Designed to fail! 6/7/8-Figure Crossborder Payments

International payments should be simple. A recent case from WERA Capital Partners shows that they often are not. Founder Stefan Neuss argues that today's system for cross-border payments is, in effect, "designed to fail".

A client in the United States needed to pay a WERA Capital Partners invoice of 35,000 euros, about 41,000 US dollars. He went to his branch of a well-known American bank. The clerk entered the payment and said the money would arrive in about two days. Two hours later he received an email: the payment could not be made.

It took eight days to find out why. In the end, the client cancelled the transfer and sent the money through a third party, which completed it via an online payment provider.

The cause, Neuss explains, lies in the way identity and compliance checks (KYC) work. Every bank in the international SWIFT network must meet international standards. But US banks must also meet US national rules, and EU banks must meet EU rules. These national requirements are not always compatible.

Because the checks often begin only after the transfer has been started, the two banks may not be able to agree. The payment then gets stuck, and highly automated systems leave little room for a person to resolve it.

For businesses that move large sums, from hundreds of thousands to millions per transaction, Neuss recommends an alternative: offshore-offshore banking. These banks, he says, work like traditional German or Swiss private banks. People handle each transaction, and the KYC clearing between the two banks is completed before the money is sent. According to Neuss, the risk of a payment getting stuck is then close to zero.

WERA Capital Partners advises businesses with significant cross-border payments in a 1h private consultation over zoom.