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Tapping into the lucrative world of cross-border payments

Written by Solomon Philip Customer Value Lead - Payments
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It’s no secret that international payments can be a lucrative revenue stream for banks. International payments revenues are as much as $200 billion globally, according to McKinsey – while EY reports that total cross-border payment flows are currently growing around 5% a year. But while the opportunities are attractive, in practice regional banks do not always have all the capabilities needed to tap into this revenue stream effectively.

For one thing, regional banks may lack the FX capabilities needed to grow wallet share with their customers. For example, they might offer direct spot rates, but not other capabilities like FX forwards. Banks may also be unable to offer customers self-service options or allow them to initiate FX transactions online or on their mobile phones. Other challenges include difficulties accessing real-time rates, as well as limited multi-currency capabilities arising from the use of legacy payments systems.

The practice of global de-risking represents a further challenge. Regional banks are dependent on larger banks when it comes to executing international payments, but in recent years some larger banks have taken steps to reduce their correspondent banking relationships – making it more difficult for some regional banks to access the services they need. According to BIS, active relationships in the global correspondent banking network have declined by 20% over a seven-year period, even though message volumes rose during the same timeframe.

OVERCOMING THE CHALLENGES

It’s clear that regional banks face a multi-faceted challenge when it comes to expanding their FX businesses. But the good news is that these challenges are not insurmountable. With a modern payments solution in place, banks can provide their customers with self-service capabilities and mobile access, alongside hedging and liquidity benefits.

Given that exchange rates fluctuate every millisecond, customers are increasingly favouring partners that are able to offer real-time rates, thereby minimizing currency risk. And of course, banks need to give customers the ability to initiate FX transactions anywhere, anytime and from any device if they are to grow their FX businesses successfully. A modern payments platform means that instead of having to pick up the phone and speak to the bank, customers can initiate FX transactions using the most convenient channels.

Finastra is well connected to clearing and settlement mechanisms around the world, meaning that we can help banks initiate and settle foreign currency transactions in most currencies. What’s more, we also offer customers the ability to initiate FX payments anywhere and anytime – including online, via mobile devices and via API connectivity.

TURNING FX PAYMENTS INTO A DIFFERENTIATOR

For banks, the opportunities are clear. With access to state-of-the-art FX capabilities and a modern platform, banks will be better placed to grow their FX businesses – not only by expanding their wallet share with existing customers, but also by attracting new customers who are looking to partner with overseas suppliers and distributors.

At the same time, banks are better able to mitigate exchange rate risk for customers by transacting high-value cross-border payments using real-time rates, thereby capturing lucrative revenue opportunities from FX spreads. And by tapping into existing clearing and settlement networks, regional banks can bypass the need to spend time and money developing interbank relationships, minimising nostro/vostro liquidity costs.

To summarize, a multi-faceted problem needs a multi-faceted solution – and by taking advantage of a sophisticated FX platform, regional banks can access everything they need to tap into this lucrative revenue stream. By doing so, banks can not only remove barriers that might otherwise deter new customers, but also position FX as a differentiator attracting companies looking to expand their businesses internationally.

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