When Globalization Doesn’t Guarantee Profits

FinTech and payments developers are catching on to companies’ attraction to cross-border business. But enabling international payments between corporates could do more harm than good if a business is meddling in foreign exchange without understanding the risks.

Saxo Payments is one such firm that recently acknowledged and responded to this caveat. Its Banking Circle platform — a way for financial institutions and corporates to connect on a single portal to make payments — was launched recently to support global payments.

But it wasn’t until earlier this month that Saxo introduced a mechanism to link FIs’ corporate clients to a way to monitor FX exposure and fluctuation.

In a statement announcing the introduction of Banking Circle Real-time FX, the company’s CEO, Anders la Cour, said the tool was a response to the tallest hurdle for money managers when it comes to foreign exchange: “buying at the best rate and keeping costs down.”

In a recent talk with PYMNTS, la Cour highlighted how that challenge is compounded without up-to-date information.

“The addition of Real-time FX to the Saxo Payments Banking Circle recognizes that corporate treasury departments need to trade foreign currency in real time,” he said. “And a key factor in achieving that is to make the FX trading an integral part of the overall cross-border payments process.”

But that’s no easy task; with current rates fluctuating on a near-continual basis, corporate treasurers can lack a clear vision of what the actual value of a currency exchange can be.

“Being on top of FX rates is probably the biggest challenge for companies doing business internationally,” the CEO said.

Indeed, a recent study by East & Partners published this year uncovered a significant lag in small and medium-sized businesses prioritizing their exposure to FX risks, like currency fluctuations.

Only between 20 and 25 percent of SMEs surveyed across the U.K. and France said they are on top of managing foreign exchange fluctuations, with the instances of businesses prioritizing this understanding increasing with the size of the company itself.

“Clearly,” East & Partners Europe Head of Client Services Simon Kleine said in a statement, “there is more sophistication in how corporates are dealing with these issues.”

The technology enabling companies to deal with FX fluctuation and risk exposure seems to be growing in sophistication, too.

Saxo’s latest service is mobile-friendly, la Cour pointed out, as treasury officials turn to their smartphones and tablets to access FX rates and their position in the global market at any time.

A need for on-demand FX monitoring isn’t just for the big players, either.

“FX risk is something that must be managed by any business trading internationally, and it could be argued that the smaller the firm, the more crucial,” offered la Cour.

The introduction of Saxo’s cross-border payments and foreign exchange services for corporates is far from the first and only in recent times. It’s a trend that seems to rely on the understanding that companies — even SMEs — are looking across borders for new business partners, suppliers and customers.

Another recent report, this one from American Express and CFO Research, however, begs to differ.

According to researchers, companies in multiple markets across the globe are actually tending to focus more on their local markets for growth, as, the report said, a result of far-reaching events in the global market: A strengthening dollar and a weakening Chinese yuan are impacting businesses across the world, highlighting just how far the ripples of currency fluctuations can travel.

Saxo’s la Cour offered a guarded response to this report.

“The Internet has removed geographic barriers, opening up market opportunities across the world,” he said. “It would seem, therefore, shortsighted for a business to turn its back on international markets.”

He added that understanding FX risks and exposure can ultimately lead these companies to “enhance profits and cut costs.”

Only, though, if these risks are well-understood.

“But, of course,” la Cour continued, “they need to make sure they buy at the best rate, as well as keep the cost of the total payment process down.”

A cross-border payments platform can provide the first stepping stone for a business that decides to make the international leap in search of new profits. But without an understanding of FX risk and exposure, these corporations are far from guaranteed a profitable result.