Impact of Currency Exchange Rates on Payment Companies in the Year 2023
In 2023, the US dollar has been strengthened by geopolitical tensions in the Middle East, a development that has significant implications for cross-border payments and companies operating internationally.
The focus of this article is on understanding the intricacies of inbound cross-border payments to the US, a topic that requires a comprehensive approach encompassing regulatory frameworks, payment systems, compliance requirements, and more.
Regulatory Guidelines and Compliance
The IRS Large Business and International Division plays a crucial role in ensuring compliance for international inbound and outbound transactions, including withholding and reporting obligations on foreign payments. This division is instrumental in maintaining adherence to U.S. tax laws related to foreign persons making payments into the U.S. or U.S. entities receiving foreign payments.
Payment Networks and Processing Systems
The FedGlobal ACH Payments service, managed by the Federal Reserve, is a critical channel for compliant cross-border electronic payments into and out of the U.S. Understanding FedGlobal ACH operational manuals and their regulatory compliance with U.S. law provides clarity on how inbound cross-border payments are processed.
Anti-Money Laundering (AML) and Risk Management Practices
Financial institutions must comply with AML standards for cross-border payments to detect and prevent illicit transactions. The complexity of inbound payments demands strict adherence to KYC procedures, fraud prevention, and risk management frameworks.
Cross-border Payment Regulations for Payment Aggregators
Regulators enforce governance, operational standards, and merchant onboarding protocols for entities acting as payment intermediaries handling inbound cross-border transactions to maintain transparency and security.
Tax and Remittance Considerations
Although the new U.S. remittance tax applies only to outbound cash-based money transfers starting January 2026, understanding these tax rules highlights distinctions in regulatory scope between inbound and outbound cross-border payments.
For a more detailed and authoritative understanding, review publications and manuals from the Federal Reserve, consult the IRS International Division compliance guides and reporting requirements for foreign payments, understand cross-border payment compliance frameworks from regulatory authorities, and explore specialized fintech compliance resources and industry whitepapers that detail operational best practices for inbound international transactions.
Impact on Companies
Companies like Western Union, Mastercard, Euronet, and PayPal have reported their revenues for the year, showing a difference between the reported growth and the growth excluding foreign exchange rate impacts. This discrepancy underscores the importance of considering currency exchange rate impacts on companies, particularly during periods of macroeconomic upheaval.
Mastercard, for instance, saw revenues rise 13% on both a reported and constant currency basis in 2023. However, the company noted a lower revenue related to FX volatility versus the prior year. Similarly, Western Union's revenues declined 3% when considering FX impacts but grew 1% when they were excluded.
In 2023, Flywire's growth with and without FX impacts was roughly the same at around 43%. This suggests that exchange rate volatility did not have as large an effect on revenue growth rates this year for some companies.
The US dollar remained strong in 2023, with the US dollar considered a safe haven currency. This strength can benefit some companies, as evidenced by Euronet citing "improved FX rates against the US dollar" as one of the drivers for revenue growth.
Investors should remember the impact of currency exchange rate changes on a company over time, as these fluctuations can significantly impact a company's financial performance. For personalised advice, you may consider connecting with a financial advisor like Joe Baker on LinkedIn.
In conclusion, understanding the complexities of inbound cross-border payments to the US is crucial for companies operating internationally, investors, and financial analysts. By considering regulatory frameworks, payment systems, compliance requirements, and the impact of currency exchange rate fluctuations, one can make informed decisions and navigate the challenges posed by macroeconomic upheaval.
Technology plays a significant role in facilitating compliant cross-border payments, as understanding operational manuals and regulatory compliance of payment networks like FedGlobal ACH helps in processing inbound cross-border payments.
Investing in fintech companies that specialize in cross-border payment solutions could provide attractive opportunities for investors, given the increased importance of these services in today's global economy.
