comet-melrose

Access Local Payments in the US & Europe Without a Local Entity

18 Apr 2022

Ran Cohen: We are live. So hi, everyone and welcome to another Bridger event. So Matthew, how's everything?

Matthew Steinbrecher: Good. I'm out in Calgary, Canada right now. It's very cold. I was just in Texas and it was probably almost 40 degrees Celsius. And then I came to Calgary and now it's like -5 right now. Very cold. How about you?

Ran Cohen: Wow, no Cyprus is not experienced that extreme changes but it was a crazy winter and super cold. And I was in Israel just now and the differences is you can feel them. So but yeah, you should come around these areas to feel the sun a bit.

Matthew Steinbrecher: Yeah

Ran Cohen: So hello everyone, the one that joined just now. You have the chat to ask us anything in the middle. We'll be happy to answer. So I saw Matthew first of all, congratulations on the round.

Matthew Steinbrecher: Yeah, thank you.

Ran Cohen: That's must have been hectic.

Matthew Steinbrecher: Yeah. Always takes time. But we're throwing a little bit of gasoline on the fire. All for scalability.

Ran Cohen: Yeah. Expansion and scale?

Matthew Steinbrecher: Yep.

Ran Cohen: So that's good. That's always good.

Matthew Steinbrecher: Yeah, I see you guys have been hiring a lot as well.

Ran Cohen: The team is growing and I think that the problem of orchestration operation of payments is becoming much more viable and feasible for every single merchant today. So it's becoming very hectic now.

Matthew Steinbrecher: Yeah.

Ran Cohen: But yeah it's growing very well. As the saying, CEOs never stopped raising. So I guess that's a part of what we do on a day to day basis, although we want to focus on the product a lot but what can we do.

Matthew Steinbrecher: Yeah, it's a constant roadshow.

Ran Cohen: Definitely. So we're talking about how to access local payments in the US and Europe. And to do it without a local entity. I think that that's a topic that we're going to speak about a lot Matthew and I have a suspicion that it's not going to be the first event that we're going to have about it. I can tell you that from Bridger side, we see a big problem in many merchants that we speak with and problem that they face. We can see it from the forums, we can see it from the businesses we speak with on a daily basis and it would be very interesting to hear how you guys solved it and in what exactly service you're giving merchants that do try to process in different regions then their hometown. And I think today it's one of the biggest challenges both for clients from Israel, clients from UAE and other countries that we see that there's a lot of merchants, a lot of need, a lot of volume and very very very low amount of solutions. So that's what we'll be speaking about today. And I think we want to start with what the merchant today is basically experiencing and how is the coping with today transaction flow. Are you with us Matthew?

Matthew Steinbrecher: Yeah.

Ran Cohen: So do you want to speak about the today world and what clients are facing and different barriers they have?

Matthew Steinbrecher: Yeah, I think in general it's pretty outdated in terms of the way that payment rails work, when you consider how technology has advanced so much in the last few decades. But one of the biggest issues for merchants selling online with the ease of internet access and being able to ship anywhere in the world or sell software anywhere in the world. Whenever you open a business online, by default you're global. And it's a pretty traditional problem in the payments industry where in order for you to process payments, you have to set up a merchant account or the payment processor. But when you're accepting payments from all over the world, it's all cross border. And I think one of the biggest issues is being able to actually localize to your shoppers around the world whether that's with like local currency or actually using local payment rails. It's pretty tough, it's pretty operationally burdensome for businesses to have to go and set up all that infrastructure themselves and set up lots of different contracts. It's kind of a nightmare. And so the traditional way of doing things if we look at like an Israeli based business for example, it's very difficult to sell into the US because of the fact that you're doing everything cross border. And so for me, as an American, if I tried to purchase something from let's say, a software company or an E commerce company based out of Israel then my bank is going to see that as much higher risk. And so it's really just because of the fact that they see I buy coffee in Austin, Texas and then all of a sudden I'm buying something halfway across the world. And it's a big issue. It's the same thing as if you travel and you go outside of the country and you don't tell your bank, the same rules apply. And I think that something that's quite outdated I would say, from the big banks and the big networks of payments. And definitely, there's a lot of room for disruption but if you see 10% 20% 30% decline rates on transactions when businesses are spending tons of money to get people to come and actually check out and it's quite a frustrating experience I know for a lot of business owners to figure out and navigate how to fix that.

Ran Cohen: Yeah, so I think that these businesses that you're speaking about and these use cases are very familiar. And sometimes we don't really understand why my call is not passing here and how is it possible at all and it starts from when you go to a hotel and try to pay with your Japanese card or whatever and you get declines we see that and we also see that the blindness of merchants from those declines they are very much not really aware of the amount of clients that are getting disappointed on the checkout and that's really hurting on the revenue. We have a lot of people that joined us since we started here so first of all welcome everybody and happy to have you here with us. So let's move on a bit more with a problem. We spoke about the fact that for let's say an Israeli company they want to process on the US for example and they would be restricted by many things and obviously that would be the setup and company that you would need to open there and what is basically needed to do it? If let's say you want to go through on the manual way and do it, so what's needed?


Matthew Steinbrecher: Yeah, so if you process cross border, a few of the issues are going to be you will have all of the proper payment methods available to your consumers. You'll have very high fees. And you'll basically have a very high decline rate because again like my bank would decline that transaction because they think I'm in the US and I'm trying to buy something across the world. So in order to actually go local, you have to set up a true entity in the US. So you have to set up most people set up a virtual LLC and then you have to open a merchant account with like a stripe or Braintree. And then you have to open up a business banking account in US dollars....

Ran Cohen: Tax and billing.

Matthew Steinbrecher: And then you have to pay the IRS, which is the tax and it becomes a lot of operational difficulty. In the US, there's lots of websites and things like that, that can set up an entity relatively easily. So on the surface, a lot of merchants I speak with, when they look at the benefits of being local, like having a local us entity, it makes all the difference in the world. You save money, it's a better experience for your shoppers. But when you look at what you have to do from an operational perspective, you can go online and open a US entity pretty quickly. But to actually activate it and open a bank account and then deal with taxes, privacy policy issues, HR legal now being a multinational corporation, you have to take money into your US bank account, pay taxes to the US tax authorities and then move the money back to Israel or the UAE or wherever you are based. And then you may have to pay tax on that money coming in. Because you've made it in a foreign country. It's a lot. Most of the time we see it's a minimum half a million dollar investment and at least 12 months to get up and running. You can pay lawyers more, sometimes it's more sometimes it's less but it's still a huge burden for businesses, especially when they're just getting started. Even if you're $100 million business it doesn't make sense to go and set up all those operations. Because then if you want to do the same thing in Europe, you have to replicate that whole thing in Europe. And now you have to deal with tax authorities in Europe and so on and so forth and it's very very difficult to scale like that when you're focused on selling jackets or.......

Ran Cohen: Eventually we're speaking about a business that doing a good job in his region and when it's trying to scale is facing those obstacles. And countries like Israel and Italy and UAE and different countries with huge amounts of merchants that are trying to sell to the US that we see here on a daily basis are facing those issues. So it's really interesting to see how you guys solved it and to talk about it a bit. So that's exactly what we just spoke about the entities and the time that it will take you to do all that. And basically, that's a lot of what you guys are saving here. And that's I think what merchants are looking for a fast and reliable company to work with and process with that can get them into the market and fast. And I think that's pretty much what you guys are doing here and quite well. We see our merchants very happy with you guys. So let's talk about a bit your solution and how you do it.

Matthew Steinbrecher: Yeah, I think one of the things, we've been around for nearly a decade and one of the things we found was there were so many ecommerce merchants and software businesses that were struggling with these same problems. Because again it's so easy to sell globally right now. But to actually localize to those customers properly is quite difficult. And so what we kind of did building our business was focused on basically allowing merchants to use our entity structure, to use our US entity if they are not based in the US or our European entity if they're not based in Europe and basically get access to our entity as a service almost and process payments locally to where the shoppers are. Wherever your customer is on a global scale, we will use a local bank to them. And that's something that again Amazon can do that because it's Amazon.

But when you're scaling a software or service based business or E commerce. It's very very difficult to do that and keep up with Amazon especially in E commerce. Because Amazon sort of sets the bar and a lot of countries that they're available in. And shoppers expect certain behaviors and expectations. So it's very difficult to keep up. And what we fundamentally found as part of our business model was allowing merchants to use our entities and process locally to where the shoppers are. It basically gives you higher conversion rates, usually at least 10% globally. And that's really on the authorization rate as well. Alone just the authorization rate, we can also give them access to local currencies as well. So being able to localize to a shopper in different countries is very important just to give them a smooth experience. That way, they don't have that split second decision of I don't exactly know how much that is in my home currency. And so they might leave the website and go Google what the exchange rate is. And then you might lose that shopper because they left your site and or are not engaged with your website anymore. And the third thing is definitely offering all the localized payment methods as well. Being able to fully capture that and again just giving your shopper a native experience to what they would have if they shopped on Amazon or one of the big retailers that are based in their home country. It's a lot more powerful for them to be able to do that and compete on a global scale without having to set up the infrastructure of all these businesses internationally and lots of different contracts and taxes from governments all over the world. It's too complex to handle that. So that's really where we've strived and focused our business model on was giving access globally to all different types of currencies, payment methods, but actually using the local banks. That's a big key difference between Reach and Stripe or Braintree, PayPal, lots of different payment processors around the world is that we always use the local banks based on wherever the shopper is and then we just move the money back to the merchant in their home country.

Ran Cohen: Well so one second, let me understand. So how do I as a merchant, as a business needs to open in the local entity or in the region that you're in? Do I need to open a local entity or open a sub entity under you, in order to process and what happening if I have Europe and US together? And I'm selling to both and in the end I'm processing with you guys. So I want to have it in one account? Also, what about installments? And if that is happening and if you have any plans for it? That's also a good question to have.

Matthew Steinbrecher: Yeah. At the end of the day, the way it works is let's say I'm based out of Israel, a merchant base that Israel. If I sign one contract with Reach, I now have access to local processing in the US, Europe, UK, Canada, Australia, so on and so forth. Localized payment methods, but I don't need any entities or any bank accounts. I can have all my money processed locally to where my shoppers are and then move back to my bank account in Israel. And that really is something that doesn't exist as much in the payments industry. Because most of the time you have to set up those businesses and that's a huge huge pain for merchants. But we don't require any of the entities, no bank accounts. You can operate just as you do today with no changes. You're now just able to unlock true local processing around the world.

Ran Cohen: Yeah, so first of all, I think that it's definitely is a solution that is needed because you can see the demander and we can see it also here in Bridger and what you're saving here to merchants is a lot of time, it's a lot of efforts. It's a lot of money. And I think that's the way merchants should think about when they start or when they are choosing the payment provider. They're definitely today different solutions like you mentioned before. And they all work differently and have different requirements from their side. So it's good to know where your solution here and we've created some kind of a flow to show basically how transaction is moving between a user that is coming to your company into your website checkout, where it's connected to Bridger. Reach is integrated with us of course with Bridger and you can easily connect your processing account with Reach through the Bridger plugin. And then the transaction flow moves between Reach, Bridger the website and obviously the user in the end where the settlement process go through Reach entities for the client, directly to the clients and the companies.

So, we wanted to pretty much put the flow out there so the people here could understand how transaction is flowing and how the money is basically flows. And how settlements are coming in the end back into the merchants and into the businesses. Guys, we have quite a few people here. So if anyone has questions, you're more than welcome to ask us. I see the board is quiet. You can ask us anything through the chats or through the questions. And just tell us if you had this problem or you have this issue of cross border payments and the need of local entities and if you solved it and how? We'd be happy to hear. So a little bit about our connection. So I think we've done a quite extensive work with you guys and connected basically every single solution that you support. Do you want to say something about it from your side like how is the process and which services have we connected in the end into Bridger?

Matthew Steinbrecher: Yeah, so one of the things about Reach is we have all these different banks and payment processors integrated to us because we have this spiderweb of entities and solutions payment methods available to one single contract and one point of integration with Reach. And with Bridger pay, by working with Reach you have the flexibility that the platform can give you on having maybe a domestic provider and then Reach for some of your cross border and toggling between providers. But the available payment methods through Reach was probably almost 100. And that pretty much gives everyone the ability to really localize to shoppers around the world. I see there was a question that came in from Stuart around. If we offer bank transfers, as well as credit cards? We absolutely do. We've got credit cards, bank transfers, PayPal, Klarna, ideals, banking, Gyro pay. Tons of different localized payment methods all around the world. Because I'm sure we have a pretty global audience here. But at the end of the day, people want to shop differently around the world and you have to localize your checkout to them. And one of the great parts about working with Reach and Bridger is, you can basically do that without having to set up any of the technical infrastructure yourself on your website which is not easy to do. You have to map different payment methods and show them and certain scenarios. It's difficult to do for an E commerce merchant or a SaaS company that you just want to sell your product. You just want to focus on your business. You don't need to be a payments company. And that's where working together is very powerful to be able to unlock all those solutions.

Ran Cohen: Yeah, definitely. We have another one from Neil. How do you solve the currency exchange issue for businesses selling worldwide?

Matthew Steinbrecher: Yeah, so that's a great question. Reach actually was originally sort of a branch of a foreign exchange company that's been around round for about 40 years. And they were doing corporate foreign exchange in the oil and gas industry and manufacturing and stuff like that so sending 100 million Japanese yen to Canada and things like that. And so we would basically, we originally started out as sort of figuring out a way to help online businesses properly manage foreign exchange so their shoppers can always pay in their local currency but that the merchants don't have to necessarily take on the risk of currency fluctuations because currencies move every second. And there's a lot of complexity in the market. And as a business owner you want the ability to give your shoppers a good shopping experience around the world. But you don't want to take on risk of fluctuation. And so what we do is we actually built, as part of our payments technology and this ability to access our local entities as well as all these payment methods around the world.

We coupled that with like big banking, foreign exchange services and that's kind of the birth of our solution. And how we tackled the market is connecting new world technology and easy plug and play solutions with our global entity structure and banking network. And basically giving small, fast growing businesses the ability to trade currencies at the same rates that big banks do. If you use PayPal, they charge you 3% or 4% for foreign exchange rates. And as a consumer it sucks because you go on you say okay, it's only going to be, you know, $100 and then I get to the checkout. Now, it's $105. Because I'm charged all these extra fees by my bank or by PayPal or whatever payment method I'm using if it's not localized in my currency. And so we eliminate all of that we basically give people the wholesale exchange rates directly from our sister companies trading floors. And again, it's just trying to demystify big banks and the way that they work and bringing that access to smaller businesses around the world.

Ran Cohen: Okay, I see the chat is booming today. I'm paying high cross border PayPal fees. You're not the only one can reach out me with this. So cross border fees is when we need to also separate it. So you have cross border in terms of okay I'm now a European merchant that sell in the US and I'm now processing in US dollars instead of euros and just by processing in euros and not in dollars, my European processor is charging me. So just by going to the dollar then obviously the conversion. And that's if my European solution payment provider is supporting US dollars in his processing. So there's many IFs here. And there is many different fees that you're paying. So in the end, how would you fight PayPal fees Matthew?

Matthew Steinbrecher: Yeah, there are two big fees that most payment processors definitely PayPal like to charge. One is an extra charge. If you're normally paying, let's say 2.5% for your PayPal transactions domestically. When you go cross border, they usually add at least 1% to that. So now it's 3.5%. And it's all in their fine print. They don't tell you this and shouted at the rooftops because they don't want you to know how much you're paying. And that's just for the payment processing just to take dollars out of my PayPal account and pass it to your PayPal account in Europe or wherever the merchant is based. Then you have the foreign exchange fees. And that's where obviously it can become quite expensive, quite quickly, because that's another 3, 4% depending on which currency you're looking at around the world that they are adding on top of the day's exchange rate.

So all in you're looking at close to 6% 7% transaction, sometimes higher just to be able to accept a PayPal payment. You're all in cost, not just the processing fee, not just the foreign exchange fee, like you're all in cost as a business owner is 6% 7% on average. And even if you negotiate very good rates with PayPal, it's still pretty difficult to get them down because of how friendly they are to consumers. It's very difficult to operate and scale a business without offering a big payment method like PayPal around the world. So most people have to deal with it. But they just know that the fees are very high, the big difference that we can do is we give you access to our local PayPal accounts. So we have PayPal accounts in the US and Europe and UK and Canada and all around the world. And what we will do is collect the money locally from the customer in the US let's say and settle it locally in our Pay Pal account then we draw those dollars down into our bank account but we move the money. So we kind of act as that, intermediary to move the money around on the banking side, and we'll move it back into Europe and then settle the merchant in Europe. And by doing that, we eliminate that 1% cross border fee just to accept the money. And then we're also able to eliminate or drastically reduce the foreign exchange fee. And it's a pretty powerful solution when you're looking at your fees going from 6 or 7% to 3 or 4%. And it's a good piece when especially Pay Pal is usually 20 to 30% on most businesses.

Ran Cohen: Yeah, but like you said it's a payment solution you need to have. And some of them also have balanced in it. So they like to pay. But it is wise to always reconsider your payment structure and see how you build it in a way that your commission structure will also be improved and optimized in time. So PayPal is one example and there's obviously different other payment methods that have their own fees. And as well, this optimization of fees should be an ongoing process and not just something that you live with because in the end you'll just pay like you said, a lot of money 7% for E commerce business, it's a killer. So good guys, let's move on a little bit. And okay, we are on the questions anyway. So we would want to hear from you guys if you have any more questions for us. And for Matthew here, then anything related to cross border payments, we'll be happy to answer.

Matthew Steinbrecher: Yeah, I think while we're waiting, one of the things we were going to discuss too is the Buy Now pay laters. Ever since the pandemic, buy now pay later has been super popular around the world. People just want the ability to still get products up front but have the flexibility of being able to pay over time. But one of the key things is there's so many around the world, there's a lot of them. There's Afterpay in Australia, there's Klarna in Europe, there's Klarna and Afterpay in the US. They're split it all around the world. There's a lot of different ones. And one of the cool parts is it's usually difficult most of these by now pay later don't support businesses in certain regions because you have to have that entity kind of going back to the beginning of the conversation. If I want to offer Klarna in the US, I have to have a US entity. And that's super difficult if I'm based in Dubai or Tel Aviv because I don't want to go and set up a US LLC just to be able to offer Klarna to my customers. And so that's one of the other great parts about having both the Bridger pay and Reach solutions combined is that you can get access to a lot of these different payment methods around the world but especially the Buy Now pay later ones which are increasingly popular because it just gives you now the ability to again better serve those shoppers and give them the option of paying in installments over time so that's been a success for most of our merchants in terms of conversion rate.

Ran Cohen: So if I'm a merchant let's say from UAE or from Israel and I want to connect Afterpay in the US so I can do it under the same processing account in Reach that I'm opening from my credit card for example processing and connected under Bridger under the same credentials. So that's how it work?

Matthew Steinbrecher: Yeah. So the way it works is once you have one merchant account with Reach, you can get access to the credit cards to PayPal to the Klarna, you can have all the different payment methods around the world with only one merchant account. So it's one contract, one merchant account, one pricing. We do between Reach and Bridger pay, we're able to show and someone from Germany comes on they can have credit cards, PayPal, and Klarna as payment options. And it'll be dynamic based on wherever in the world that they are. So maybe in the US, I might see a different set of payment options. And that's all through your integration with Bridger pay, as well as a single contract with Reach and just one merchant account. So you don't need to set up merchant accounts with all the different payment methods, you just get access to all of them through us.

Ran Cohen: So I think, pretty much that's what we wanted to cover here. And it's sounds like a solution you guys need to try. We have some clients already working together and we see good results and there's a lot more coming. So we pretty much very much enjoy our work together. And it's always good to see a payment provider that also is very strong in the technology side to work with and create these payment solutions that are off the box and giving huge impact to regions that are in huge problem. So guys, if you don't have any more questions for us, we are going to say thank you very much for joining us.

Matthew Steinbrecher: Yeah, appreciate the time everyone.

Ran Cohen: Yeah, we have a question. Let's see. Ellie is asking us does Reach have plans to the pursue of currency space crypto?

Matthew Steinbrecher: Yeah. Tough question. We would like to but so as I was kind of explaining before around some of our banking partners, not all of them are very friendly to cryptocurrency yet. And so I think until.....

Ran Cohen: How the Jews are saying it's like eating milk and meat together. Not working.

Matthew Steinbrecher: It's tough with some of the banks that we work with. We would love to get into cryptocurrency. And we feel that it is definitely coming up in the space. But it's more the, some of the banking providers that we work with are some of the largest banks in the world, in order to access those low foreign exchange rates and things like that, to give to our merchants and better serve them. We have to also kind of listen to some of their rules. So for right now, cryptocurrency isn't until on this year's roadmap I would say but it is something that we would love to offer and probably will as soon as we get the green light from our banks. But yeah, most banks seem to be turning around now and starting to get involved in cryptocurrency especially with global inflation and all the rise of consumer knowledge around it. So I suspect probably in the next few months we'll be changing that.

Ran Cohen: Yeah. So in the meantime, they can connect to the exchanges directly and do what they were doing. And that's what they're supposed to do because they have the structure for it. And when you try to mix it it's becoming a problem to the banks. But that's the nature of cryptocurrency it's still not there yet. And there's only a few banks that can actually walk with them. Mark is asking us what type of increase in acceptance does processing locally offer? Wow.

Matthew Steinbrecher: Yeah, I think it depends on what market you're coming from. But typically, if you're from a sort of second third world banking institution, it's always going to be at least 20% increase overnight in revenue. If we're talking about US going into Europe or Europe going into US because the banks are a little more sophisticated in the digital space, being able to speak to each other quickly and digitally. It's about 10%. So it really depends on which market but at the end of the day, even a 10% uplift in sales overnight is very powerful for any business. And then you add that to 20%. In some cases it can be up to 50 60%. If you look at markets like India or Mexico, Brazil and Latin America, it can be a very very big impact on the overall acceptance rate. And again that's an increase in your sales overnight.

Ran Cohen: Yeah, we see it. We definitely see it in Bridger as well. The use of local entities and local acquiring banks is changing dramatically. The approval ratios and usually the one the payment providers that offer those local acquiring are usually first thing the routes and the first on the retry fallback mechanisms. So I think it gives them a lot of power and like Matthew is saying, the network and the communication between them is moving much faster. There is much less fraud mechanism that are being worked on when you're not going overseas and transactions are more likely to get approved. And obviously, when you go to regions like Latin or Southeast Asia, or India, Africa, where you can definitely see the low approval ratio and you see it fast. That's where the big impact is coming and like Matthew saying super fast.

Matthew Steinbrecher: Yeah, it's overnight.

Ran Cohen: So thank you, guys. Thank you, Stuart, for the questions. And Mark and Ellie and Neil and the rest of that joined us today. We hope that we gave you some good value and good content on the problem of processing in cross border with without local entities and we believe that you have here a very good solution to try that can easily be connected from the Bridger plug and get into your websites. So definitely one thank you, Matthew for joining us. Thanks for time.

Matthew Steinbrecher: Of course. Thank you. appreciate everyone's time. Take care.

Ran Cohen: Good to see everyone here again and see you on our next event. Thank you



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BridgerPay is not a PSP (payment service provider), or an acquiring service, and we do not provide any processing merchant accounts. Bridger is a SaaS (software-as-a-service) company that allows businesses to utilise one API to consume all payments from any method or provider that is connected within BridgerPay’s ecosystem.