How NGOs can crack the international payment code

How the right payments partner can help decode the mysteries of cross-border payments.

Trying to navigate the maze of requirements to send funds abroad can seem like Mission Impossible for NGOs. Know-your-customer (KYC) and anti-money laundering (AML) checks differ from country to country. As do sanctions regimes and documentation requirements.

Complex, dynamic requirements can be confusing and hard to understand. This makes it a struggle for NGOs to get funds to those who so desperately need them. Whether that’s paying salaries in-country. Or delivering humanitarian aid, supporting the casualties of conflict and low-income countries.

We examine the reasons and possible solutions.

NGO payment challenges in context

Transferring funds overseas is just a means to an end, not why NGOs really exist. In that way, NGOs are not so different from most commercial businesses.

Retailers set up e-commerce sites to sell to customers worldwide, not to process cross-border payments. Customers visit such sites to shop, not buy. Similarly, NGOs want to transfer funds worldwide to fund their work, just as donors give to support that work.

Payment is integral to each of these transactions, without being the purpose of the transaction. For something that’s not the purpose, it’s certainly a problem. Everyone wants payment to be as quick and convenient as possible, but frequently it’s not.

That’s mostly because payment habits are strongly national. Payment systems are domestic in scope and operate in a single currency. Yet everyone wants to make and receive payments internationally in multiple currencies. That’s the mismatch.

Why payment workarounds don’t always work

If the sender and recipient of a transfer are in different countries and bank locally, their respective banks won’t necessarily use the same domestic payment system. Rather, they rely on a network of international correspondent banks.

This enables banks to offer international services to customers, without having branches in-country. Even payment services that don’t involve a bank account at the customer level (e.g. remittances) rely on correspondent banking for the actual transfer of funds.

Account-to-account cross-border payments are often processed by SWIFT. While this is a great method for sending money around the world, it offers very little transparency as to the route and status of the payment. That’s especially if things don’t go as planned or involve countries that are under-served.

How world events influence payment success for NGOs

All this payment pain is happening against the backdrop of worldwide geo-political and economic uncertainties.

More than 1-in-4 countries is now subject to sanctions by the US or Western governments. And 29% of global GDP is produced in sanctioned countries, says the Center for Economic and Policy Research.

At the same time, bank de-risking has pushed the average cost of sending $200 up to 6.25% as at Q1 2023, according to the World Bank. That’s more than two times the Sustainable Development Goal target of 3%.

So, NGOs are facing the dual problems of slower completion times and higher fees. That’s on top of not being able to easily track payments or predict fees. Or knowing how long payments will take. Or necessarily how much will arrive on the receiving account.

What to look for in a payments partner

The right payments partner can go some way to addressing such challenges. When evaluating potential payments partners, some of the factors to consider include:

• Global reach

Understand the geographic reach of potential partners. From which countries can you make send and receive payments? Clearly, any partner should be able to cover your existing payment corridors, plus support your work in new ones.

• Support

NGOs need a partner who understands them and has the experience and proven track record of delivering for their sector. For example, what’s needed to deliver a successful payment into particular hard-to-reach countries. What are the documentation requirements and shortest routes? This is a different approach and skillset to a bank, who wouldn’t necessarily support and guide NGOs to this extent.

• Cost

International transfers can be as cost-effective as domestic ones. What’s more, some payment partners can offer consistent fees, known up front with no deductions. That’s irrespective of the transaction amount, originating country or currency.