The future of NGO finance: PSPs to replace banks for cross-border humanitarian aid payments?

The status quo is unsustainable. That’s why we believe that the future of international NGO payments cannot – and must not – look like the past.

The unvarnished truth is that banks are not really in the business of cross-border humanitarian aid payments. It’s not within their risk appetite. It’s not their core business. And it’s not aligned with their commercial or strategic objectives.

If banks do process cross-border humanitarian aid payments, it’s largely as an add-on to a domestic banking relationship. But this comes with risks for NGOs.

International fund transfers are often slow, unreliable and costly. Payments get delayed, blocked or lost. It’s difficult to track them or know where to turn for advice. And then there’s the constant threat of being off-boarded or ‘de-risked’ by their bank.

So, the future of NGO finance may well be payment service providers (PSPs) replacing banks for cross-border humanitarian aid payments. We explain why.

Why are NGO payments high risk for banks?

Whether it’s delivering humanitarian aid to support the casualties of conflict and victims of natural disasters, famine and poverty in low-income countries. Or paying salaries in-country, NGOs have many reasons to make cross-border payments. But this comes with risks for banks.

Banks may be liable for customer activities in accordance with relevant regulations. So, they conduct sanctions screening, anti-money laundering and anti-terrorism financing checks.

Banks must also manage their own correspondent banking relationships and reputational risks. That’s why they request additional documentation and explanations before processing payments.

But this takes time to collect, resource to review and eats into the profitability of NGO accounts. Factor in that the NGO sector is not banks’ core business or competence, and it’s easy to see how NGOs get stuck in a vicious circle of ‘de-risking’.

What are the consequences of ‘de-risking’ for NGOs?

If they don’t have a cost-effective, flexible and proportionate way of assessing risks, banks may de-risk NGOs altogether.

This explains why it’s so hard for NGOs to get a bank account in the first place. A 2017 report from the Charity & Security Network found that two-thirds of US-based non-profit organizations working abroad faced problems accessing financial services. If anything, the situation around access and inclusion for NGOs has worsened over the last eight years.

If NGOs have a banking relationship, keeping it can also be a challenge. They must contend with the possibility of losing their account – and with it, their access to the financial system altogether – if their organization or transfer corridors are suddenly de-risked.

What are the workarounds for NGOs?

NGOs find themselves having to up-skill to deal with banks, finance and payments. This is onerous, not in their language and critically not their core purpose.

NGOs may have to source alternative payment methods by country. These may change and often, necessitating them starting over. They may also have to maintain ‘back-up’ relationships with multiple suppliers, which is time-consuming and resource intensive. Or move money through less transparent, traceable and safe channels, such as exchange houses, money service bureaux (MSBs) or hawala.

Even the biggest companies haven’t got the budget, resource or will to engineer bespoke localized payment solutions for every market they want to enter. So, why should NGOs have to?

Why should they have to solve for broken cross-border payments, which could be costing them between around €13,500 and €50,000 annually, according to our estimates?

If NGOs could improve their payment arrangements to cut the time, back-office admin and cost of cross-border payments, the savings would translate directly into the work they do.

Alternatives to SWIFT, MSBs and hawala exist, including for hard-to-reach countries. That’s in addition to support from experts, who know how to route transactions to pre-empt lost, struck and delayed payments.

Time to rethink the way NGOs move money?

Non-bank payment providers – such as PSPs – are emerging with the right connections to link NGO destination and origin countries.

Because they hold and process funds, they are regulated entities. A robust compliance approach and anti-financial crime controls are prerequisites of their license.

This means they are already accepted by governments. And may well conform to NGO governance requirements to use regulated providers. Inpay is one such provider.

Inpay is a cross-border payments provider that is faster, simpler and cheaper than your bank – and built for NGOs.