When Frontline Focus began doing business in 1993, they had very little need for cross-border payments. Even as they expanded internationally, foreign payments were initially made using Western Union and local money orders and checks. As their global reach continued to grow, however, these payment methods became less cost effective – both for Frontline Focus as well as their field agents and mystery shoppers.
Headquartered in Ontario, Canada, Frontline Focus International Inc. provides mystery shopping services and consistent, real-time data that helps clients around the world drive and grow their brands internationally. Founded in 1993, the company today has 150,000 field agents and mystery shoppers who make more than 300,000 visits to quick serve restaurants, convenience stores, petrol stations, automotive repair facilities, telecom providers, retailers and various other consumer-facing businesses across 132 countries.
Frontline Focus needs to make tens of thousands of individual payments annually – most of which are less than CAD100.
According to Barry Diamond, Executive Director of International Business Affairs for Frontline Focus, while making these payments cost-effectively is certainly important to the company – a larger part of their challenge is in protecting their shoppers. “We’ve found over time that beneficiary banking fees on cross-border payments coming from us can equal as much as 20 per cent to 30 per cent of the payment, and sometimes even 50 per cent in certain countries.”
That means if a shopper receives a check for CAD100, they might only see CAD70. This is particularly problematic for Frontline Focus because shoppers are not paid for their time; they are reimbursed for expenses related to their visit such as transportation, internet, food and merchandise purchase, etc. “As a result, these high fees are literally taking money out of our beneficiaries’ pockets,” explains Mr. Diamond. “The bottom line is that our shoppers want their money quickly and with no fees. And they want options, all of which we want to give them without negative impact to our own business model.”
Recognising this global problem, the World Bank has been pushing the industry to resolve the issue of high fees on low value payments. However, local banks in particular have not been receptive as these fees can represent a significant revenue stream for them.
With this, companies with high volume low value payments flows are tasked with finding a solution on their own. One answer is to maintain individual bank accounts in each of the countries in which they do business and make payments from there. For Frontline Focus this would require opening and maintaining 132 bank accounts, which is neither time nor cost efficient. Some companies hire independent contractors in certain countries where fees are particularly high. In this scenario, the company would send money to the contractor and he/she would make payments to local beneficiaries. This, of course, can be risky when working with unknown partners. International accounting firms offer similar services, which helps mitigate the risk somewhat as they are a better-known entity, but can also be expensive.
“The payables challenges we faced really came to light when we were conducting a pilot program for a client in Germany,” says Mr. Diamond. “When we reimbursed the German shoppers, we heard back that they were getting only about 60 per cent of the payment. It was just too expensive. We explored several solutions, including using pre-loaded credit cards or paying through non-bank or third party payment providers. None were particularly cost effective or satisfactory from our beneficiaries standpoint – so we decided to turn to HSBC for guidance due to their experience as well as the fact that they had offices everywhere we were doing business.”
To make payments throughout Europe in this pre-Single European Payments Area (SEPA) environment, HSBC recommended an automated solution that used the STEP2 system, a Pan-European Automated Clearing House for retail euro payments. This gave Frontline Focus the ability to create a file and upload it to HSBCnet through a single Euro bank account, solving a large part of the issue for payments being made in Europe. When HSBC introduced its Global Disbursements solution in 2013, Frontline Focus was invited to participate in a pilot program to help streamline their processes even further.
Global Disbursements is a centralised solution for cross-border payments that uses one funding account (or just a few, depending on the individual business), one remittance file and one debit entry  for 75 currencies in more than 175 countries. It builds on the benefits of the initial solution HSBC implemented for Frontline Focus, adding:
In addition to giving us a single point of access and comprehensive view of all our HSBC accounts around the world, Global Disbursements and HSBCnet has made paying our shoppers much easier,” Mr. Diamond says. “Our IT department worked directly with the HSBCnet team in the UK to develop software that further streamlined our payments processes. We have about 150,000 shoppers in our database, each with personal information and linked to a brand – whether a retailer, quick service restaurant, telecom provider, etc. Once they’ve completed an assignment, they are able to enter all their expenses and feedback online. This creates a payable to them and an invoice for our client. We are then able to download this information and utilise the data in any manner we need – sorting by shopper number, country, client and more.
Leveraging HSBC’s international network, Frontline Focus can now make low value high volume cross-border payments worldwide by uploading a single file via HSBCnet for all payments regardless of type, currency or destination country.
This has reduced much of the complexity and costs associated with making cross-border payments to their field agents and mystery shoppers in different countries and currencies. Most significantly, Global Disbursements decreases the number of accounts that need to be held globally, minimising the amount of time spent managing and reconciling local currency accounts. The automated processes simplify workflows and also allow for exchange rates to be applied in bulk to each currency pair, which lowers per transaction costs and other potential banking fees. Generally, the Global Disbursements solution works seamlessly with existing systems and requires no new infrastructure. In the case of Frontline Focus, however, it was necessary to develop proprietary software in order to prepare files for uploading to the system due to the unique nature of their database.
Since payments are initiated electronically as soon as expenses are entered, field agents can see money deposited into their accounts as early as the next business day and within three days at the most. This process has also eliminated high banking fees for beneficiaries living and working in Europe as it coincided with SEPA.
The banking industry still has some way to go as it relates to minimising or even eliminating fees for the beneficiary. However, increased competition from third party payment intermediaries and a regulatory environment focussed on more automated, cost-effective processes with initiatives such as SEPA in Europe and the Dodd-Frank Act in the US will likely keep the industry moving forward.
With HSBC’s help, Frontline Focus will be well positioned to capitalise on the changes as they happen – quickly adding countries, payment types and currencies to their system. The company will also continue rolling out Global Disbursements to other parts of the world on a case-by-case basis where they determine that the benefit of giving field agents and mystery shoppers’ faster access to funds outweighs the beneficiary fees.
Going forward, shoppers will also have more options. For instance, people in Argentina may want a physical check denominated in Argentine peso that they can deposit in to their local banks. Shoppers in the Philippines may opt for funds to be deposited into their SMART mobile wallet accounts, while those in Singapore or the UK might choose the fastest payment method available to them – receiving funds via a non-bank or third party mobile wallet providers.
“Essentially, we want to be able to pay our shoppers in the way they want with little or no fees,” explains Mr. Diamond. “Global Disbursements is poised to help us do that as the banking industry continues to change.”
 One debit entry per batch or remittance file.