B2B Payments

As SMEs’ X-Border Needs Grow, Can Banks Keep Up?


The world market may no longer be in panic mode following the U.K.’s shocking decision to leave the European Union, but the referendum did leave a lasting impact on how companies operate on the global stage.

That ripple effect is hitting all areas of the enterprise, from their cross-border trade to their investment strategies.

Earlier this week, for instance, Hitachi Capital Invoice Finance pointed to threats within global supply chains stemming from the economic uncertainty over Brexit. The company also identified a pullback from corporate lenders as another possible side effect, which, in turn, could lead to a cash crunch for global businesses.

The ways the U.K.’s decision are causing companies to lose their balance are numerous. But for some financial service providers, Brexit means opportunity. Hitachi Capital Invoice Finance said alternative lenders and trade finance players could stand to gain from the situation, for example.

Foreign exchange payments and hedging company Global Reach Partners (GRP) might be one of them. Only days ago, the firm revealed a takeover of industry peer FC Exchange, an acquisition that will yield more than $7 billion in annual cross-border transactions processed by the U.K. business and may exemplify rising demand for services in this space.

“We are making this acquisition as we recognize the huge opportunity in the cross-border payments market,” stated GRP Cofounder and CEO Mark Smith-Halvorsen.

That opportunity, explained GRP Managing Director Jon Marriott, stems from the inability for traditional banks to meet businesses’ international finance demands.

“We consistently receive feedback from our customers — particularly those in the SME and mid-corporate space — that the banks are not focused on their cross-border payment needs,” Marriott told PYMNTS.

He said, however, that it’s too early to say whether Brexit really is generating greater understanding and awareness of the need for FX hedging and cross-border payment strategies.

That’s despite efforts from service providers to warn companies, even before the referendum, that Brexit could hit their balance sheets. Research from Greenwich Associates released in May, before the Brexit vote, found that, while corporate treasurers knew Brexit would lead to disorder and volatility, “most corporate officers have not taken any actions to minimize the negative effects of a U.S. exit on their companies.”

GRP’s Marriott, however, said his firm is seeing some residual impacts from the referendum on how businesses approach hedging and FX strategies once they decide it’s necessary. And Brexit undoubtedly led to a massive spike in FX activity among the U.K.’s SMEs.

Data from money transfer company HiFX released soon after the referendum said there was a 500 percent increase in currency transfers initiated by SMEs and consumers in the country after the vote. HiFX Chief Economist Chris Towner described the FX markets in the immediate aftermath of the Brexit vote as “a bloodbath for the unprepared.”

While the panic has settled, small businesses that are looking to continue their FX hedging strategies are beginning to ask for more sophisticated services, according to Marriott.

SMEs, he said, are seeking services “that go beyond discussing the exchange rate,” he said.

“There is certainly appetite for ensuring cross-border payment strategies are in place across a broad range of customers in different segments and sectors,” he added.

That’s especially true for small businesses that trade with U.K. partners, for example. Brexit, Marriott said, has created opportunity for exporters to trade with the U.K. but has also created exposure to FX-related threats.

The biggest opportunity for financial service providers that can meet the demands for small businesses in search of foreign exchange, cross-border payments and hedging solutions exists in the fact that, according to Marriott, traditional banks really aren’t stepping up to the plate in this regard.

The instability and uncertainty of today’s economic climate has SMEs demanding more personalized solutions and expertise that “banks simply can’t match,” the executive stated.

“Businesses are increasingly wanting to work with specialists in this area,” Marriott noted. For example, financial service providers in this space need to move money multiple times a day to ensure their small business customers can continue operating. Marriott pointed to one example of an exporter that can’t dispatch goods out until they’ve been paid. Situations like these make it abundantly clear that a proper FX strategy can go a long way, the executive said.

“As the saying goes, ‘time is money,'” Marriott said. “And with FX, this is truly significant.”


New PYMNTS Report: The CFO’s Guide To Digitizing B2B Payments – August 2020 

The CFO’s Guide To Digitizing B2B Payments, a PYMNTS and Comdata collaboration, examines how companies are updating their AP approaches to protect their cash flows, support their vendors and enable their financial departments to operate remotely.

Click to comment