Bypass Brexit: avoid increased processing fees with BridgerPay and Reach

10 Aug 2022

Ran Cohen: A lot of people register for this event, probably by Brexit was a problem and becoming a problem now, wasn't as quiet as people thought the waves are starting to come.

Matthew Steinbrecher: Yeah, I think the interesting part was it just took so long for all the effects to happen. But now people are feeling now people are feeling it. So the big change to business.

Ran Cohen: And basically, let's start with the why. Why is it creating such a big mess?

Matthew Steinbrecher: I think it's really just all about the basically, the government made some decisions and the private companies like Visa or MasterCard, they all had to make changes around that. And it's really just now that they're completely cross border companies. So they were once a single country and now all of a sudden, they're entirely separate countries. And because of that, you go into completely new banking, Rails, new regulations, all sorts of stuff that makes it quite difficult for businesses to navigate when, they're just trying to sell T shirts or makeup or whatever it might be software. But yeah, I think, as we're learning quickly in like the world of global, all of a sudden affects lots of businesses all around the world. It's difficult but we have to deal with it. 

Ran Cohen: Okay, so let's get started guys, we have Matthew Steinbrecher from REACH and he's joining us again, this time to speak with us about Brexit and the implications of Brexit on processing and commercial terms that pretty much everybody's feeling now differences between the day before and the day after. We'd be happy to hear from Matt, what the right way to attack it is and how to save a lot of money on the way by using the right processing methodologies. So Matt, how are you? Good to have you

Matthew Steinbrecher: Well, yeah, thanks for having me back. It's always good to talk about the changing global environment, ways you can get around it.

Ran Cohen: It is. So we have a big topic today. And Brexit is something that definitely people wants to understand more about. Let's start from the beginning. Basically the cross border transaction and how the earth works.

Matthew Steinbrecher: Sure. Basically, in a traditional environment, where you have two different countries in a transaction, it's quite common that you're going to have a lot of different issues, both the shopper and the merchant. And it really just comes down to the fact that these banks, between the shopper and the merchant shopper in the business are in two different countries, they have different regulations, they have different rules. What happened fundamentally with Brexit is you have the United Kingdom that was previously in the European Union. Once they seceded from that, now they are officially a new country. And what that does is it makes banking regulations, banking relationships that previously between say, Germany and the UK word domestic. Now all of a sudden, they cross border, it would be very similar if you took parts of, I don't know if California or New York left the United States. All those sort of relationships, business and otherwise, are now greatly affected by the fact that those two countries are no longer the same. We're considering the same.

Ran Cohen: What do you mean by cross? So if you change to cross border, how is it implicating me as a business?

Matthew Steinbrecher: Yeah, so what happens whenever things are cross border, is now with the UK for example. You are a merchant based in the UK, selling to a customer in the EU now my bank, when I sign up with any sort of credit card processor or any payment methods, my bank is going to be based in the UK, that's where I operate my business, that's my home country, about the customer might be in Europe, right, let's say the shopper is in Germany. What's happening fundamentally, is that my bank in the UK is now seeing that customer in Germany in an entirely different country. And what happens is you have higher fees that comes directly from Visa MasterCard, if you're using a credit card rail, if you're using PayPal, they go by similar credit card rails, lots of different payment methods. Now all of a sudden because these banks have to talk to each other, the customer's bank and the Merchants Bank need to talk to each other to make the transaction happen. So your fees are gonna go up on the merchant side. So as a business, I now have to pay at least 1% more for my overall processing fees. And that's my bottom line revenue. The secondary piece that's huge as well is the shoppers. So they are now their bank, right, though the person who's giving them credit, is now seeing them as like a potential risk of fraud. Because the way that banks and their algorithms work is they might see you buy, coffee in Berlin in the morning, and then you're trying to buy something from London a few hours later, they see that as well, it's impossible that they got from Berlin to London. And so they just flag it as higher risk because of the fact that there's, two countries involved in the transaction. Whereas if they were buying something from a German company, it's a significantly less risk. 

Matthew Steinbrecher: Maybe the banks don't know each other, they've never heard of each other before when they have to speak to each other through like the Visa, MasterCard networks, or the Swift banking network. If the banks don't know each other, if it's smaller banks, then more risk of decline. So as a shopper, I now go through, I see your Facebook ad or however I check out your product or service, I now go into your website, I type in my credit card details, I click complete order, but my credit card gets declined. And it's my bank, it's the shopper’s bank. It has nothing to do with the business. And so between the business having higher fees, and the customers having a worse experience, you start to see a very large impact, where customers are getting declined on average more than 10%, which is 10% of the customers you're getting to your checkout are not successfully able to check out because of the fact that it's cross border. And now you also the ones that do get through are you're now also paying an extra one or more percent for processing fees sort of becomes quite difficult for businesses to handle.

Ran Cohen: And I'm guessing they're the addition 1% for the visa MasterCard in is not the only addition the payment provider who probably also have an addition of his own.

Matthew Steinbrecher: Yes in most cases, yeah.

Ran Cohen: If we look at cross border transaction with REACH, how does that look?

Matthew Steinbrecher: Yeah, so one of the ways for businesses to get around these issues, like let's say I'm still that UK based merchant, I would need to open up a new entity in the Eurozone, in the EU. So now I have to open a business in Germany. And now I'm a multinational corporation, so I have to pay EU tax versus UK tax, I have different regulations, I have different HR policies for my employees, all sorts of stuff is difficult for a lot of businesses to operate at scale, to be able to do this in a lot of different countries. And most people had to do this due to Brexit out of necessity. One of the fundamental things that reach does differently from you know, your stripes, Braintree add in, all the major sort of payment providers around the world is we will allow you to use our local entities and get all the benefits of having that infrastructure and having that local presence, local entity process locally, without having to actually go and create that business yourself. So if you have those same shoppers in Germany, now you can sort of get a merchant account with Reach and we will process those transactions locally in Germany that will send the money back to the UK. So the customer never knows the difference. They're still buying their products from you. But we are processing it locally to where the shopper is because that way you are getting cheaper fees, and significantly higher credit card approval rates and local payment benefits too.

Ran Cohen: So it makes an international like us cross border transaction become a domestic pretty much.

Matthew Steinbrecher: Exactly, yeah.

Ran Cohen: Okay and regarding regulations and darks, still there is no implications?

Matthew Steinbrecher: In some cases there are taxes are difficult all around the world. But it typically depends whether or not it's physical goods or digital goods. And if it's digital, there's always tax. Regardless, if you use a new entity or not, you usually always have to pay the consumer tax or VAT in these countries back to the governments. But with physical goods, typically, nothing really changes. So it really allows the merchant to not have additional complexities. And if there are additional complexities, like if I sell software, for example, and I want to or even consulting services or whatever it may be, and I'm based in the UK, Reach can help with a lot of that tax infrastructure and sort of remittance back to the respective governments. So we handle that as part of our service as well. But other times people already have setups or they may not need to. So typically, it's not disruptive at all, when you use this business model to any of the tax implications for your business, almost always, it's basically you're doing the same thing, you're just doing it in a in a better way to streamline your operations. Similar to if you have five different payment gateway integrations on your website. And you're having a difficult time upgrading to the newest API or maybe you need to implement 3ds two or soon to be 3ds three, you're having all these issues we would partner with someone like Bridger pay to come in there and manage the operations.

Ran Cohen: Now you guys do it from any formation source or from any sides of the story. So if I'm a UK merchants, and I'm selling Europe, and I find in Europe selling to the UK. So on both sides, basically though, this list problem is occurring, right? So a UK merchant selling to a European client is just one use case. Well, many others. So everyone that says basically from Europe or from UK to the other than basically has this issue.

Matthew Steinbrecher: Yes. Yeah. The example we use was the UK selling into Europe, but anyone, the opposite as well is the same.

Ran Cohen: And the US merchant that sells to UK, for him is ambivalent. It's the same as before It's gonna be across.

Matthew Steinbrecher: Yeah, it's the same as before, it's a little more expensive than before. About half a percent. Well, so what happened was in the EU, the government or governments, the European Union legislation, they pretty much kept what Visa MasterCard, what credit card companies American Express all those players, what they can charge businesses to use their service grand in the US for example, we don't have that same law it's much more expensive to process a credit card in the United States than it is in Europe. Just because of the consumer laws, there's much more protection for consumers and businesses with European legislation. So what happened was when the UK was when they left the EU now you have all that legislation to protect businesses from higher prices from the credit card networks. Now the credit card networks don't have that same law. And so they come in and they increase their fees. And so now that UK

Ran Cohen: It is becoming like an insurance company you're risky, risky guy. You're gonna crash let's make your premium high. Yeah,

Matthew Steinbrecher: Yeah it's like that and similar to insurance you usually need it, you can't run a business in this day and age online and not offer credit cards be very difficult. Well, at least a direct to consumer business. And yeah, I think it's something that you just have to play with. But a lot of people probably saw, it got popularized quite a bit, which is rare. But Amazon fought with Visa quite a bit over this written this new regulation. So we saw that Amazon was trying to ban visa in the UK, for their shoppers and of course, yeah, but it was because they tried to double Amazon's fees.

Ran Cohen: Now Amazon has their own aspiration of running their own show

Matthew Steinbrecher: Yeah, exactly. They usually Amazon is usually the one that causes governments to terminate legislation, increased taxes, but they're also helping merchants a little bit to, at least in the UK because they got the fees dropped back down to a reasonable level, from where Visa, MasterCard and all the credit card companies wanted, they wanted to increase it like the US. But credit card fees in the US are way, way higher than in Europe, like eight to 10 times higher, depending on the type of card. And so it's a much different, much different experience for the businesses. But that's a big shock for someone

Ran Cohen: Let’s move on and see what's a little bit more about Reach and, and more about you guys and what you provide to businesses, which maybe you can say which type of businesses are usually using you guys and the full scope of the solution because it's not only processing.

Matthew Steinbrecher: Yeah, so we, in general, our full solution is helping with anything cross border. So that will include foreign exchange, understanding how different countries operate in multiple currencies, how to actually offer those currencies on your website. Sort of optimizing your entire shopper experience, so you're increasing your conversion rate with your customers. So they have a much more comfortable shopping experience, again, trying to get a cross border experience feel like a domestic experience. We also will handle the payment processing, of course, and always use local banks to where the shopper is, since we're doing that we also will offer local payment methods. And there are a lot of local payment methods. Klarna was one I think we were talking about before we got started here. If you're a merchant, based in a non-European country, let's say it's very difficult for you to offer Klarna to those European consumers. And Klarna is a huge, huge benefit, especially if you have a large average order value for European consumers. So being able to offer that local payment method is powerful for your business and your customers to come back and want to shop more. And then tax compliance as well. So we help navigate sort of the very complex world of tax, whether or not you are a freelance graphic designer selling services on a website or you're a direct to consumer merchant that sells high end dresses. We work with pretty much all businesses around the world. Typically nothing in the higher risk category. But anyone selling goods or services, whether it's, again, software could be agency services or products, we're able to service you in your global markets.

Ran Cohen: How are you dealing with Australian merchants and businesses that also suffer from cross border transactions and fees? And they don't necessarily have the entities to support it.

Matthew Steinbrecher: Yeah, there's a lot of there's a lot of cross border in Australia, and pretty much everywhere in the Asia Pacific region, you'll have a significant amount of cross border just because of how dominant US and European consumers are. So what we see we actually have a quite a large amount of our clients are Australian based, also Hong Kong, Singapore, other countries where the domestic sales might not be large enough, where you're looking at 80% of your businesses cross border. So we are able to really make a massive business case for them because their fees go from maybe 3% to one and a half percent or whatever

Ran Cohen: Exchange also is we hear it from many businesses we speak with. Yeah, this is a big solution that people are looking for in Australia because in the end, they don't have they don't have the formation in the in Europe. And they really Feeling the transaction, every transaction for every country in Europe is across borders so

Matthew Steinbrecher: Yeah, it's definitely it's foreign exchange is very difficult for a lot of businesses, not even just the cross border payments side, just navigating the foreign exchange, too. It's, you have increased fees from either the payment network or your payment provider, but you also have these fees for all the foreign exchange that's involved, and trying to figure out how to minimize those fees. A lot of times when we do business case for Australian based businesses, if they're selling to a customer in the US, they are basically or Hong Kong, very similar Singapore, they are selling to a US customer, let's say in US dollars on their website, that they get Australian dollars back or Hong Kong dollars are Singapore dollars

Ran Cohen: So there are settlements.

Matthew Steinbrecher: Yeah, to the settlement. And then they have to pay out their supplier maybe in China in US dollars again. So they get 3%. One way, another 3%. When you look at they're all in processing costs, it's close to 10%. There.

Ran Cohen: So how do you work it out? What, what do you do?

Matthew Steinbrecher: You don't convert the funds, if you don't need to

Ran Cohen: You pay the provider directly from you guys?

Matthew Steinbrecher: Yeah, so we pay us to us into a US bank account, and then they can pay the provider directly. So we have lots of different sort of options around how to set that up. And if they don't need all the US dollars, let's say only like 10% of it or something. So help with splitting that and only giving them a certain amount. And that's really where you see quite a bit of power in someone who operates in global, whereas a lot of traditional banks don't really think about this because most of their businesses are largely domestic.

Ran Cohen: Yeah. But if you want to scale globally, you start feeling it. Yeah, let's talk about breach and Bridger. So what do we offer together already?

Matthew Steinbrecher: Yeah, so we have our native integration, and quite a few merchants live together. So once you have Bridger pay on your website, you pretty much have access to tons of different PSPs, including Reach. And what we're able to do, optimizing the cross border side for businesses, is we can sort of turn ourselves on and we offer, tons of different pretty much every currency, you can think of lots of different payment methods. And what we're doing is country by country where you don't have a legal business, we are able to turn on Reach, give you that legal business, sort of as a service, think of it as an entity as a service, processing locally giving you the benefits as the merchant, while not having to go and set up any infrastructure for it. It's just another merchant account that you would create. Now, while you're leveraging Bridger pay, you probably might have a different processor that you've been working with yours, you're comfortable with them, you like working with them. But now you need to handle two different processors. Maybe you have other payment methods that you offer on your website, that you're managing all these different integrations, and through Bridger pay are able to do that seamlessly through a single integration and a single interface. I think one of the most powerful things even walking through a client we just launched this morning. They just wanted to turn us on in Germany and France. And they just went into the back of Bridger pays admin, they just click Germany, France, at Reach. And it's as simple as that. You really just configure it and turn it on, it's live on your website within seconds. That's a pretty powerful tool for businesses, especially when you want to test different markets, different success rates, different costs, maybe whatever it could be that you want to test, having that flexibility is very, very powerful. And when you now couple that with, real local processing in in over 70 countries internationally. It's very, very powerful for your business to step up and compete with the Amazons of the world.

Ran Cohen: Yeah, we I think that together with the plugins that we've just added, it gives a lot of power, a lot of our firepower, so we've just launched PrestaShop plugins and the PWA to for Magento. And there's a lot of there's a lot of PrestaShop and Magento merchants which are not based in the US or and we get approached by a lot of them from many different countries that wants to process in Europe in the US. And I think Reach is a very good choice for them to, get their entity working and processing quite fast. And there's a lot of demand that is coming out of there. And it would be great to see more people using both the Bridger plugins and the solutions we have inside and Reach in it. We're talking about Visa and MasterCard, and I think that's one of the most important things here in this event, do you want to tell us a bit more about how it all sums up to what the merchants needs to pay in the end and what is this recipe is built on?

Matthew Steinbrecher: Yeah, I think, just as a good example, it's always good to see some numbers of what your cost is, or approximately is. And before Brexit, the UK was part of the EU, and those kept fees that I was talking about where you basically they put a maximum fee, it was point 3% for your merchant processing fees. But now after Brexit, those fees have gone up. And this is just for domestic, UK based credit card after Brexit now that European Union legislation is gone, and those laws are now different, in the UK, they increase those fees from point 3% to 1.5%. This is what Amazon was hounding visa on and trying to take them down for. But now you also have the cross border fees. And that goes, another point to 5% starts to add more and more, then you have to pay your actual payment provider. Those first three fees are just from Visa and MasterCard, you still have to pay your payment provider like Stripe, or Braintree, your ad yen, or WorldPay, or whoever even reach someone has to make money in order to give you the service. And so you look at your total cost since about 2.15%. Now, where previously was point three, that's a huge increase. What we do is we give you that entity, we handle that tax infrastructure for you, we can give you those local banking rails. And we would do it for you know, 1.4% on average, and that's a big savings for most businesses, especially

Ran Cohen: And no matter which country I'm from? 

Matthew Steinbrecher: Yep, exactly. In the Euro zone. Yeah. So anywhere, if it's UK to Europe, that's where, we can basically give this all in pricing to help drop fees significantly. And the times of the Brexit.

Ran Cohen: Yeah. It's a big change. It's almost 1% on your volume. Okay, that's, that's good to know. Yeah, we spoke about Reach and Bridger. And I think we're going to leave some time for questions. If there's any questions from the audience. We'll be happy to answer. If we have any questions here seems like a quiet day today with no questions. Usually, it's busier with more questions, but I guess I don't know. Summertime.

Matthew Steinbrecher: Yeah, everyone's on vacation.

Ran Cohen: Yeah, but I'm guessing people will check this event later on. So yeah, one more chance. No more questions. Are we good? We have Pedro here and others No. Okay. So, Matthew, thank you very much for telling us a bit more about Brexit and the changes. It's definitely a big change for every business that is processing that you feel when you have an increase of almost 2% on your costs. Something you feel well, I think definitely in our time today, when you try to show profitability and value and this is huge impact. So yeah. Definitely something you can avoid by using a good infrastructure. So thank you, Matthew, for giving us a bit more from your knowledge, and we'll be happy to see you again here.

Matthew Steinbrecher: Yeah, sounds good. Thank you. Appreciate it.

Ran Cohen: Cool. So bye bye guys and thank you for joining us today and we'll be with you soon in our next event.

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