If you’re like most community-based financial institutions, you provide essential products, domestic in nature, within your local region.
And of course, this is critical. It is your foundational commitment to your customers. The problem is, a domestic-heavy focus can lead to a dangerous problem: you can overlook huge global trends that are changing the very DNA of your market.
This could be happening to you right now. A radical shift is occurring in the payments market that directly affects you and your customers. But most financial institutions we talk to know very little about it, and almost none have a plan to defend their market position.
Tech companies have elbowed their way into the international payments market, becoming industry leaders in a space that banks used to dominate.
PayPal, Apple Pay, Stripe, Google Pay and Facebook are just a few of the fast-moving tech players that are determined to overtake the banks and credit unions. These companies have tuned into something that many domestically-inclined financial institutions have not: your customers are buying and selling internationally as a matter of everyday life. Because of this, there is a massive amount of money to be made in international payments.
Gone are the days when regional financial institutions can ignore international payments with the assumption that most customers rarely if ever do business abroad. People from all walks of life may need to move money around the world. And they may be less loyal to financial institutions that don’t address this need.
Take a gander at the Forbes Fintech 50 list as hard evidence of who the business world believes will own the payments industry. You’ll see a long list of slick, well-financed tech start-ups rather than established, respected banks and credit unions.
Tech companies are fixated on this space because the stars are aligned and there is money to be made. Tech companies have elbowed their way into the international payments market, becoming industry leaders.
With an understanding of your business objectives and a handle on the local currency cost of your foreign invoices, you have the power to start making informed decisions.
Define some goals specific to managing currency risk. This could include defining a target exchange rate to help achieve your set margins, or determining what percentage of a payment to protect from currency fluctuation.
Consider establishing a formal risk management policy to define processes and ensure personnel are accountable. This might sound time-consuming, but a strong, short document can be created easily – particularly with the assistance of a foreign exchange specialist.
Select the right hedging tools for your business. One size does not fit all, and the strongest strategies are driven by specific business requirements associated with shifting currency exposures. Many businesses use a combination of tools to form their strategy.
1. Life is global
Everyday life is more global than ever. More people are traveling internationally for work, recreation, and even medical treatments. The web makes cross-border shopping easier than a trip to the corner store. Businesses of all shapes and sizes no longer feel limited to regional options – they’re working with suppliers and vendors around the world.
2. Investing is global
International investing has gone mainstream. Across the investment landscape, individuals and institutions are allocating a portion of their investment dollars to global holdings. Take a look at a typical 401k plan or mutual fund as evidence of what the market is buying.
3. Technology makes things simple
Now with smartphones and open platform technology, people are conducting international transactions as they sip a latte in a coffee shop, take a quick break between meetings, or stream late-night television. It’s that easy. It’s that normal. This is how your customers now perceive international payments—as a convenience that should always be at their fingertips.
Disclaimer:
Convera has based the opinions expressed in this webpage on information generally available to the public, and such information or opinions are strictly for illustrative purposes only. Business between you and Convera shall be governed by the applicable terms and conditions provided to you before you undertake any transaction or commercial relationship with Convera.
