Traditional FX Payments
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 an 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, the banking industry has been tied to legacy technology that inadvertently has made it harder to innovate at a time when innovation to remain competitive is critical.
New Approach to Foreign Currency Treasury Management
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, but that’s another post altogether.
Jon, an industry veteran, had recounted stories from his 15 years at big banks in foreign exchange and treasury management. I’d find myself wondering: “Why is sending an international payment 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 community financial institutions were trying to navigate the difficult world of legacy technology that can integrate with new technologies to improve the process and systems built around international payments.
Innovating International Payments
With innovation being a focus of so many financial institutions, and FinTech on a meteoric rise (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 as ripe for change as banking. And the need for innovative technologies and simpler processes has only been accelerated by covid.
International Payments from a Financial Institution’s Perspective
Foreign currency exchange and international payments present a unique opportunity for mid-size financial institutions to differentiate themselves from competitors and to compete with big box banks. It may not look like it when you examine the process today, but the opportunity to innovate is hidden under layers of manual processes.
Typically a financial institution needs to have these components, which all translate to additional resources in the form of people to manage the process or a fiduciary risk that needs to be managed:
- Trading desk
- Someone to initiate the transaction
- Someone to account for the foregin currency you’re holding or obligated to buy in the future
- Someone in compliance to review the transaction
- Someone in accounting to execute the transaction
- An executive who understands and manages foreign currency risk
Executing a foregin currency transaction becomes a drain on people resources within the financial institution and it’s a process that senior executives have to constantly scrutinize in order to manage the risk of holding foreign currency.
International Payments from a business’s perspective:
From the perspective of a business owner or commercial customer of a financial institution, the international payment process isn’t any less painful. It’s a manual process they have to initiate with their financial institution. Once it’s initiated, there are still questions to be answered:
- Will the payment go through on time?
- How much will I pay in fees?
- Will the vendor be able to easily reconcile the payment they receive?
- Will I be able to reconcile what my vendor charges me against what I sent?
- How will I know my payment was received by the correct vendor?
Compliance and fraud risk
From the financial institutions’ perspective, any time you have a manual process, you open yourself up to fraud. And, we’re probably all comfortable saying that any process that includes twelve manual steps by twelve different people, probably doesn’t provide the white-glove customer service that international transactions should provide to commercial customers.
From the perspective of the business owner and commercial customer, your expectation is that there’s a seamless and transparent process for completing your business. The financial institution isn’t just competing against a big bank that can more easily handle international transactions, they’re competing against everyday experiences that make life easier; Venmo, Amazon Prime, and the Starbucks app are three obvious examples. And herein lies the opportunity to innovate for financial institutions.
How Fintech Partnerships Drive Innovation
As we’ve mentioned, legacy technology has inadvertently tied the hands of financial institutions and made it difficult to innovate. Programs and systems are tied into each other and are part of a domino system. Beginning to move those dominos can feel like too daunting a task from the financial institution’s perspective, however, fintech partnerships can drastically ease the burden of innovation. Fitench companies are able to tackle and solve the problems that prevent changes to processes like international payments because it’s the sole focus of an entire team; a luxury that most financial institutions don’t have no matter how badly they may want it.
PayRecs committed to solving each challenge in the stack of challenges from international payments. Allowing us to create a turn-key solution that’s easy for financial institutions to implement and deploy. The benefit to financial institutions is that they get to wear the badge of innovation and present their commercial businesses with an elegant solution that elevates everyone’s experience.
We worked to streamline the process and eliminate the manual aspects of it. We solved for additional security and transparency so businesses can feel confident each time they make an international payment. It’s a win, win, win scenario.
If you’re ready to convert international payments from a pain point to a competitive advantage, we’d love the opportunity to speak with you.