Foreign exchange of the future – streamlined, cost effective, fast

By Anders la Cour | 6 July 2016

In terms of currency and exchange rates, 2016 is expected to be another highly volatile year. The first half of the year has lived up to expectations, with Sterling in particular having had a tumultuous ride in the lead up to the ‘Brexit’ vote in June. Uncertainty around whether or not the UK will remain in the EU not only affected Sterling, but also had knock-on effects elsewhere, and is just one example of why businesses need to be convinced they are getting the best exchange rates available, at all times, no matter what the market is doing.

Without a firm ability to predict or even measure Forex risk, companies of all sizes are to some degree at the mercy of negative currency rate movements. A recent report from Deloitte, 2016 Global Foreign Exchange Survey, shows that corporate treasurers are currently facing major challenges in a lack of visibility of FX exposure and reliability of forecasts, and currency market volatility. As such, they risk value erosion. On top of these major difficulties, our own research recently found that just 38% of issuers, acquirers, payment service providers (PSPs) and merchants feel they get a competitive foreign exchange rate for cross border transfers.  Only half (51.9%) are satisfied with the rates they pay to their bank or payment provider for these transactions.

In such uncertain times, businesses need to be assured that whilst they cannot avoid all risk, they are getting a good deal in terms of the cost to transfer money abroad. It is also important that the transactions happen quickly, to keep up with market conditions and avoid any severe changes in exchange rates impacting on the value of the transfer.

“Cross Border B2B Payments – Today’s landscape; Tomorrow’s opportunity”

With advances in technology, international travel and trade, and the internet reaching new areas of the globe every day, the world is fast becoming a much smaller place. In terms of buying, selling and providing services, that is particularly true – as consumers we now think almost nothing of ordering goods from the other side of the world. However, for many businesses, particularly start-ups and smaller firms, the international market remains tantalisingly out of reach – it is simply not a viable business case to accept international customers due to high transfer fees and poor FX rates.

Our research was carried out with respondents who operate in all regions of the world - over 60% work in Europe, 40% cover the UK, 30% the US, 22% trade in the Far East. Africa, China and India are also well represented, with 17%, 16% and 13% of businesses operating in these regions, respectively. Speaking to issuers, acquirers, PSPs and merchants operating around the world has given us a comprehensive overview of the payments market and its opinions and experiences regarding cross border transfers.

Whilst just 38% of these businesses said they get a competitive foreign exchange rate when handling cross border payments, the survey also told us that 34% had not even looked at improving the rate they currently get, due mainly to lack of time to research alternatives (32%). 28% stated that even if they did find a better provider with lower fees and better exchange rates, the switch of provider would require too many resources and would therefore not be viable.

Challenges for FX payments businesses

These difficulties are multiplied when it comes to businesses trading in currency rather than goods or services. The main challenges for FX payments businesses are buying at the best rate and keeping the costs down. Being overcharged for cross border transfers, and not getting the best exchange rate are clearly major issues. However, many continue to sleepwalk through high fees, poor FX rates and slow transfer times simply because it is what they have come to accept as the norm.

The way out

Streamlining currency purchase and cross border payments in this way is hugely beneficial to FX payments businesses. It cuts out unnecessary delay between payments being sent and received, gives back control to the business itself rather than handing it over to a bank or other payment provider, and importantly cuts out the middle-man who would also usually be taking a fee. Not only does this speed up the transfer process and cut costs dramatically, but the sophisticated risk management tools contained within Real-time FX provide an overview of trading potential by displaying margin utilisation, profits/losses and more – all in real time for the best possible control of costs for a business.

The future of currency trading

Trading in currency has been stuck in a time warp of slow transfers, high fees, poor rates and general dissatisfaction and frustration. However, businesses in this space need to realise that new technology has opened up vast new opportunities, and a little investment in time to research the alternatives and implement a new system could make their lives significantly simpler, not to mention cut costs and increase customer satisfaction and retention due to faster turnaround times and lower fees passed on to customers.

The market is moving rapidly, and businesses need to keep up in order to best mitigate risk and remain competitive in a volatile foreign exchange marketplace. More cost effective and time efficient solutions are available, if businesses take the time to investigate fully. Streamlined solutions could simplify day-to-day business significantly, leaving time to better service existing customers and also take on new prospects. We would not put up with poor, expensive, slow service as consumers, so why do we do so as businesses?

By Anders la Cour, Chief Executive Officer, Saxo Payments.

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