As global fintech investment levels are projected to rebound in 2024, offering numerous firms the opportunity to expand their services, one sector stands out for its resilience amid recent challenges: the global foreign exchange (FX) services market. With new players poised to enter the space, Currencycloud, a Visa solution, has released a new book guiding organisations on how to navigate and succeed in their FX endeavours.
The e-book FX for Business, for Dummies, explores the technical nuances of FX, a global market valued at $7.5billion by The Business Research Company. The book covers a spectrum of topics, ranging from risk management strategies to hedging mechanisms, shedding light on how advanced analytical tools, market forecasting, and liquidity management can significantly influence the success of businesses operating within this space.
The five key talking points covered in the book:
- Embracing the benefits of FX
- Generating revenue with FX
- Growing and scaling your business through FX
- Looking to the future through FX modernisation
- Ten FX challenges
Understanding the basics and benefits of FX
FX for Business, for Dummies is tailored for those looking to transition a segment of their business into the FX arena, scale up existing FX operations, or prepare for cross-border business opportunities. While primarily aimed at this audience, it also accommodates those wanting to enhance their understanding of FX, regardless of their expertise.
Before delving into the advantages of FX, Currencycloud lays the groundwork by explaining the fundamental principles of FX, including its trading mechanisms and an overview of the eight major currencies. Additionally, it outlines the three primary approaches to FX for companies:
- Building a proprietary platform, which can be resource-intensive;
- Purchasing an all-in-one solution for rapid deployment, albeit with limited flexibility or:
- Collaborating with industry experts to develop tailored solutions that evolve alongside business needs.
The book emphasises there is no universal solution for FX endeavours and that it is important to conduct thorough research before selecting a partner. Ultimately, the chosen partner should align with the business’s goals and have the capability to serve its customers effectively. Currencycloud emphasises the significance of prioritising the customer journey from the outset, highlighting how cost efficiencies in FX can drive revenue growth and elevate the overall customer experience.
Generating revenue with FX
While it’s tempting to suggest that entering the FX space automatically translates to new revenue streams, the reality is far more nuanced. The book explores how firms can manage exchange variabilities while reducing cost, primarily noting that firms should harness hedging strategies and diversify their currency holdings.
In the recognised ‘For Dummies’ style, Currencycloud leaves symbols next to certain points showing important tips, things to remember and warnings. One of the key revenue-generating strategies highlighted is the importance of forging robust banking partnerships. Collaboration with banks facilitates smoother introductions, creating favourable conditions for businesses’ FX operations.
Once management strategies are understood, the focus shifts to optimisation. Currencycloud notes that businesses must grasp the dynamics of FX costs and strategically approach cost reduction. However, revenue optimisation comes with inherent risks. The book provides solutions to mitigate these risks, such as limiting exposure through spreads. By capitalising on competitors’ mistakes and utilising strategies like rolls – where open FX positions are adjusted at the settlement date – businesses can further enhance their revenue potential.
However, there are big risks involved with rolls. Businesses must remain aware of prevailing interest rate differentials of their currencies. Otherwise, a negative interest rate differential can result in a cost to the business.
Growing and scaling a business through FX
The FX space is often perceived as complex, yet it is incumbent on a business to shield their customers from these complexities. As a result, we believe that the user experience should be the top focus, even when exploring cross-border payment solutions which can be difficult.
Technology is a pivotal tool in ensuring smooth FX processes for firms. Forward trades, enabled solely through technology, offer a year-long security blanket, helping create the assurance and stability firms need in their financial endeavours. While these trades help mitigate adverse currency movements, they also can restrict access to favourable ones, prompting firms to assess the necessity of added security in advance.
Despite the benefits of technology, we believe true success hinges on meeting customer expectations. Regardless of the FX approach adopted, a robust platform fosters smoother transactions, thereby facilitating consumer loyalty. Moreover, by offering competitive rates and avoiding exorbitant fees, firms solidify their standing with consumers.
The book also underscores the importance of transparency in meeting consumer expectations. A key component of maintaining consumer loyalty is to be transparent and to communicate fees and rates clearly. Not doing so may lead to a loss of trust and a decline in customer growth and retention.
FX for Business, for Dummies crucially identifies that transparency is a must when it comes to consumer expectations. Opaqueness can result in potential legal issues in addition to a loss of trust. To avoid this, we reiterate the importance of fees and rates being clearly communicated.
Another warning surrounds a lack of communication between businesses and consumers. Providing channels for customer feedback is important. Furthermore, it is paramount to take action on the feedback to help maintain a low churn rate.
Looking to the future
There is no downtime in the FX world. As noted by Currencycloud, “the weekend presents a golden opportunity for businesses engaged in FX”. This is especially the case if global events, political shifts and economic indicators take place over the weekend when others may be switched off.
Currencycloud cautions that while digital banking has a massive role to play in the future of FX, firms must understand how to manage it properly. With the correct management and forethought in place, digital banking can massively enhance customer experience, giving them the freedom and accessibility 24/7.
Overcoming hurdles
The book concludes by analysing some challenges that may appear for firms looking to enter the FX world. While many hurdles are immediate concerns, others may surface as firms set up their FX practices.
Among these challenges, Currencycloud identifies choosing the right partner as the key thing to remember. “The right partner should align with your business goals and needs, providing not just services but also strategic support to help your business thrive in the global market.”
