Payroll is fundamentally about trust. An employee’s salary is often their only source of income, and they trust they will receive their paycheck on time and in full. If there are delays or errors, it can consequentially affect a company’s ability to attract and retain talent.
With globally distributed teams and growing employee expectations for faster access to wages, instant payments should be considered–but always keeping country-specific nuances, fraud risk challenges and prevention measures in mind.
In a recent webinar, The Death of the Payday, Peter Tapling, Managing Director at PTap Advisory, Albert Owusu-Asare, CEO at Cadana, and Sunil Joshi, Senior Director of Product Management at Nium, discussed how emerging payment technologies can transform the payroll experience.
Country-Specific Nuances
Payments systems, and the regulatory frameworks that govern them, are unique to each country. That means global payroll platforms must account for distinctions with not just each employer, but with each employer’s country.
For example, a wire transfer in U.S. dollars can take anywhere from minutes to days to arrive, depending on the destination. The cost of the wire can fluctuate based on the sending bank, intermediary banks, and the destination bank.
“The complexity increases with local payment methods like India’s UPI, the UK’s Bacs, or RTP in the U.S.,” Joshi said. “All those payment platforms have different timings, costs, amount limits, and metadata. Payments to tax agencies or third-party benefits providers add an additional challenge, because they often require specific payment methods or the inclusion of metadata for reconciliation, and requirements vary by recipient.”
In addition to payments scheme differences, the regulatory environment in each market can impact a payroll platform. For example, the General Data Protection Regulation (GDPR) in the European Union imposes strict rules on the transfer of personal data outside of the EU. Non-compliance with GDPR and similar regulations can lead to significant penalties.
Some countries like China, India, and Argentina, have currency controls that restrict or regulate the flow of their national currency out of the country, or that limit conversions into foreign currencies. Many countries require payment service providers to obtain specific licenses or registrations to operate legally.
Fraud Challenges
The complexity of global payroll operations means fraud is a constant challenge. It can be difficult for companies to verify that the right individual is being onboarded or an account isn’t linked to suspicious activity. Account verification is even more critical when using instant payments rails because of the speed and the irrevocability of the transfer. The growing consumer adoption of digital wallets and mobile money services in addition to traditional bank accounts also increases the opportunity for fraud.
For payroll platforms that serve small- to medium-sized businesses, there is a significant risk of onboarding a fraudulent business that will use a payroll service to steal funds from an unsuspecting third party’s bank account and transmit it to fake employees.
“There have also been cases where a criminal takes over an employer’s account and leverages it to launder stolen funds, often causing losses that are significant enough to wipe out the profit margins of a payroll platform. In other instances, employee profiles have been taken over by cybercriminals who redirect the worker’s paycheck to a different account,” Joshi said.
Prevention Mechanisms
Though fraud is a formidable challenge, there are ways to mitigate it. A robust risk check during onboarding can help payroll services identify fake employer profiles. In addition to performing a basic Know Your Business (KYB) check, a payroll provider should also evaluate an employer based on hundreds of other risk parameters (e.g. country of origin, IP address of applicant etc). They should also ensure the business owner has a clean criminal record and confirm the employer’s bank account is owned by the business and in the owner’s name.
Fraud that is perpetrated through account takeover can also be mitigated by strong security practices and limits, or step-up authentication controls, based on suspicious behavior patterns. That could be when an employer or employee suddenly links a new bank account, or when the name on the account doesn’t match the employer or employee.
“There’s always high risk when moving money,” Joshi said. “Someone could steal bank credentials and send fraudulent payouts, and often payroll platforms are left holding the bag. There must be strong fraud prevention mechanisms with every payment. However, even though fraud prevention is critical, it should never introduce unnecessary friction into the customer experience.”
Selecting Solutions
Fraud threats coupled with country-specific challenges can make it hard for payroll platforms to navigate global operations on their own, especially without the scale and experience of processing payments in each of these countries.
The best way to mitigate that complexity is to select a partner that has substantial experience, and collaborate on a strategy to test and launch payroll services in each market. Due to country-specific nuances, it’s critical to find a platform that can deliver comprehensive payroll solutions through a single platform and a single API.
The solution should do more than provide access to instant payments rails. A payroll provider should select a partner that can help them build an understanding of each market and determine the appropriate payment method for the situation. For example, Nium, a real-time cross-border payments platform, has helped global payroll firms, pay employees and contractors around the world.
“Access to real-time payment schemes has become the table stakes for global payroll operations,” Joshi said. “The differentiators among payments partners will be high success rates, country-specific customizations, effective fraud risk controls, and a collaborative mindset.”