Indian IT-ITeS industry: Growth without borders, cross-border payments without friction

Indian IT service exports are thriving in the global market. According to an article published in Business Standard, “India's exports of software services increased by 2.8 per cent during 2023-24 to $ 190.7 billion, according to the data related to the 2023-24 round of RBI annual survey on computer software and information technology enabled-services (ITES) exports.^1."

But for scaled and sustainable growth, “payments” need to be right. ITeS exporters need to rethink their options to receive cross-border payments if they want to continue to ride this wave.

Better global payment solutions are a huge lever for IT-ITeS companies. The right payment solutions can drive strategic advantages:

• Customer satisfaction: As businesses scale globally, offering a smooth, frictionless payment experience is key to customer satisfaction. Seamless international payments help build trust and operational excellence with clients. E.g. a global client is usually bound by local payment systems of that country. An accessible, easy-to-use payment solution, customized for their preferences, reduces friction at their end.

• Improved margins: Fast payment settlement solutions that also offer lower fees and better visibility can help ensure a healthy cash flow, ensuring short lag time, better visibility and most importantly, zero revenue leakage, ensuring cash flow that is healthy on all counts, including speed, visibility and assurance.

• Simplified compliance: Simplifying the compliance process is a big advantage. It helps you save time and effort. Businesses need to comply with the Foreign Exchange Management Act (FEMA), Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements and legal regulations. These requirements and the need for due diligence on international transactions create additional burdens, especially for businesses. As a fast-growing IT company, working with new payment solutions like Xflow can help ease some of the stress. With Xflow, get key documents like eFIRA within 24 hours of the funds withdrawal.

• Streamlined intercompany transfers: Besides receiving customer payments, funded start-ups in the ITeS space face similar challenges when transferring funds between their global and Indian subsidiaries. The lack of predictability in these transfers on account of unclear FX charges and fees adds further complexity to the functioning of IT companies in India. 

Cross-border payments often come with hidden fees, high conversion costs and more. Working with a provider which helps you save on these costs can result in an improvement in margins. That is gold dust in an industry where margins have been, and continue to be, under constant pressure.

• Delayed processing time: Cross-border payments in India often aren’t very agile. Traditional methods, such as wire transfers can take up to 1 to 5 days or more, depending on the banking partner, currency and region to initiate settlements. The delay often leads to strained cash flows, with most business leaders investing their time on follow-ups with their bank partners.

• Obscure fee structures: Most cross-border payments have various obscure and opaque fee structures. There is no transparency on the exact FX conversion charges, commissions and processing fees. And these charges for conversion, processing fees, and commission charges could go sky-high. For example, a $100,000 payment may attract up to 3% hidden charges² (RBI, 2023). That translates to $3000 in revenue being lost.

• Communication and support bottlenecks: Legacy cross-border banking systems, mainly traditional banks, are generally not efficient, let alone agile. Various payment issues are often siloed between different departments such as FX handling, compliance, and operational support. This leads to delayed and even unclear or unhelpful communication, especially when trying to resolve payment issues or delays.

• Fluctuating FX rates: Risks arising from currency markets are unpredictable. This affects their margins. For example, a 1% increase or decrease in the USD-INR rate may turn a company's profit into a loss of 10 lakh INR for a $1 million transaction³ (McKinsey & Company, 2023).

• Stringent documentation: The process for cross-border transactions is paper-intensive with FIRC and other compliance documents. Not only is it inefficient and slow, but also prone to errors.

Given these challenges, IT/ITeS companies need effective and innovative payment solutions which can meet their complex requirements. The ideal payment solution then, should address the following factors: They need to deliver, standing strong on the following ‘big 4 pillars’:

1. Lower transaction fees: Solutions that reduce overall transaction costs,  and eradicate hidden fees help maximize earnings. Eliminating conversion fees, commissions, and intermediary charges can unlock the next level of savings. 
2. Faster processing times: Applying real-time or next-business-day settlement ensures cash flows are optimized. This eliminates delays that affect day-to-day operations. Start-ups can now look at modern solutions such as a Virtual Bank Account Number (VBAN) that enables fast settlement, improved cost and transparency.
3. FX transparency: Knowing the precise amount at the time of withdrawal or locking in FX rates in advance allows companies to safeguard their risks. 
4. Improved security: Advanced security features such as multi-layer authentication, end-to-end encryption, and strong AML checks ensure that IT/ITeS companies and their clients are safe from fraudulent transactions.

Additional capabilities like frictionless integration with existing third-party apps like accounting and  billing software can work wonders for operational efficiency. As can the availability of multiple local payment options such as bank transfers, for global clients.

The Indian IT/ITeS sector is already a global leader; optimizing cross-border payments will only help unlock greater value for the industry. The shift to better, more transparent, and secure systems is a strategic one which places IT/ITeS enterprises in the best position for sustainable success globally.

Seamless cross-border payments unlock opportunities for businesses to become more agile while clients get an experience that is as smooth as it is reliable. Whether it's faster payments, localized payment options or cost savings from lower fees, advanced payment solutions can help Indian IT/ITeS companies scale globally.

More articles:

1. A founder’s guide to scaling internationally
2. What are the costs involved in international payments?
3. Should your business try new-age payment solutions for cross-border payments?