Jonathan Quin, CEO of World First

Jonathan Quin
Jonathan Quin

The financial sector has seen its reputation plummet to an all-time low among businesses and consumers with ‘bank bashing’ becoming as synonymous as ‘selfies’ or ‘binge watching’ in recent times. Adding to their woes, banks have been put on the back foot by the emergence of FinTech, with a new breed of innovative businesses mounting a serious challenge to the traditional banking model.

This trend is particularly evident when it comes to FX and international payments where banks, for a while, have been failing their customers.

In an increasingly connected and globalised world, banks have failed to innovate and keep up with the pace of change. As such, many businesses find themselves stuck with archaic FX solutions they’ve inherited from their banks, costing them time and money.  For years, businesses have stomached this poor service and accepted high costs when sending payments overseas, largely due to apathy and unawareness of alternative solutions.

As 2016 is set to be particularly unstable with some of the biggest currency swings in decades, and the upcoming Brexit vote along with the US elections expected to cause uncertainty in the markets, businesses can no longer afford to be apathetic. In periods of volatility, inaction can be very costly to a growing business.

For smaller businesses, hedging against currency risk when trading overseas can be troublesome. SMEs tend to have smaller finance and accounting departments, and having an effective currency strategies might not be prioritised. Overseas payments are then left to their banks and become a costly exercise due to hidden fees and a failure to hedge against FX risks.  A recent investigation by consumer watchdog,  Which?[1], revealed how consumers using banks for currency transfers are left hundreds of pounds worse off.  This just isn’t good enough.

We did some of our own research on this matter speaking to business leaders of over a 1,000 SMEs. Their message was clear: banks are letting them down when it comes to cross-border currency transfers.  Over half (52%) of SMEs say their bank does not understand their businesses’ FX needs. and almost a third (30%) say they did not think their bank acted in their best interests when managing their FX needs. This is concerning given almost all SMEs trading abroad (87%) see international expansion as one of the best ways to grow their business, highlighting the need to make currency strategy a business priority. These mini-multinationals are finding a global appetite for their business, but face being held back by poor services from banks.

Nevertheless, despite such high levels of dissatisfaction, the majority of SMEs (65%) still use their bank for international currency needs. The reason? Above all else, SMEs remain unaware of an alternative to banks for international transfers so put up with unacceptable levels of service.

In fact, two thirds (65%) of SMEs we surveyed admitted they would switch if they knew of an alternative provider. It seems even with all the talk about the rise of FinTech providers, there remains a dearth of information for SMEs to make informed decisions about managing their currency transfers.

More needs to be done to communicate the benefits of using a specialist provider for business FX needs. As the currency markets become increasingly volatile and complex, SMEs can’t afford to leave their currency strategies to banks and need specialists who will understand their business needs, come up with bespoke solutions and are able to navigate the risks for their business.

Even when SMEs do decide to source new providers for their FX needs, making the leap from a long-standing bank relationship to a relative newcomer in the market will come with understandable hesitation. Putting their faith in a company to manage part of their finances is a worry, especially after dealing with the same bank over many years.

That’s why a developing FinTech industry needs to be regulated and monitored so business managers can feel confident when switching providers that their money is in safe hands. As trust remains a key issue, with half of SMEs surveyed (49%) finding their bank’s fees unclear when making cross border currency transfers, specialist FinTech providers can be better equipped to meet their clients’ needs. One of the hallmarks of modern challengers to banks is their offer of simple and transparent products without the need for financial-speak or technical jargon. With regulatory support, that trust will be easier to earn and switching need not necessarily be a drastic measure.

In these times of currency volatility and uncertainty, apathy can be an expensive attitude for SMEs especially when it comes to managing their currency transfer needs. With the advent of many specialist providers in the market, who have put customer service and transparency at the heart of their proposition, the real risk (and cost) lies in businesses continuing to accept service from banks that is frankly under-par.

[1] Which? investigation, January 2016: New providers beat banks on international payments

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