Going global with your payments strategy requires far more than choosing a single payment provider: companies must weigh local acquiring versus cross-border acquiring, country-by-country payment preferences, entity structure, tax implications, compliance requirements, authorization performance, currency handling, and provider coverage.

In this episode, Chris Uriarte joins Glenbrook colleagues Samantha Gordon, Simon Skinner, and Drew Edmond to explore the complexities and potential benefits for merchants and platforms to consider when expanding payments globally.

Watch the full episode on YouTube: 

Episode Transcript:

Chris Uriarte: And welcome to Payments on Fire. I’m Chris Uriarte, a Partner here at Glenbrook, and I’m excited to have you here for another episode of our Fanning the Flame series where we bring together some of my esteemed Glenbrook colleagues to talk about what’s important in the payments industry, what’s interesting, and what is hot right now.

But before I get started, I want to just take a moment to share that we’re going to be holding another live in-person edition of our famous Glenbrook Partners Payments Boot Camp, this time in New York City from September 29th to September 30th, and that’s going to be followed by a one-day Advanced Payments workshop on October 1st. So if you’re new to the industry or you’re a seasoned veteran, and want to make an investment in your professional development before the year is out, head to glenbrook.com for more information. And if you register by July 29th, you will automatically receive ten percent off your registration.

And we’re going to be holding that Payments Boot Camp in lovely Bryant Park. Actually near lovely Bryant Park, not in the park. And I know, Sam, you live very close to Bryant Park, and our offices are close to Bryant Park, so it’ll be close to home. I’ve got Samantha Gordon, Senior Engagement Manager, Simon Skinner, Associate Partner, and Drew Edmond, a Partner here at Glenbrook, joining me today on our Fanning the Flames episode.

Sam, Simon, Drew, how are you guys doing today?

Drew Edmond: Doing great. Glad to be here.

Samantha Gordon: Great to be here.

Simon Skinner: Yeah. Looking forward to the conversation today.

Chris Uriarte: Yeah, for sure. So nice to have all of us together. Nice to see all of you together here on video. And for those of you listening to Payments on Fire from our traditional audio podcast channel, today, a very special episode, you can jump over to the Glenbrook Partners YouTube channel. Yes, we do have a YouTube channel, or to glenbrook.com to see everyone’s smiling faces here on this special live video episode.

So anyway, guys, I took a look at my frequent flyer account this last month, and I tell you, we’ve been around the world time and time again and we’ve had some amazing mileage and have been speaking to some incredible people. We’ve been working very– we’ve been very busy with our merchant clients, our SaaS clients, our payfac clients, service providers, and everybody else, really helping them focus on various types of global payments expansion efforts.

And we’ve spoken a lot about global payments on this podcast, so it’s nothing new, and it’s nothing new for folks that are in the industry. We do know that global payments is something that is really, really difficult to implement, to maintain. It’s got tons of operational challenges, tons of cost implications, et cetera. And when I look back at the incredible work that we’ve been doing related to global payments in the last year, I thought it would be good to bring some of those interesting insights to our Payments on Fire audience.

So here we are today. So are we good? Are we ready to get out our passports and get started? Should we get it kicked off?

Drew Edmond: My visa has been approved. I’m ready.

Chris Uriarte: Yeah, okay. Excellent. Good to hear that.

Samantha Gordon: Vaccine’s up to date.

Chris Uriarte: Good. I don’t want to turn this into a Global Payments 101 episode, but I think it’s good maybe to ground us a little bit first. So when we’re talking about global payments, really, I guess we’re really talking about accepting payments from customers in many countries around the globe, right? There’s lots of things we know that merchants need to consider. So Simon, maybe you could take us through some of the key consideration for merchants that are going to be, quote-unquote, “going global” with their payment strategy.

Simon Skinner: Yeah, sure. Thanks, Chris. Let’s start with the big question. I mean, there are multiple aspects to that for sure. But let’s maybe try and break it into two broad groups. So what is the acquiring strategy? So considering whether to progress a local acquiring setup or to operate cross-border. And thinking about where it makes sense to have local on the ground presence in a market, where could a regional model be deployed, or kind of thinking about where actually a cross-border is operationally the most efficient. And naturally thinking about what is the appropriate mix of those across the geographic footprint that a merchant is considering. So that’s sort of the first grouping.

And then secondly, I think it’s about the provider strategy. So understanding which providers can effectively cover which markets, where can they support local payment methods so that consumers are actually using and kind of interested in in a particular market? Where does it make sense to have a dual sourcing approach? And where are hybrid models gonna be needed to provide that geographic coverage, but also that kind of payment method coverage across a merchant’s global footprint. So I’m excited to kind of think about unpack those aspects over the next twenty, thirty minutes.

Chris Uriarte: And just to dig a little deeper into that, again, going to some of the very basic stuff here. When we’re talking about local acquiring versus cross-border acquiring, what we’re really talking about here is whether you’re going to have an entity in a country or a region, let’s say in the case of the EU, for example, which we’ll get to in a moment.

You have a corporate entity that exists in a particular region, and you’re accepting all payments, let’s say, domestically for that country and that region, acquiring that through that corporate entity, versus a cross-border strategy where, say, you have a US-domiciled entity, and you’re accepting inbound payments from different parts of the globe into that US entity, right? That essentially the gist of what we’re talking about of local and cross-border, right?

Simon Skinner: Yeah, exactly right. And you know, there’s a whole host of considerations as to whether to go down the local route or the kind of cross-border route, not just related to the kind of the payment activity itself.

Chris Uriarte: Yeah. So some of those things that merchants have to consider, they have to look at their entity structure, the provider structure, provider relationships, as you’ve talked about. That has all sorts of implications operationally and price-wise as well, fees, interchange, et cetera. So there’s a lot to be considered with this.

And my key question, first question I would say is, why? Why would a merchant go through all this trouble? Why wouldn’t they just pick one provider from their home country and just go with that? So Drew, maybe take us through some of the fundamental key benefits here that merchants could potentially achieve when you look at acquiring locally or looking at various different types of local acquiring strategies.

Drew Edmond: Yeah, absolutely. So I’m gonna go in the time machine for a little bit. It’s been almost 10 years since my first day when I was at Etsy, which is a very global marketplace. They’ve got sellers in hundreds of countries and buyers in hundreds of countries, and so this was a question that I grappled with and that global marketplace, global merchant, you know, I wouldn’t say struggles with, but it’s a major question that you have to consider as you develop your payment strategy, right?

And I think that one thing that we always say at Glenbrook, right, is there’s no regional payment strategy. You have conversion and authorization and kind of your long-term growth in these areas all hinge on country-by-country differences. It’s really clear once you start getting into the weeds on even two countries side by side and how remarkably different they can be, right?

Whether it’s how they view card usage, how they think about using credit, whether installments has been there for decades in a place like Brazil or you gotta rebrand it and call it something new in the US, like buy now, pay later. Like there are just so many differences on a country-by-country basis.

And so as a global merchant, global marketplace, payment acceptor, whatever you might be, you have to kind of consider the importance of each country. And I think about it like a portfolio of countries and customers essentially, right? You have to look at what your portfolio looks like today, and what you want it to look like in the future, and think about how much you wanna invest in each one to kind of maximize its performance while keeping track of the underlying P&L associated with it, right? ‘Cause you can’t just go crazy.

But as you develop this portfolio strategy, conversion’s gonna be pretty high on that list. It might… It’s probably number one. And when I talk about conversion, it’s not really, it’s not just your approval rate. Approval rate’s a component of that, but it starts well before that, and it starts with what’s presented to the customer. And so you have to start broadening beyond pure did this transaction go through to how am I localizing in this country? What payment methods am I offering? What currencies am I presenting? Even which currencies am I authorizing in, the language that you use on the page itself to engender trust with that population of customers.

So all that leads to as you think about the acquiring question and which PSPs you’re using, you have to understand, like, well, what’s the cost involved for me to go out and, do I wanna have a local entity in this particular country? What are the implications on that from a tax perspective? And we’re gonna get into that a little bit later.

And that’s usually a really major question, by the way. This is not a, this is often not a payments alone question. This is a cross-functional conversation you have to have with the organization of, “Hey, these are some really major benefits we’re gonna see here from a performance standpoint and a conversion standpoint, and major savings on cost savings in some cases.”

But there are other things to consider, and you can’t just make it in a vacuum. So I would say, why do you do this? You do this because there are opportunities to improve performance, improve conversion, save on underlying payments costs and things like that. But I think we’re gonna talk about a lot of the buts here in this conversation around what dictates how you make that decision overall for the organization.

Chris Uriarte: Yeah. I had to laugh when you say there’s no regional strategy, or there’s no real regional strategy when it comes to payments, right? Because we kind of hear this all the time. It’s very common, I think, for us to have a US client of ours who has no experience in maybe the other side of the world come to us and say, “You know, we need an Asian payment strategy.”

And we’re like, “Whoa, whoa, whoa. Hold on for a second here,” right? Asia is a very, very big word, and it’s a very, very big geography, and encapsulated in that, you probably need about 50 different payment strategies. But it’s something that we hear very, very often as well.

And, you know, I’ve also been talking a lot about merchants. I’ve used the term merchant three or four times now thus far, but we’re also doing a lot of work with SaaS platforms, which in our world, are essentially vertically focused platforms that these days are very often offering some type of embedded payment services to their own merchant customer base that use the platform.

So, these are the type of platforms that do everything from serve doctor’s offices, they’ve got a lot of doctors that are using these platforms for billing, for appointment management, for accepting payments, things along those lines, all the way up to construction management platforms. We’ve had a couple of customers in those areas, and really everything in between.

And some of our loyal listeners may recall my conversation with Blake Breathitt from Adyen just a couple months back, where we did a deep dive in the platform payments model and learned some really interesting things there. And I think what we’ve found, Sam, is that most of these same issues that merchants have been facing, the platforms face as well, but probably with a number of other challenges when it comes to going global.

And I know you, me, and Simon have done a lot of work in the platform space this last year. So maybe take us through some of the thinking if we put the lens in the platform world versus the pure merchant world.

Samantha Gordon: Yeah, absolutely. Because platforms, to your point, face all the same challenges merchants do. They are processing payments. They’re doing the, I’ll use platform language, the pay-ins, but the complexity is just broader in scope because they’re also doing what the payouts side to all of their … I’m gonna use the word sub-merchant here, even though that’s not always the case, if we’re talking about doctor’s offices, construction firms. But just to generalize.

While the merchant on the pay-in side, they’re figuring out all the questions we brought up, accepting payments, optimize auth rates, support local payment methods, expanded to new markets, they’re solving that on behalf of their sub-merchants. But then there’s a second layer of complexity because platforms are also onboarding merchants, underwriting them. They’re managing compliance obligations. They’re moving money. They’re handling payouts. They’re monitoring risk. So it’s these two things stacked on top of each other. It’s both, not either.

Chris Uriarte: And I think that’s a really important point. Sorry to interrupt you here though. I mean, you mentioned the acceptance side and having the same challenges as merchants. Going back to what Drew said earlier, payment types that are important for that area, other consumer preferences, et cetera. But when you’re talking about things like onboarding merchants and risk management and underwriting, then perhaps very different implications there, very different rules, very different tools, technologies, and different tool sets that might be required on a country-by-country basis, right?

Samantha Gordon: Exactly. And I think for all the complexity of can I find a PSP that has all the local payment methods I want to offer? Think about it on the other end too, of how do I find someone to help me with underwriting and screening that covers all the geographies? Because, interestingly, the trend in the industry over the last several years is that platforms have been wanting to own more of the payments experience and embed it further, particularly parts like onboarding flow and the merchant experience and the parts that touch their customers, the sub-merchants. It’s part of their value prop, rather than sending their customers elsewhere to figure it out or throwing it over the wall even to a PSP and just making a kind of a referral deal.

But there’s different points of involvement along that spectrum. But as the trend is moving towards more ownership for a number of reasons, there’s also this challenge that once you decide to own that experience, you also own the complexity.

As PSPs have gotten much better about enabling that through their own solutions, it’s allowed these platforms and ISVs to start expanding globally. But then the complexity compounds really quickly because every new market can bring different onboarding requirements, compliance obligations, payout capabilities, all of that stuff, before we even get to the payment preferences that Drew was just talking about. So it’s the same– it’s everything merchants deal with, but then this broader scope too, and a lot of which is sort of an opt-in.

Chris Uriarte: Yeah. But it is something I think we’re seeing the PSPs, at least the PSPs that have been very focused on their platform service offering, really try to focus more and more on how they could support global expansion for their customers, right? We’re seeing them adapt these tools because they’re seeing the growth in the platform space and the opportunity there. And I think Simon and Sam, we could say that we’ve seen a number of these different SaaS platforms where the payments business is growing more than the actual core SaaS revenue business, right? And the margins are even better, so there’s been a lot of focus that.

And Simon, started getting into sort of the global capabilities of some of these PSPs, whether it’s a platform or whether it’s a merchant. We’ve kind of used this– We’ve loosely used this term over the years, sort of this notion of what I’ll call a global PSP, right? Essentially a PSP that has, I would say, extensive global reach to be able to satisfy a merchant’s whatever their global ambitions are in a vast part of the world. And we do see a number of these large PSPs kind of bill themselves as global PSPs.

But is there actually such a thing as a global PSP that could really meet a merchant’s true global needs? What has some of our research uncovered about sort of this current state of the global PSP market?

Simon Skinner: Yeah, good question. I think we see many PSPs have been steadily building out their presence around the world. And some now have a pretty impressive suite of geographies that they can support. But when we’re working with clients, we still regularly run up against some limitations of that coverage. So I think there’s a number of PSPs that have good coverage in North America and Europe, but the position becomes far more-

Chris Uriarte: That’s sort of table stakes, table stakes right now, right? Really good at North America, really good at Europe. That’s kind of the table stakes for any good global PSP, right?

Simon Skinner: Right, right. In our kind of inverted commas global. Yeah. And then when you kind of start to look at some of the other regions, Asia Pac, Middle East, Latin America, it becomes far more nuanced. I think we’ve talked earlier about, you know, we talked kind of regionally about Asia Pac and Middle East, Latin America, but they’re not homogeneous regions.

They’re all kind of different characteristics, different local payment methods, in some instances, different card schemes operating in those markets. And I think that sort of global model, or that global PSP coverage becomes more mixed. So yes, some providers will be able to support some Asia Pac countries, some Middle East countries, but not kind of universally.

And I think you also have to look at sort of the fine print. So, accepting cards and I guess, more specifically Visa and Mastercard, doesn’t you have sufficient or adequate coverage in a particular geography. And when you’re looking at, is it, are you a card present or a card not present type business? Are you a traditional merchant or an embedded payment offering as Sam says? That adds another kind of lens on, actually, it sufficiently supported by one of these global PSPs or not?

Chris Uriarte: So it is common then, if you are a merchant that is really truly trying to get good global reach, it’s very common for us to see merchants that have multiple provider relationships, right, in order to, not only of the benefits that we see just generally with multiple provider relationships, redundancy and maybe being able to play off them from a price negotiation perspective, et cetera. But it sounds to me like there is often a hard requirement to have these multiple relationships just your basic payment needs in these different regions, right?

Simon Skinner: Yeah, I think that’s right. I think that maybe the patchwork that we might have seen five to ten years ago is kind of reducing. There is some kind of degree of consolidation on your provider set. But yes, still having to have a mixed model to provide that geographic coverage and whether that’s through like one quote-unquote, “global PSP” and some regional providers and then maybe even some local solutions in particular markets like maybe South Korea, given the nuances of that particular geography where actually you need to work with a local organization.

We also see some merchants even within a geography kind of building a hybrid model. So maybe their sort of main strategic partner support a chunk of the activity, but then they’re gonna weave in a local solution for one particular kind of common payment method perhaps.

Chris Uriarte: Mm-hmm. Makes a lot of sense. So, I mean, Drew, you are a global merchant, given what Simon’s just said, and you need multiple providers to help address your needs, what are we actually seeing out there today? I mean, you could, if you look at two extremes, right, I think the one extreme is use one provider, right?

But as Simon has said, maybe that one provider just isn’t meeting your needs, which means you’re gonna have to go either cross-border with that one provider pretty heavily, or you’re not meeting the local market needs, number one.

To the other extreme, which is, I’ve got 30 different providers that are sort of hyper locally focused, but what is realistic out there? Is there kind of a sweet spot, or are there any sort of trends or generalizations that we can make about what we’re seeing with global merchants today in regard to those provider relationships?

Drew Edmond: Yeah, I think– Well, first I’ll say that the answer to how many any individual merchant needs is going to be very dependent on who are, how big they are, what type of business they’re trying to run, what business models they use. Those types of things are going to be really important, right?

So like, obviously, it depends, is like the first caveat.

Chris Uriarte: It’s the classic consulting answer.

Drew Edmond: Which is, it’s because it’s true, okay? Listen, it’s because it’s true. If there was one answer for everybody, we wouldn’t have jobs probably.

Chris Uriarte: That’s true. It depends.

Drew Edmond: But so how you make that decision? I think core of it is, okay, so how do I determine what is right for me then, right? And I think that there are some considerations that you have to consider, some of which have been mentioned so far. One is redundancy, and like, frankly, that’s a big one, right? So depending on, again, your business type, if you’re someone that, your customer is there and trying to make a purchase, if it fails, they’re gone, redundancy is really, really important.

If you are a billing, subscription and recurring billing merchant where the majority of your transactions happen on a cadence, if something’s down, I can try again tomorrow, that type of thing, that changes your risk appetite for redundancy. And so depending on your business model types, you’re gonna think about that a little bit differently.

So you definitely– You know, we talk to merchants that are, that say, “I need redundancy in every market I’m in.” So if I’m also local in a lot of different markets, that means in some cases, I might have this hybrid solution where I might have my global PSP, one or maybe two or three global PSPs, and layer in redundancy with maybe a local PSP or somebody that can help you out in that particular region or in that particular country, depending on your priority of your portfolio. So that’s one really key consideration.

I think one is also, it’s not even just kind of pure direct to PSP relationships. It’s very common these days to, we just had Joao de Valle, the CEO of EBANX on “Payments on Fire,” right? Right, yeah. I might be going merchant of record or a similar model in places like Brazil or in India or something like that, where I know that, again, going back to conversion, approval rates, localization, those types of things, there are providers out there that specialize in making that experience better for you as a merchant, better for your consumers, better for your cash flow, better for all these things that they focus on.

So thinking about your PSPs. It’s thinking about what are some of the other provider types that might solve some problems for me as well. And then layering in kind of that redundancy notion, negotiation, all those kind of classic things that you might have to kind of reduce your dependence in some of these areas.

Chris Uriarte: So not unusual for us to see, as you said, multiple global PSP relationships, but also some hyperlocal relationships as well to kind of fill in the gaps and get local redundancy. What I’ll add to that, just for anyone who’s listening, if you were gonna put that all on a slide, I’d put an asterisk there, and the footnote would be, “This is really hard,” right?

This is really, really hard. If there’s some payment managers that are out there that are listening to this saying, “This guy’s crazy. This sounds like a nightmare. You know, I’m not gonna do this in every country.” We don’t see this done in every country with every merchant, but the reality is this is really hard, right?

This is really hard both managing the relationships with these different providers. They all behave differently. They have different authorization rates, the way they handle transactions. You have to handle the economics of how you’re gonna spread your transactions out across those different providers, right?

This is not an easy thing to do. I think we want to make that clear to our audience, right?

Drew Edmond: Yeah, and I think that’s, if we kind of layer in some other payments topics into this conversation, this is why we spent the entire year last year talking about orchestration, right? I mean, there’s a reason why that word exists. It’s because you’re orchestrating across all these different providers, all these different payment methods, having to manage this in some way, and there’s all these different models, whether you’re building it yourself, you’re using third parties, maybe you’re going through your primary PSP to route out to these other options.

Like, there are a lot of things to consider from an architecture strategy perspective to get to your end result of what you’re trying to accomplish. And then, like the adjacent point kind of on that merchant of record piece is, of course, merchants want to get the best performance possible and maintain their P&L where they can.

These merchant of record businesses have really emerged, and it’s kind of its own cottage industry of saying, “Hey, we can do localization for you,” right? That’s from a payments perspective, a tax perspective, compliance perspective. And they’re really interesting business models, and they’re doing really well in a lot of cases because they really abstract a lot of this complexity out of the hands of the merchant to say, “Hey, you know, maybe you’re good in the US, we’ve got rest of the world for you. You don’t have to worry about it anymore. You don’t have to build orchestration. You don’t have to f- you know, hire, you know, find six more PSPs to do this for you. We’re gonna take care of it on your behalf.”

Chris Uriarte: So I think that’s a good segue. Drew’s mentioned this a few times now, Simon, you’ve just started to touch upon it a little bit, but I think we’ve identified the fact that there’s these gaps that exist with the traditional PSPs or with the global PSPs, I think when it comes to non-card payment types, particularly when it comes to sort of the very local requirements in what I’ll just consider to be challenging markets or kind of developing markets.

So, Simon, maybe you could just take us through a little bit how you see merchants handling things like– let me start first with bank transfers because it always comes up. Things like ACH or SEPA in the EU, Bacs in the UK, and all these other various local account-to-account systems that are out there. Are the merchants relying on traditional PSPs to help them do this, or are the local banks still playing a role here? Because I know this question comes up a lot and there’s a lot of interesting nuance here, right?

Simon Skinner: Yeah, absolutely. I mean, maybe the first sort of distinction to make is whether we’re thinking about it from the context of a subscription merchant, someone with sort of recurring payments where direct debits and ACH debits or the local equivalents are relevant and sort of differentiating that from account to account in an e-commerce context. So if we think about it from a direct debit context first, I think you’ve got this dynamic between cost and convenience. And convenience meaning, dealing with fewer processing partners and therefore reducing the complexity in your payment ops and reconciliation.

And so, for some merchants that are globalizing, perhaps where the market is still relatively small for them, or they’ve got a proportion of direct debit flow, they might be relying on their kind of main PSP to provide that direct debit and ACH type solution. But I think the research shows at a volume, at a scale volume, bank providers are likely to be offering services at lower unit rates. And so there’ll come a point where that sort of outright cost argument outweighs the convenience. And so we’ll see merchants at that point exploring local bank solutions.

And so you’ll then end up with that sort of hybrid model of local banks supporting on that direct debit ACH side and kind of PSPs on the card and other alternative payment methods.

Chris Uriarte: Hmm. And just on that, as far as I’m aware, so that brings you down a different path, right? Because don’t think, I– or let me say it a different way. If you are gonna go with a global bank solution to accept bank transfer, that essentially implies that you have to have a local bank account, of course, which essentially implies that you have to have a local entity to do that.

So essentially, if you’re gonna go with a local bank solution and accept direct debits through the bank, it essentially means that you need to do local acquiring and have a local entity and all that sort of stuff to make that happen. Is that right? Or usually the case?

Simon Skinner: So I think that’s often the case, and it comes back to that, the convenience of reducing operational complexity. So if you want to kind of go with the bank partner, then there is a broader set of considerations. It becomes operationally more complex, needing local bank accounts, kind of et cetera, et cetera. The observations Drew was making about other models and other models that we see kind of particularly outside of developed markets, kind of interesting. So thinking about kind of merchant of record type models and the potential that they can play in particularly regions like Latin America. Because I think, you look at those global PSPs, and I would say their coverage in the region generally is probably not as strong as elsewhere, and their support for the local alternative payment methods is not as strong. And when we say local alternative payment methods in Latin America, I’m not talking about Pix, like that’s a massive one in Brazil. But I guess I’m more thinking about, Mercado Pago or Modo or Yappy or Plin, and the kind of support for those that can be provided by providers that are focusing in kind of emerging markets and maybe kind of starting in LatAm and kind of expanding out.

So thinking about the likes of, I don’t know, dLocal or EBANX, as was mentioned, who have built their kind of model from sort of LatAm and are now expanding out into other emerging markets. Could be in Asia, some parts of Africa.

Chris Uriarte: Yeah. Drew, I did listen to your episode, your interview with the CEO of EBANX. I actually just listened to it this past weekend. That’s Payments on Fire 293 for those of you that missed it. That just came in fact six weeks ago. This episode is just really just an advertisement for other Payments on Fire episodes here for your listeners that haven’t checked out that episode.

But it’s a good one because Joao really gets into kind of the meat and potatoes of what this model looks like, and I think he mentioned now they’re in 30 or 40 something different countries at this time, where they really just started in the heart of really Brazil to start, right? And then grew within Latin American, gone from there. So this challenge that Simon is talking about and that you and Joao talked about in that episode, it really applies well to many other markets on top of that, I think, right?

Drew Edmond: Yeah, absolutely.

Chris Uriarte: For sure. So listen, I’m hearing us say that there’s a lot of different challenging fragmentation here, right? We talked about there’s no one size fits all solutions. We talked about there’s no such thing as a regional strategy. But I always put a little asterisk next to regional strategy. I mentioned it before in regard to Europe and the European Union, right?

And I think that’s an interesting one because we’ve got a whole bunch of countries, 30 countries in the EEA, right, the European Economic Area, that are in somewhat of a unified environment when it comes to payments landscape, the providers that serve them, and very, very important to Europe is this really complex and massive payments regulatory regime that continues to evolve and mature as it has over the course of the last decade.

So, Sam, I know you do a lot of thinking about Europe and a lot of work with some of our European clients. What’s the thinking there? How does the strategy maybe differ a little bit, or what are some of the challenges that merchants need to think about?

Samantha Gordon: Yeah, the counterpoint to our regional payments. And I’m joking. That is oversimplifying the case. These really are 30 separate markets with different languages and honestly still a handful of currencies. But you’re right. It’s the regulation is what’s so interesting in Europe because as you were saying, Chris, as payments people, we tend to hear highly regulated and flinch a little bit.

That usually lands for us as complexity and burden. But Europe is highly regulated, and very complex, but it’s like a unified complexity over the region. It scales over 30 markets, which means practically, if you invest in understanding the framework and building the controls once, and you set up your operating model support it, you don’t have to solve the same problem in 30 ways.

You can scale across 30 countries, which is taking out where usually the headache and fragmentation friction comes from. As Drew was talking earlier about local acquiring, the biggest practical win in Europe is local acquiring and domicility, which just opens up the whole region. If you establish a legal entity in one EEA country, Ireland, the Netherlands are both popular, you’re able to acquire locally across 30 big markets, which is great.

This is a huge- This is a lot of coverage for that investment, especially compared to other regions.

Chris Uriarte: So just let me note on that, is that we do, I think we see you called out the Netherlands and you called out Ireland. Those seem to be very popular for what’s driving that. I think tax is kind of a key driver there, right? Dealing with the regulators, you know, we have some more, not necessarily that it’s easier, but we have some regulators that are maybe a little bit more mature in how they handle their posture toward merchants and the environment. So, we certainly do see acquiring focus in those sorts of regions, right?

Samantha Gordon: Absolutely. I mean, some markets have intentionally made themselves friendly towards setting up local entities. You know, I think something that’s interesting that coming from this regulation, and again, it’s a very thorough regulation, is that in a lot of ways it’s enabling this scalability across the region.

I’ll give you a good example on the platform side, which is payouts. Domicility covered the pay-in side, just in general. I mean, you could establish your local entity in Ireland, the Netherlands, anywhere else, and do local acquiring. But just more recently, the new requirement for verification of payee, the VoP mandate, just a standardized IBAN to name validation between every bank in the Eurozone great for platforms because payouts used to be a little hairier, but now it’s standardized across the region.

But I’ll… You know, again, an asterisk to the asterisk. There’s a lot of commerce between Europe and the UK, and post-Brexit, this vision of a single framework does start to break down a little to one of the biggest and most attractive markets, which isn’t included anymore.

Chris Uriarte: Yeah. I think, Simon, when we’re talking about your home country of the UK, it’s essentially an outlier now. And just to make it clear to our listeners, when we’re talking about Europe, we’re really talking about the European Union, of which the UK is no longer a member of. And thus, what we’ve seen over the last 10 years, I can’t believe it’s been 10 years since Brexit now, but it’s been 10 years, I don’t know where the time goes, is the UK has established its own payments vision. It has its own set of regulation. Over time, the UK regulations have continued to take its own path away. While there is some, I would say, harmonization and some similarities, this is a different, completely different country, right, Simon?

Simon Skinner: Yes, yes and no. So, I mean, yes, it’s no longer part of the EU, and it’s indeed not part of the European Economic Area. So you can’t set up a local entity in, let’s say, Germany and use it to serve the UK domestically. And the UK is no longer governed by EU regulations like PSD2. But like post-Brexit, the UK retained many aspects of PSD2 and indeed enshrined it into UK laws, so there’s a fair degree of commonality today. Now, as we go forward and PSD3 arrives, who’s to say what kind of divergence may or may not happen.

But as you look at the kind of current regulatory frameworks and indeed if you look at some of the card scheme rules, often they are applied to the broader sort of Europe region, including the UK, sometimes with little asterisks, but there’s some kind of commonalities there. So, I’d say to your kind of question, yes, UK obviously no longer part of the EU, you can’t– you don’t have the passporting rights. But there are elements of the regulatory setup and framework that are still similar to other bits of EU.

And so, you know, you solve it for the EU, you might need to cross-check it with the UK, but aspects of it will still be common and a similar approach.

Chris Uriarte: Yeah, that makes sense. And Drew, we deal with lots of global merchants who have a domicile in the EU, and Ireland is the one really that sticks out there. And I think when we started really looking at some of the trends around local acquiring versus cross-border acquiring versus domicile, right, I think we found some really, really interesting things that happened. Because the one thing that I think we found is sometimes there’s some competing priorities at the corporate level that very often counteract some of the basic things we’ve talked about today around the benefits of local acquiring when it comes to cost and optimization, right?

What are some of those things that we found that we found pretty interesting here?

Drew Edmond: Yeah, I mean, that’s kind of what I was maybe implying when I said this is a cross-functional decision, not just a payments decision when you go out to do this, right? ‘Cause I think, it’s easy, you’re sitting there on the payments team and you’re looking, “Oh man, 20 basis points on debit, 30 basis points on credit.” You compare that to the rates that you’re paying in the US or for cross-border payments, you’re like, “Oh my gosh. I’m gonna get a bonus this year. We’re moving everything to Europe, and we’re gonna make a ton of money, and everything is gonna go great.” And that can be true, right? I mean, there definitely are cost savings for merchants there, depending on the type of business that they’re in.

But you to bring in… I would say tax is, like, the number one person you have to go talk to first. You have to understand how your services are being treated. Merchants get kind of creative sometimes with how they approach this when it comes to the contracting entities that work between the merchant and the end users, whether that’s sellers or buyers or whoever it might be.

There are intercompany agreements that dictate which entities are providing which services, one is earning revenue where, those types of things. And so, it’s not something that you can kinda just go out and do, and this is my little project on the payments team, and everything’s gonna go great.

You really have to make it a cross-functional piece. And then you also have to think about things like, well, which currencies are we going to accept, as we think about that localization element that can help with conversion and help with trust and help with retention on the customer side.

Say, “Okay, yeah, I’d love to be able to collect funds in euros, collect funds in maybe more exotic currencies.” Now, all of a sudden, your treasury team comes knocking on your door and says, “Well, now we’ve got a bunch of currency risks associated with these volatile currencies that I didn’t even know accepting.” They probably had to get looped in to make sure you were sending them to the right bank account in the first place. But again, it’s just more the fact that this is a cross-functional conversation, across the finance team, across legal and tax.

Chris Uriarte: But I mean, let’s get down to brass tacks here. I mean, the example here I think that we’ve seen is you have really smart payments professional that’s running the numbers that says, “Listen, we’re cross-border acquiring all of Australia, Japan into Ireland, and if we set up a local entity in Australia and Japan, for example, we would save substantially on interchange and maybe cross-border assessment fees and things like that. This is what we should do from a payments professional perspective.”

And then you put it in front of the tax guy, and the tax guy goes, “What, are you kidding me?” Right? “We’re bringing all this revenue into Ireland for a reason because of the low tax rates, and if we were to shift that revenue to come in through a Australian or a Japanese entity, then we would lose that tax benefit, and would actually might wind up costing us more.”

Right? That’s really what we’re talking about here.

Drew Edmond: Yeah. You could have- you can end up losing money by doing this rather than saving money when that’s the opposite of what you want to happen, right?

Chris Uriarte: Right. Exactly. Great. Well, some great discussion there. I want to close us out by just going around the table and, just in general, say if I’m a merchant who’s looking to expand my global strategy or really just starting to go global, doesn’t really matter where you are from a maturity perspective, what are some of the things that I should be most focused on or most concerned about today?

So I’m very interested in your answers. I have no idea what you’re going to say. So Sam, let me go to you first. Where should somebody start?

Samantha Gordon: Yeah, mine’s gonna be a bit of an evergreen one, not relating to any specific regulation. But it’s to look at more than the transaction fees as you’re evaluating your global PSP strategy. You know, to Drew’s point, there’s tax, there’s a lot of implications. But also, as you start operating across multiple markets, there’s a whole layer of costs that can sneak up on you. So like think 3DS fees in markets where SCA is required, FX fees, currency conversion spreads, local payment methods, surcharges. None of these is huge in isolation, and in a North America context, they don’t come up as much. But when you’re doing real volume across a lot of markets, this adds up, and it can change the economics.

So look beyond the headline fees.

Chris Uriarte: That’s a good point. Simon, what’s your take?

Simon Skinner: I think something we’ve discussed a couple of times here, but it’s understanding for the markets that you want to operate in, like what really are the most prevalent and important payment methods for your type of business and ensuring that you’ve got coverage of those at the outset.

You don’t necessarily have to have kind of full coverage from day one, but you need to know that if you’re starting with two or three payment methods, that that covers the key consumer preferences in that market

Chris Uriarte: Great. Drew, take us home. What’s your thoughts?

Drew Edmond: Yeah. So I think maybe tailgating off of that one a little bit, it’s super important to know which ones to add, and so how do you do that? A part of it is, it’s not enough for a PSP to just enable you in a country. The best, the better PSPs know that country. They know the payments preferences. They know they have good relationships with the issuers in that country to enable better approval rates. They’ve developed those relationships over time, so it’s not enough to say, “Oh, yeah, you know, check a box. They’ve got Croatia. We’re good to go.” They’ve got Brazil, they’ve got whoever.

It’s like, yeah, that’s great that they can check a box, but are they… what published materials do they have about that country? When you speak with your relationship manager, do they have a depth of knowledge in the priority countries that you want to focus in? Or can they at least find somebody in the organization that can help out with that?

Because I think a lot of times it’s very superficial in terms of their expertise, and that’s what leads folks to, I think, find local providers or these merchant of record companies and say, “Hey, you actually know Brazil really well. You know Thailand really well,” whatever it might be, I wasn’t getting… I didn’t have confidence in my global PSP that they had the depth. They had the breadth, certainly. The breadth is kind of becoming table stakes. I think the depth is what’s hard.

Chris Uriarte: That’s a great point. Some great points there. Simon, Drew, Sam, it’s been a very busy year. I hope you get to use some of those airline miles for personal vacations. I think we’ve been throughout North America this past year. We’ve been in several African countries. We’ve been throughout Europe. We’ve been doing work for clients in Southeast Asia and Australia, South America and just everywhere else.

So, I’m sure we’ll be spending a lot more time in airports as the year comes to an end. We still have six more months to go, which I can’t believe we’re halfway through. But thanks for joining me today. And to our loyal listeners, thanks very much for listening to us here on Payments on Fire, or maybe you’ve watched this episode on the Glenbrook Partners YouTube channel or glenbrook.com. Until our next episode, have a great day. Do good work. Bye-bye