By Chris Briant, Head of Corporate  for UK and Ireland at GC Partners 

It has been a particularly challenging operating environment for businesses as of late, not just because of the COVID-19 pandemic but also because of the global downturn and volatility that has accompanied it. A quarter of companies have seen their sales fall by 50% and on average sales decrease by 27%. Layoffs, the risk of closure, and pandemic-related disruptions left many businesses financially fragile.

On top of that, this has all occurred against the backdrop of a post-Brexit landscape, with new trading conditions, regulations and processes that businesses have to navigate.

As a result, rapid adaptation to a more fluid and digital environment has become necessary for all businesses. There has never been a better moment to explore new avenues and investigate alternative opportunities to streamline resources and build operational resilience.

When it comes to cross-border transfers, 2022 could see more companies moving away from big banks in a bid to save costs and boost efficiency and to migrate instead towards digital money transfer options by specialist firms that offer lower prices yet better service.

The trouble with banks and forex

Banks tend to generate revenue on currency transfers and add in costs that complicate what could otherwise be a straightforward process. While banks will never explicitly reveal to business customers the profit they factor into the exchange rate when money is transferred overseas, most business owners will be implicitly aware of this reality.

The truth is that banks generally set the exchange rate once daily and do not update it with live mid-market rates as the rates fluctuate during the day. These fluctuations can bring in money for the bank while costing the business.

On top of this, banks remain the costliest remittance service provider type as they typically charge an average cost of 10.66% per transaction, according to the World Bank. Despite these high fees, businesses often experience slow transfer speeds. It can take days to move money from one European country to another, and if the transaction requires multiple currencies, the costs to convert from one to another to yet another can be astronomical.

Yet cross-border payments are unavoidable, as they have become a feature of international life alongside global mobility of goods and services. This has been driven by several factors, including manufacturers growing their supply chains across borders, cross-border asset management and global investment flows, and international trade.

The value of cross-border payments is set to rise from roughly $150 trillion in 2017 to more than $250 trillion by 2027, equivalent to a $100 trillion increase in only a decade.

Banks are the ones who disproportionately benefit from this activity, even though they continue to use some of the most inefficient legacy systems.

Most businesses keep using banks for international transfers because they simply are not aware of a secure, seamless alternative.

New business models and participants

The exorbitant costs charged by banks also come from the inefficiencies of the legacy systems they use, which make transaction costs, remittance fees, FX charges and payment processing fees all become increasingly expensive.

Digital payment solutions present an alternative, and several businesses have continued to grow in this challenging global marketplace by actively seeking out such options. This has led to the rise of alternative remittance service providers for organisations.

New efficient and secure cross-border payments have only accelerated due to the pandemic, which has catalysed digital transformation at 59% of organisations. This has primarily been a culture shift, with cost reduction being the primary driver.

Non-legacy systems can offer efficiency, savings and value-add services to businesses that need to transact, no matter the hurdles in their way. These global platforms can help companies move fast and deliver for less in any market. Such digital solutions help companies successfully navigate their way into new markets and opportunities worldwide.

Specifically, global specialists can focus on FX and trade in a fast-moving market in multiple currencies. This means that companies pay minimal costs and receive the best FX rates, alongside exceptional service quality. The incentive for specialist firms differs from the banks: the goal is to help protect business owners from currency volatility and ensure stable profit margins to enable sustainable growth.

A need for increased awareness 

The biggest challenge to this specialist FX sector is awareness, even though it is the ideal time for businesses to be introduced to alternative options to banks. Companies need to be made aware that they have a choice when it comes to moving their money, and that future-proofing this aspect of their operations could make a huge difference in the long term.

Fintech has done a brilliant job with payments innovation, and the next hurdle is educating the public about what is available to them. Thousands of private and institutional clients already benefit from specialist expertise, with unprecedented access to market-leading exchange rates and services.

Specialist firms recognise that each client has unique requirements and develop proprietary technology to offer clients an unrivalled service on paper and in practice. This results in significant financial advantages for businesses looking to use digital payments firms to move money overseas, whether a one-off commercial property sale or regular ongoing payments between international offices.

One example of a business that has benefited from new digital money transfer offerings is Simba Sleep.

A few years ago, this fast-growing direct-to-consumer British online mattress company needed a multi-currency payments solution to provide cost savings and flexibility to accommodate rapid international growth. While they had previously used their bank, the service levels and cost structure were not a good fit for their expanding business.

While Simba’s sales began mainly in the UK, their exposure increased as sales expanded in Europe through online platforms like Amazon. Certain aspects of production were also moved overseas, which created the need to manage currency risk when paying international suppliers.

At GC Partners, we helped provide a holistic view of the international payments and modelled their future sales and expenses, coming up with a solution that included multi-currency accounts, the ability to hold multiple balances in different currencies at once, and a payment portal with the capability to make payments in local currency and bulk payments to a variety of payees.

There were also market orders in place where Simba could benefit from spikes in the market and cover their currency risk if the rate should fall. This significantly reduced Simba’s foreign exchange costs and minimised their FX risk while helping them efficiently and effectively execute their international expansion.

As we navigate the ongoing effects of the pandemic and Brexit, more companies like Simba will be looking for new and innovative ways to grow in the future. It is specialist providers, not banks, that are the best placed to help them achieve their goals. By their very nature and their incentive structure, I firmly believe that these specialists are set to be the most in-demand players of the future.