It is clear that currency markets best serve banks and multinational corporations which are converting and transferring large amounts of money on the wholesale markets. While increasingly SMEs are doing business internationally, they face steep charges for making cross-currency payments and exchanges, which impacts on their profitability.
Currency markets appear complex, and making international payments can be confusing. SMEs generate an increasing proportion of their revenues from cross-border trade, but few are experts in this area. Compounding this is the fact that banks don’t know how to service SMEs, as they fit neither their ‘retail’ nor ‘corporate/commercial’ categories. As a result they default to treating them like retail clients, meaning they suffer large foreign exchange spreads. 86% of UK Trade & Investment clients depend on exports for growth, and UK businesses trade £302 billion in foreign currencies each year: at typical bank costs of 3% this adds up to £9.06 billion. SMEs cannot take advantage of global growth if payment fees erode their sales margins.
It’s increasingly the case within the banking environment that discretion is moving away from the local branch and towards corporate HQ, resulting in the rise of online peer-to-peer foreign payments services designed to meet the needs of entrepreneurial, high-growth businesses.
These companies are often technology-based, simple to use, low cost and fully-online, cutting costs of currency payments and transfers significantly, catering for SMEs unlike the banks.
With a rise in the number of countries that SMEs are doing business with, according to Western Union Business Solutions’ International Trade Monitor, it is vital that the FinTech industry offers SMEs solutions to the export market and better anticipates their needs. This will work to the advantage of SMEs in a growing foreign payments market as they work to meet the UK government’s export target of £1 trillion by 2020.
This article will explain why the banks are failing to meet the needs of SMEs and will explore alternative options for foreign payments solutions in the FinTech sector.