″ text_font=”Lato||||||||” text_text_color=”#000000″ header_font=”Lato||||||||” header_text_color=”#000000″ header_font_size=”24px” header_2_font=”Lato||||||||” header_2_text_color=”#000000″ header_2_font_size=”24px” header_3_font=”Lato||||||||” header_3_text_color=”#000000″ header_3_font_size=”24px” custom_margin=”||||false|false” custom_margin_tablet=”” custom_margin_phone=”” custom_margin_last_edited=”on|desktop” custom_padding=”|0px||||” header_3_font_size_tablet=”22px” header_3_font_size_phone=”20px” header_3_font_size_last_edited=”on|phone”]

Authentication

Authentication is the first step of payment processing. When a customer swipes or inserts their card, their bank details and information are collected by a payment gateway and transmitted to the payment processor. The Issuing bank and processor are responsible for verifying the customer’s details, ensuring that their identity is legitimate and that there are enough funds in their bank account to cover the purchase. The authentication process therefore represents the verification of customers’ details to ensure these are authentic.

Authorisation

If all details are correct, the payment is authorised and can be processed. The authorisation process happens in real-time and it usually only takes a few seconds. Customers will get notifications along the way, informing them of their transaction’s status. If a customer doesn’t have enough funds to cover the purchase or inserts the wrong digits, the payment can’t be authorised and won’t go through.

Settlement

When the transaction is authorised, the payment is processed via the card network. The payment processor is also present along the way and facilitates the movement of funds from the Issuer to the Acquirer. When the money sum reaches the acquirer, this bank or PSP (as PSP can also offer merchant’s accounts) is responsible for clearing and settling the payment, making the funds available to the merchant.
[/et_pb_text]SEPA payment system in Europe [et_pb_text _builder_version=”4.9.2″ _module_preset=”default” text_font=”Lato||||||||” text_text_color=”#000000″ header_font=”Lato||||||||” header_text_color=”#000000″ header_font_size=”24px” header_2_font=”Lato||||||||” header_2_text_color=”#000000″ header_2_font_size=”24px” header_3_font=”Lato||||||||” header_3_text_color=”#000000″ header_3_font_size=”24px” inline_fonts=”Lato”]

Why use it?

Any business that wants to take card payments will have to connect to providers or payment systems that support this type of payments. Whilst there has been a steep increase in the usage of mobile wallets to make purchases, card is still amongst some of the most popular payment types. Therefore, whether your business is mainly digital or physical, being able to accept card payments is absolutely detrimental for attracting customers.

About Imburse

Imburse offers connectivity to the global payments ecosystem, so your company can effectively enhance its payment system. By doing a single connection to Imburse, you will have access to all payment providers, technologies and tools you want and can integrate them into your current IT system in a matter of weeks.

We make it not only extremely fast to connect to payment technologies, but also an easy, stress-free and cost-efficient process. The Imburse platform gives you the freedom you need to adapt to customers’ changing needs and the fast pace of this market, ensuring your own company’s growth and customer satisfaction at all times.
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Unlocking the potential of real-time data analysis

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Click here to download the full PDF version.

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1- Open banking as a catalyst for enhanced data collection

Every time a customer makes a payment, their data is collected and retained by banks and all payment companies involved in the transaction. The European PSD2 directive has made open banking a new norm, enabling third-parties to gain access to customer information and other financial data through the use of APIs (Application Programming Interfaces).

The concept of open banking is becoming increasingly significant in how companies handle data, as it facilitates data collection and analysis for all players- not just the FinTech start-ups whom banks partner with. There are overwhelmingly large amounts of data to be collected and analysed, which makes this a complex process that requires a lot of human and technological resources. Analysing data in-house entails heavy financial investment into appropriate tooling and data warehousing and can require substantial transformations to traditional IT infrastructures.

A much simpler and effective solution is to partner with third-party providers that offer data monitoring and reporting services. They often use the latest technologies to spot trends, including AI and machine learning to enhance data sets and automate analysis.

 

2- The benefits of data analysis 

Payments data analysis is used to define consumer micro and macro trends in terms of customer spending behaviour, which gives companies the power to more effectively measure their business performance, as well as to know their customers better and understand their habits and preferences.

[/et_pb_text]Real-time data analysis can bring great business and customer insights.[et_pb_text _builder_version=”4.9.2″ text_font=”Lato||||||||” text_text_color=”#000000″ header_font=”Lato||||||||” header_text_color=”#000000″ header_font_size=”24px” header_2_font=”Lato||||||||” header_2_text_color=”#000000″ header_2_font_size=”24px” header_3_font=”Lato||||||||” header_3_text_color=”#000000″ header_3_font_size=”24px” custom_margin=”||||false|false” custom_margin_tablet=”” custom_margin_phone=”” custom_margin_last_edited=”on|desktop” custom_padding=”|0px||||” header_3_font_size_tablet=”22px” header_3_font_size_phone=”20px” header_3_font_size_last_edited=”on|phone”]

Insight into customer behaviour is an enormous competitive advantage, as it allows companies to detect opportunities for growth, improve customer service and potentially even to expand their product range and open up new revenue streams. The financial services and payments industry are becoming increasingly customer-focused, and data analytics is critical for a customer-based strategy. At a time when there are new technologies and new players striving to disrupt the market, companies understand that their success depends on customer reach, satisfaction and retention.

Data visibility and analysis also plays a big role in compliance with regulations such as AML and KYC. Machine-learning software can read through large amounts of transaction data to detect irregularities, determine fraudulent patterns and effectively predict fraudulent behaviour. A considerable part of combating fraud and any other cybercrime comes from preventing these crimes.

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3- The obstacles of analysing real-time data

Real-time payments requires treasurers to review their operating models and rethink their rules for investment and liquidity plans. Above all, it is a new way of managing finances that presents great company-wide advantages. However, when it comes to real-time payment analysis, companies are still struggling to fully reap the benefits that accurate instant data promises.

These challenges are multi-faceted, often rooted in legacy applications with complexity multiplied across an ever-expanding international footprint. Large corporations, by their nature, maintain multiple business partnerships with payment service providers, banks and other non-traditional third-parties such as voucher and alternative lending companies.

Each of these third-parties provides them with detailed data reports and monitoring tools, so finding the data isn’t the biggest challenge anymore. However, payment data is only valuable if the information can be gathered quickly (within set timeframes), normalised and ingested into the company’s enterprise resource planning (ERP) systems and analytics tools in order to shape value-added strategies and enhance reconciliation efforts.

Data reporting is still very often seen as a finance function tied inextricably to the financial close cycles. The challenge arises when treasurers have to gather all the datasets that come from different providers, analyse them thoroughly, extract the right insights and deliver them to the business. Because third-parties deliver data reports in different ways and different timings, it is a burdensome and time-consuming task to gather all the data and translate it into meaningful insights. It is equally difficult to make this process fit into the company’s timeframe without significant technological investment.

Ideally, treasurers and controllers would be able to compile all the data, analyse it and deliver their findings to the wider organisation in a timely manner. Only then can companies fully optimise internal and external business operations, enhance their customer service and develop efficient growth strategies.

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4- How Imburse can help

Imburse offers connectivity to the entire payment ecosystem. Through Imburse, your company can quickly and easily connect with any payment provider and deploy any payment technology available in the market. Our solution addresses the problem of single-integrations and enables companies to access all the payment services they need to provide the best customer service, enhance internal operations and scale their business without any constraint. Imburse supports real-time payments, as well as other payment schemes across the globe. We give you full flexibility so you can adapt to industry changes, deploy the latest technologies and always be at the forefront of innovation.

Aside from being able to connect to all payment players, companies can access a wide range of additional payment functionalities, including auto-reconciliation, smart routing, mandate management and data analytics.

[/et_pb_text]The Imburse marketplace[et_pb_text _builder_version=”4.9.2″ _module_preset=”default” text_font=”Lato||||||||” text_text_color=”#000000″]

The 360-degree data analytics capability allows you to access all your company’s data in real time, whenever suits you best, which will contribute for more accurate reporting. It will also help to streamline accounting processes, save treasurers time and improve their internal organisation. A 360-degree view of customer and vendor data benefits not only your finance team, but your company as a whole.

Imburse’s mission is to enable companies to fully enhance their payments system. That is why our end-to-end solution provides you with everything you need to exceed customer expectations and succeed in a highly competitive and increasingly tech-driven industry. Reach out to our team or visit our website should you like more information on how Imburse can help your business.

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What is a payment reference?

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By Mariana Almeida Marques

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The payment reference is a simple, yet important term to be aware of. Every time we transfer money or pay bills, we will encounter an option to add a payment reference. Adding the right reference will make your life easier and save the company you are paying to a lot of trouble.  

 

What does payment reference mean?

Payment reference is a message to the payee so that they can easily identify the payer or purpose of the transaction. When paying a friend, for instance, a payer may want to add a message containing the purpose of this transaction, whether that be “restaurant bill”, “cinema tickets”, or whatever the transaction is for.

When paying a bill to a company, however, payment references are highly important and can’t be disregarded. This is because most companies use this reference to more easily identify their customers and connect the payments they receive to the correspondent customer account. Certain companies may ask you to add your customer reference number in the payment reference, your full name, or any other number used to identify you. You can save the payment reference and use it for other transactions, or change it any time you want.

[/et_pb_text]Payment references are important for companies to match the payment with the customer account.[et_pb_text _builder_version=”4.9.2″ text_font=”Lato||||||||” text_text_color=”#000000″ header_font=”Lato||||||||” header_text_color=”#000000″ header_font_size=”24px” header_2_font=”Lato||||||||” header_2_text_color=”#000000″ header_2_font_size=”24px” header_3_font=”Lato||||||||” header_3_text_color=”#000000″ header_3_font_size=”24px” custom_margin=”||||false|false” custom_margin_tablet=”” custom_margin_phone=”” custom_margin_last_edited=”on|desktop” custom_padding=”|0px||||” header_3_font_size_tablet=”22px” header_3_font_size_phone=”20px” header_3_font_size_last_edited=”on|phone”]

 

Payment reference number

Usually, you can find your payment reference number in invoice letters, bills or through your online account portal. If you are unsure of what number you need to add as your reference, it is worth calling the company you are paying to and asking for clarification.

When paying your rent, for instance, it is common to add your post code and flat number rather than a customer number, as this reference helps agents recognise you better. Payment references have a limit of 18 characters, so you wouldn’t be able to add your full address or full name in this section. Contact the company you are paying to if your customer number is longer than 18 characters, as you will have to find another way to pay.  

 

What happens if I submit the wrong payment reference?

Submitting the wrong payment reference won’t cause you any major problem, and you won’t have to pay again because of that. Companies can still see the account number and sort code that relate to the transaction. However, it does time a fair amount of work for companies to match your bank details with your customer account, as they have endless lists of customer accounts to go through.

[/et_pb_text]You can add a payment reference when paying bills or transferring money online.[et_pb_text _builder_version=”4.9.2″ _module_preset=”default” text_font=”Lato||||||||” text_text_color=”#000000″ header_font=”Lato||||||||” header_text_color=”#000000″ header_font_size=”24px” header_2_font=”Lato||||||||” header_2_text_color=”#000000″ header_2_font_size=”24px” header_3_font=”Lato||||||||” header_3_text_color=”#000000″ header_3_font_size=”24px” inline_fonts=”Lato”]

In fact, it is estimated that UK companies lose millions of pounds each year on trying to match the payments with their correspondent customer accounts. If you spot a mistake in your payment reference after you submitted the payment, notify the company you are paying to as soon as possible.

 

About Imburse

Imburse offers connectivity to the entire payments ecosystem. By connecting to Imburse, companies can access any payment provider and technology they want, and quickly integrate it into their existing IT systems. Our platform offers companies the flexibility to easily expand to new markets and reach different customer bases, whilst continuing to exceed customers’ expectations. If you would like to know more about Imburse or request a free demo, reach out to our team below.  

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Unlocking the potential of Real-Time Payments

[et_pb_section fb_built=”1″ custom_padding_last_edited=”on|phone” _builder_version=”4.4.4″ background_enable_color=”off” custom_padding=”||||false|false” custom_padding_tablet=”30px||30px||false|false” custom_padding_phone=”0px||30px||false|false” da_disable_devices=”off|off|off” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_row _builder_version=”4.4.4″ width=”90%” max_width_tablet=”” max_width_phone=”” max_width_last_edited=”on|phone”][et_pb_column type=”4_4″ _builder_version=”4.4.4″][et_pb_text _builder_version=”4.9.2″ text_font=”Lato||||||||” text_text_color=”#000000″ text_font_size=”12px” header_3_font=”Lato||||||||” header_3_font_size=”24px” custom_margin=”||||false|false” custom_margin_tablet=”” custom_margin_phone=”” custom_margin_last_edited=”on|desktop” custom_padding=”|0px||||” header_3_font_size_tablet=”22px” header_3_font_size_phone=”20px” header_3_font_size_last_edited=”on|phone”]By Mariana Marques and Carl Strempel [/et_pb_text][et_pb_text _builder_version=”4.9.2″ _module_preset=”default” header_3_font=”Lato||||||||” header_3_font_size=”18px” text_orientation=”center”]

Click here to download the full PDF version.

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The payments industry is fuelled by speed and innovation- exactly what real-time payments represent. The growth of real-time payments has prompted consumers to favour speed above everything else. Changing customer demand is paving the way for the mass adoption of instant payments and inducing banks and other financial institutions to adapt.

The adoption of RTP worldwide

Japan was the first country to adopt real-time payments (RTP) in 1973, with its Zengin System. 14 years later, Switzerland launched RTP through its national SIC (Swiss Interbank Clearing) System. Since then, many countries around the globe have integrated RTP as one of their national payments schemes. In the UK, British residents have access to Faster Payments since 2008. Australia, Hong Kong and the Philippines were slightly late in the game, having launched their RTP schemes in only 2018. Some regulators were keener on taking real-time payments on board, whilst others have showed reticence in participating- hence the slow RTP implementation in countries such as Poland, South Africa and Brazil. There are currently 56 countries with an up-and-running national instant payments system. It is fair to say there has been a slow, yet steady adoption of RTP.

[/et_pb_text]The speed and adoption of RTP globally.[et_pb_text _builder_version=”4.9.2″ _module_preset=”default” text_font=”Lato||||||||” text_text_color=”#000000″ header_text_color=”#000000″ header_2_font=”Lato||||on|||#000000|” header_2_text_color=”#000000″ header_2_font_size=”24px”]

 

1- RTP and the future of payments

The globalisation of RTP represents a remarkable shift in the payments industry, driven by many technological changes and disruptive trends. Mobile payments, for instance, has grown considerably in the last few years due to the popularisation of digital wallets such as Apple Pay and Google Pay. NFC contactless payments are now used by an average 48% of the European population (Statista report), actually reaching around 90% in countries like the Czech Republic, Poland and Georgia. The US has been a slow adopter, but now has 51% of the population using some form of contactless payments (MasterCard report).

Peer-to-Peer (P2P) transfers are also on the rise, fuelled by the increasing number of social platforms and digital currencies. A major change in consumer behaviour has prompted companies to use the latest technology in order to meet customer demand. Start-ups are coming up with the most innovative services tailored to their customers’ needs, and traditional institutions are forced to be agile in order to adapt to industry changes.

Speed is now the key priority of any payment experience, and RTP offers exactly that. Unsurprisingly, RTP is expected to continue growing in popularity for years to come. In fact, 77% of merchants expect real-time payments to replace physical payment cards. The global RTP market was valued at $10.64 billion in 2020, and it is expected to grow at a compound annual growth rate (CAGR) of 33.0% from 2021 to 2028 (Grand View Research Report).

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2- Real-Time Gross Settlement scheme vs. Net Settlement scheme

In a traditional net settlement scheme, banks collect payments throughout the day, and they are shared with a mediator (clearing house or central bank) at the end of the day. The clearing house processes and settles all of those payments at once, in a batch, rather than individually. Traditional bank transfers cleared through a net settlement scheme can be convenient for paying out higher amounts on a recurring basis, such as salaries.

They offer some benefits for financial institutions too, particularly when it comes to managing liquidity, as they enable banks to accumulate all credit and debit transactions during the day. Only at the end of each day, banks have to calculate how much they owe to other banks, and how much they have to receive. The responsibility to manage these exchanges of funds falls on the central bank.

Real-time Gross Settlement (RTGS) schemes work differently. Despite also being managed by a clearing house or central bank, real-time payments are processed instantly through specific networks. In the US, payments can be settled in real-time through the RTP Network, which is operated by The Clearing House. In the UK, real-time payments are processed through the Faster Payments scheme and in Europe, they are processed through the SEPA scheme, developed by the European Central Bank.

[/et_pb_text]The basis of how RTP work[et_pb_text _builder_version=”4.9.2″ _module_preset=”default” text_font=”Lato||||||||” text_text_color=”#000000″]

Customers can initiate real-time payments through mobile phones, digital wallets, tablets or websites. The request for payment triggers an interbank transaction between the payer and payee’s account. Essentially, real-time payment processing involves four main steps: the authorisation; the posting, when funds become instantly available; the settlement and the notification, when both payer and payee are notified of the transaction status.

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3- Benefits of Real-time payments

When it comes to customer service, RTP offers three priceless advantages: speed, availability and transparency. With RTP, customers no longer need to wait up to three working days to see funds reflect in their account as could happen, for instance, with traditional settlement methods such as BACS. RTP benefit companies and customers equally by enabling faster and frictionless pay-outs and refunds, which improve customer service, satisfaction and retention.

In fact, over three quarters of organisations have experienced, or expect to experience customer service gains from real-time payments (Ovum report). Most companies are willing to invest in real-time payments technology both because RTP improves their customer service, and because it drastically reduces company costs.

This technology allows customers to make or take payments at any time of the day, whenever suits them best, and they will get an automatic notification confirming that the payment is settled. This makes RTP at least equal to (if not more advantageous than) alternative debit or credit card schemes for both buyers and sellers. RTP also boosts data transparency and enables more efficient cash flow management, with instant data delivery. It is no wonder that RTP has moved to the high-priority list of financial companies as an essential service to offer, and a service that will continue to be indispensable.

 

4- Is RTP challenging traditional payment methods?

Given its benefits and high-speed growth, RTP may soon be challenging other more traditional payment methods. Take credit cards, for instance. Credit cards remain one of the most popular payment methods, with 2.8 billion credit cards in use worldwide. In the US, 70% of the population has a credit card, with 34% of Americans owning 3 or more credit cards (Shift Processing report). The figures are similar for European countries. However, we are experiencing a continuous decline of credit card usage, partially prompted by the financial instability caused by the global pandemic in 2020.

In the US, the number of prime and subprime credit card accounts has decreased for the third quarter in a row (American Bankers Association report). The statistics are concerning for credit card issuers. In 2019, digital online payments actually surpassed credit cards by payment volume, having reached $4.1 trillion (Deloitte report). Giving credit has become riskier for banks and, contrastingly, customers are increasingly picky with their credit card deals. Moreover, more customers are choosing to pay their debt in full each month to avoid paying interest, so issuing banks are losing profit.

The rise of RTP is particularly beneficial for merchants. RTP are settled immediately, whilst credit card payments may take several days to clear. This can have an even bigger impact for small businesses who are used to waiting a long time for payments to be settled. Through RTP, they can now have instant access to funds, improve their cash flow and manage their finances more efficiently.

[/et_pb_text]Top 10 RTP markets across the globe[et_pb_text _builder_version=”4.9.2″ _module_preset=”default” text_font=”Lato||||||||” text_text_color=”#000000″ header_font=”Lato||||||||” header_text_color=”#000000″ header_font_size=”14px”]

Moreover, credit cards are bound to chargebacks and disputes, which adds additional administrative complexity and costs to organisations that are looking to adopt these payment options.

However, while RTP offers an array of great benefits that are set to reshape the payments world, it doesn’t come without its downsides. Real-time payments are processed instantly and are therefore irrevocable. This in turn makes it more difficult for customers to get refunded if, for instance, they fall victim to fraud, the product they ordered is not delivered or the company they purchased from goes bankrupt.

With the already noticeable decline of credit card usage, and the advantages that RTP brings to consumers, merchants and financial institutions (under certain scenarios) the adoption of real time payment methods is only set to increase over the coming years. This will likely stimulate and drive competition in the payments industry as different services position themselves for main stream consumer adoption.

Each payment solution brings its own set of advantages and drawbacks for companies and consumers alike. Rather than focusing on a single payment option, companies will benefit from adopting a combination of solutions to provide customers with the best service levels and experience depending on the collection or payment scenario. Offering a wide range of payment methods enables companies to deliver tailored payment experiences that suit each of their customers’ needs, ensuring higher spend and more customer satisfaction.

Offering a range of payment methods that can be deployed in a flexible and agile way is not without its technical challenges. As traditional companies need to integrate an ever increasing number of providers into multiple core systems that are often incompatible with modern technologies. This can make even seemingly simple integrations expensive and time consuming to deploy.

Imburse can help overcome these challenges. We do this by offering simple and flexible connectivity to payment providers and technologies worldwide, making integrations a stress-free, fast and cost effective process.

 

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What is Balance of Payments?

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By Mariana Almeida Marques

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Balance of Payments may not be a term that you hear about on a regular basis. However, it is an extremely important measure that countries use to review their economic situation and define future strategies. Due to its relevance worldwide, it is worth being aware of what Balance of Payments means and how it is calculated.

 

What does Balance of Payments mean?

Balance of Payments, BOP or Balance of International Payments, is a financial statement of all the transactions made between one country and the rest of the world. Transactions can be made by individuals, government bodies or companies from one country to all the other countries- any kind of transaction is included.

Balance of Payments is usually done quarterly or yearly. Because BOP keeps track of all international movements, it is extremely useful to monitor the economic situation of a country, predict trends and support economic policies.

 

Categories of Balance of Payments

A BOP statement is usually divided into two categories: the current account and the capital account. The current account includes all transactions for goods, services, investment income and current transfers. The term “current transfers” refers to all international one-sided transfers, where the payer sends a sum of money to a payee in another country for nothing in return. Current transfers can be, for example, grants, donations or tax payments.

The capital account includes transactions of central bank reserves (funds that central banks pass internationally amongst themselves) and financial instruments. Financial instruments are any asset or that can be traded, or any legal agreement that has monetary value (for example, leases, copyrights and franchises). In some instances, the capital account can be divided into capital account and financial account.

Overall, a current account checks the net income of a country, whilst a capital account checks its asset ownership. The Balance of Payments sums to zero because when there is a current account deficit, there is a capital account surplus and vice-versa. We will explore this topic below.

[/et_pb_text]Balance of payments is an accounting term used to measure the economic situation of each country.[et_pb_text _builder_version=”4.9.2″ text_font=”Lato||||||||” text_text_color=”#000000″ header_font=”Lato||||||||” header_text_color=”#000000″ header_font_size=”24px” header_2_font=”Lato||||||||” header_2_text_color=”#000000″ header_2_font_size=”24px” header_3_font=”Lato||||||||” header_3_text_color=”#000000″ header_3_font_size=”24px” custom_margin=”||||false|false” custom_margin_tablet=”” custom_margin_phone=”” custom_margin_last_edited=”on|desktop” custom_padding=”|0px||||” header_3_font_size_tablet=”22px” header_3_font_size_phone=”20px” header_3_font_size_last_edited=”on|phone”]

 

What is a trade balance?

A trade balance, or current account balance, is the difference between a country’s exports and imports, for a certain time period. The formula is: Trade Balance = Value of Exports – Value of Imports. A positive balance translates into a current account surplus, whilst a negative balance translates into a current account deficit. The value of the trade balance doesn’t necessarily indicate how well a country is doing economically.

For example, the US has a current account deficit, so it imports more than exports and it borrows money from other countries, which can help it develop faster. Therefore, a current account deficit can actually be a positive thing for emerging market countries. However, long-term, it can turn into a negative factor if the deficit is not corrected over time or the country doesn’t repay its debt.

Some of the countries with a positive trade balance are Germany, Japan and China. They have strong manufacturing industries and export a lot of goods to the rest of the world.

 

Current account deficit vs current account surplus

By its own nature, there are countries with current account deficit and current account surplus. Countries with a current account balance (CAB) deficit have the following characteristics:

  • More imports than exports
  • Borrowing from other countries to pay for imports
  • This contributes to economic growth but long-term, it can turn into continuous debt

Contrarily, current account surplus means that the country:

  • Exports more than it imports
  • Gains enough capital to pay for imports, and doesn’t need to borrow
  • This contributes to financial growth, however, it can also make the country too economically dependent on exports

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Capital account deficit vs capital account surplus

Taking the example of the US, a country that has a current account deficit, we can now look into its capital account. A country with CAB deficit usually has a capital account surplus, which means it has more money coming in than going out in the shape of investments and other assets. The US currently has a lot of foreign investment, which drives up the price of the dollar and contributes for its capital account surplus.

As mentioned before, a capital account surplus balances out a current account deficit. The Balance of Payments statement should be zero, because every time a country exports goods (credit in the current account), it receives capital (debit in the capital account).

[/et_pb_text]Balance of Payments helps nations to define global economic policies.[et_pb_text _builder_version=”4.9.2″ text_font=”Lato||||||||” text_text_color=”#000000″ header_font=”Lato||||||||” header_text_color=”#000000″ header_font_size=”24px” header_2_font=”Lato||||||||” header_2_text_color=”#000000″ header_2_font_size=”24px” header_3_font=”Lato||||||||” header_3_text_color=”#000000″ header_3_font_size=”18px” custom_margin=”||||false|false” custom_margin_tablet=”” custom_margin_phone=”” custom_margin_last_edited=”on|desktop” custom_padding=”|0px||||” header_3_font_size_tablet=”22px” header_3_font_size_phone=”20px” header_3_font_size_last_edited=”on|phone”]

 

Factors affecting the Balance of Payments

There are many factors that can affect the Balance of Payments of each country. Below are some of the common factors that impact current accounts:

  • Consumer spending

When there is a higher consumer spending rate, a country needs to import more goods and services to match the demand. Having more importations than exportations leads to a deficit in the current account. In the UK, for example, the recession of 2009 prompted consumers to spend less, which improved the deficit of the UK’s current account (less imports and more exports). In periods of economic growth, when people make more purchases, the opposite happens.

  • Saving rates

Countries where residents save more usually have higher exportation rates and higher current account balances. On the other hand, countries where residents spend more usually have higher importation rates (they need to import more goods to meet demand). This will lead to a higher deficit in their current account balance.

  • Exchange rate

If an exchange rate suffers depreciation (currency value decreases), export prices will be more competitive and import prices will be more expensive. This may lead to an increase in exports and a decrease in imports, which will improve the current account. A depreciation in the exchange rate can also contribute to higher inflation rates. If inflation grows, then the prices of all imports increase.

  • Competitiveness

Current accounts are also affected by the general competitiveness of each country’s export industries. Germany, for example, is known to have high productivity rates and a strong export industry, so its current account balance is positive. The UK, on the other hand, has decreased in competitiveness, which means less exports and a lower current account balance. Competitiveness is a fairly subjective measure impacted by multiple factors, including national wages, productivity and investments in technology.

 

 

[/et_pb_text]Different types of currency across the globe.[et_pb_text _builder_version=”4.9.2″ _module_preset=”default” text_text_color=”#000000″ header_2_font=”Lato||||||||” header_2_text_color=”#000000″ header_2_font_size=”24px” header_3_font=”Lato||||||||” header_3_text_color=”#000000″ header_3_font_size=”18px”]

 

Economic policies & BOP

A Balance of Payments has great impact in the economic policies of each country, essentially because it tells countries what their economic situation is. It is then up to each country to decide how to approach its Balance of Payments. Below are some strategies that may be used to tackle a current account deficit, along with its speculated positive and negative consequences for the economy:

  • Devaluation of exchange rate

Reducing the value of a currency against other currencies. This can be done through, for example, cutting interest rates, cutting tax or selling the currency to other countries. Devaluation of the exchange rate can help reduce the current account deficit because the price of imports will increase, so people will spend less and there will be less demand for goods. It also makes exports cheaper, since the currency is worth less. This means that there is a reduction in imports and an increase in exports.

If interest rates decrease, more investors may move their money from a UK savings account to a savings account with higher interest rates in another country. This process of quickly moving money to countries with higher interest rates is called “hot money flows”. This will contribute to a decrease in currency value.

  • Reducing demand and spending

This can be done through either increasing taxes or increasing interest rates. With higher interest rates on mortgages or any kind of debt, people have less money to spend, which will lead to a decrease in demand and decrease in imports. With higher taxes, prices will also be higher, so people will buy less. This may come, however, seriously affect personal incomes, general standards of living and unemployment rates.

  • Side trade policies

Countries can adapt certain internal and trade policies to balance their current account. For example, privatising more industries could lead to increases in efficiency and productivity, because the private sector is naturally focused on making profit. An increase in productivity raises the competitiveness of a country’s goods and services, which may lead to more exports.

Lowering wages can also reduce production costs, therefore make a country’s exports cheaper and more appealing. However, low wages also mean that individuals have much less spending power, which can stagnate the economy. Setting policies such as higher tariffs on imports may help reduce imports, but it can generate fraction with other countries and cause them to adopt the same policies.

 

About Imburse

Imburse connects companies to the global payments ecosystem. Through the Imburse platform, you can access any PSP or payment technology you want, and integrate it quickly and easily. This will give you the flexibility you need to keep up with market changes at all times, and to continue to provide the best payment experiences to your customers. Whether you are a large enterprise or a smaller company, and regardless of the industry you are in, Imburse can help you save money, time and resources. Reach out to our team below if you have any queries or would like to know more.

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