But this is how it’s done…
If your company is seeking to set up shop or expand their footprint overseas, we know that currency and treasury can be tough and sometimes necessary evils in those goals.
Like most antiques stashed away in a attic or basement (dad you’re an expert here), businesses and processes that don’t innovate are left in the dust. Some industry giants like manufacturing, agriculture and automotive have seized the innovation bug and are leveraging new concepts and technologies that help them expand into untapped geographic and use case markets. However old hats like insurance (but watch out for these guys), banking and specifically currency exchange are stuck in the mud (yes, yes, tons of viable and promising application for the blockchain, but fiat currency isn’t going anywhere).
Newbie approach
I’ve spent the good part of the last year trying to catch up to my partner’s vast knowledge on the inner workings and challenges associated with foreign receivables, cash flow challenges and foreign currency treasury management. In fact, this article was going to start with my review of a blog post that *I thought* really simplified the FX world for the layman. I’ll get to that later.
Jon, an industry veteran, had recounted stories from his 15 years at big banks in FX. The banks weren’t servicing the actual customer need. Multiple times a day, I think, “Why is this so difficult? Does it have to be? What are we doing that someone else should have done a long time ago?”
After hearing the same anecdotes from Jon’s experience with former customers, and seeing these frustrations exhibited in the blank stares of prospects, it was clear that these mid-sized (and some large-sized, Fortune 100’s too) were stuck in a world of obsolete, maintained by the financial institution overlords who scoff at innovation.
Gee, that’s a lot of work
Banking, and more specifically, currency, are in an echo chamber of anti-innovation. After all, if it ain’t broke, don’t fix it. Well, I guess that’s an approach. After all of the things this blog technically gets right – the author clearly lays out all of the components of what you need to manage a treasury strategy – it’s an admission to the acceptance of the status quo.
The status quo. With innovation being a focus of so many companies, and FinTech pushing through (nearly 12,000 new FinTech startups in 2018 between Americas, EMEA, APAC and estimated investment in FinTechs of $153 BILLION by 2025), there are a few industries ripe for change. I’m glad I’ve learned so much about this industry, particularly from an expert in Jon, who hasn’t become institutionalized to it’s shortcomings. If you didn’t know better, here are all the things required to sell goods overseas and manage your currency risks:
- a banking relationship with a trading desk
- calling your bank for each transaction your company makes
- someone to account for the currency you’re now holding or obligated to buy in the future (Read: more employees or more of your time if you are the solo finance guy)
- receivables insurance (extra cost)
- anxiety over currency fluctuations (did you manage the risk appropriately)
Time, money and rejection of status quo drive Innovation
NONE of that is scale-able or cost effective, and I can see how companies are willing to spend wasteful dollars on “letting” their bank manage some of this for them, or carry large instruments and maintain internal teams to analyze, reconcile and manage the risks.
The other alternative, which many US-based companies subscribe to, is simply making their foreign customers find a way to pay them in US Dollars. As the world flattens, this is becoming more of poor customer experience. There are solutions to reduce the friction and barriers to entry and growth for companies who want to export AND maintain and improve cash flow.
FX Solutions don’t have to be so painful, or disconnected. I’m really grateful there is a large problem like this out there where we both believe there is a simple solution to. In the end, we hope to deliver a solution that will remove barriers to establishing and expanding global sales for small, mid and large companies.
We’d love to hear more about your challenges and convert those to opportunities.