Can I agree a tailor-made arrangement with a payments firm according to my volume?

Can I agree a tailor-made arrangement with a payments firm according to my volume?
The range of choices available to businesses who have exposureto foreign exchange risk has mushroomed over the past few years as Fintech has become a viable alternative to banks thanks to three things:

  • The banks desire to become more profitable from non-lending related products.
  • The improvements in regulation that have provided more security.
  • The desire of Fintech businesses to provide competitive pricing and first-rate customer service.

Payment processing was, for a long time, globally the province of banks. They created the investment in systems like SWIFT but have been rapidly overtaken by Fintech firms who take a more creative approach.

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If a customer had approached a bank as recently as ten years ago, promising to pass all their foreign exchange business through the bank in exchange for a preferential rate, they would have most probably been told that in order for the bank to continue to provide a line of credit and other ancillary services, the bank demanded that all foreign exchange was handled by the bank.

Banks traditional international payments
Banks had no concept of bespoke arrangements or competitive pricing as they held a monopoly and the relationship management was too far removed from the market to know how poor the pricing and service they were providing was.Since the financial crisis, banks have become less prepared to invest in customer driven foreign exchange which led to a proliferation of new business opportunities for fintech businesses. This has provided businesses who need to enter into foreign exchange contracts with an opportunity to receive a more cost-effective solution.

While pricing is still a major criterion for FX related companies to win business, it is also service which is a major contributor. Price has become far more transparent with the spread over the interbank price being both clearly visible and negotiable.

Fintech businesses which specialize in foreign exchange will enter a discussion with any customer regarding a bespoke service whether that relates to volume of a specific currency or type of payment. Banks were often reluctant to enter into agreements with customers over FX rates as they were time consuming and difficult to administer.

Specialist FX firms negotiate bespoke payments
Now, with bespoke sales teams both winning new business and managing existing relationships, specialist FX firms have increased market share exponentially year after year. Banks use a different method to enter into forward foreign exchange contracts with customers. They will mark a limit which can be costly to a bank as they must allot capital to every risk limit they apply so their pricing has never been competitive. An FX limit rolls up into the banks overall exposure which can limit lending ability which is considered the bank’s “bread and butter” business.Specialist FX firms simply take a deposit from their customer which is a more effective methodology. It covers any potential loss should the customer be unable to fulfil the contract which would then have to be closed in the market.

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Currency volume is one of many reasons a customer may be able to negotiate a bespoke arrangement with a broker. To find out the benefits of dealing on level terms rather than being under the “spell” of a bank, it pays to understand just what a fintech based broker can offer in terms custom payment processing as well. This is possibly a less tangible benefit but the service you will receive, and the assistance should anything go wrong will be second to none.

About Alan Hill

Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”