Missed Opportunities For Cross-Border Payments

Payments and FinTech can’t keep up with their clients’ demand for international services, according to a new paper by Saxo Payments.

The firm’s white paper, Missing the Opportunity, identified barriers that corporate face when attempting to transact globally, highlighting the gaps that financial service providers struggle to fill. The cost and speed of international payments are among businesses’ top concerns, while the manual processes involved with such transactions are also high on the list, according to a survey conducted by Saxo.

Considering the majority of companies continue to turn to their primary banks for cross-border payments needs, these concerns suggest those FIs aren’t adequately providing the FX services their clients want.

Still, Saxo found, a significant number of businesses are using specialist FX providers and FinTech firms for global transaction services (about 27 percent and 13 percent, respectively) — suggesting that, even with the influx of competition banks are now facing in the FX space, corporates are still struggling to access the services they need.

According to the report, 44 percent of businesses cited payment settlement times as the source of the largest delays in FX transactions, while reconciliation and screening are also causing delays. And while competition is high, corporates say the industry lacks competitive pricing — nearly a third of businesses say they believe they are not offered competitive FX rates.

Forty percent said their current financial service provider cannot help them enter into new geographical markets. Even more (45 percent) said their provider does not currently offer additional FX tools like analytics and risk mitigation services.

An Opportunity For FinServ

The evidence suggests that there is significant disapproval of corporates’ current FX services being offered, and according to Saxo, that means major opportunities for the banks and FinTechs in this industry.

There are straightforward ways to address these gaps, too, Saxo said. For instance, nearly 40 percent of the businesses surveyed were FX businesses, and more than half of them said their current provider cannot open a bank account in a new market on their behalf — a key demand if that FX business is to boost customer acquisition and retention, the paper noted.

There is one major hurdle in the banking and financial services space that certainly hampers these companies’ ability to remain competitive: regulation.

“The impact of increased regulation and capitalization requirements has also intensified competition and made it more difficult to do business, especially with regard to ‘know your customer’ requirements,” stated Saxo Payments Chief Executive Officer Anders la Cour in the paper’s introduction.

But if FX service providers are to remain competitive in an industry slated to hit a $2 trillion valuation in 2025, they need to take steps to fill in gaps identified by their corporate customers.

Saxo identified five trends in the global transacting space that present opportunities for these businesses. Globalization, of course, continues to bring new demands as corporations demand the ability to transact in new markets. But the aforementioned regulation also introduces more chances for a bank or FinTech company to get ahead of the game.

Regulation is pushing banks to digitize their operations, for instance, which itself is an opportunity for these firms to streamline their services and refocus on the customer. The emergence of third-party service providers like FinTech startups can also be an opportunity for banks to forge partnerships and integrate sophisticated FX solutions into their offering without the challenge of internal R&D.

The lapse in adequate FX and global payment services offered to companies today is concerning.

“What is clear,” la Cour continued in his introduction, “is that if the current limitations in cross-border payments are allowed to perpetuate, there could be a real risk of businesses operating in the international marketplace finding themselves underbanked, thereby seriously limiting the growth potential of the global economy as a whole.”

But with so many opportunities ready to be fulfilled — from faster settlement times to the seemingly simple ability to open up an overseas account on a client’s behalf — means the financial services space must hustle in an intense regulatory landscape to gain and retain market share.