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How to Find the Right FX Provider
03-09-2020 | treasuryXL | XE |
In this final installment of our blog series on foreign exchange risk management for your business, we address one of the most important steps in developing an effective risk management strategy—> finding your FX provider.
As we close out our blog series on improving your business’s foreign exchange risk management and avoiding costly mistakes, it’s come time for us to answer one last lingering question, the question that’s had a recurring presence throughout our blog series.
How do I find the FX provider that’s right for my business?
It’s a question that’s come up throughout our series of blogs. From avoiding inflexible solutions to taking care of tricky regulatory compliance, nearly every piece of risk management advice has come down to finding the holy grail FX provider, the one that understands your business and its operations and has the expertise and solutions to address your unique risks.
Now, we’re finally going to talk about how to find this perfect provider.
The importance of shopping around in foreign exchange
The biggest mistake you can make in your search for the perfect provider? Not searching at all.
It can be tempting to just stick with your friendly local bank, or go with the first provider you speak with just for the comfort of having a dedicated provider. But you don’t want to do that. Keeping a narrow focus (and not shopping around) can lead to you missing out on:
Better exchange rates
Better or more varied service opportunities from working with a specialist provider
A more targeted, strategic approach to your foreign exchange.
Now that we’ve established that you should be exploring your options, it’s time to start shopping. But where do you start? What kinds of things should you be keeping an eye out for in your search?
What should you look for in your FX provider?
Ultimately, the right FX provider for you will be the one who can help you to streamline your business operations to make international payments while minimizing regulatory delay, human error, and risk exposure. In order to do that, they’ll need to understand your business, understand what you do, and be able to work with you to directly address your risks and other issues without compromising your business in the process.
When meeting with providers, we encourage you to keep an eye out for (and ask about) the following things.
Competitive, but realistic solutions. Don’t fall for the hype. If an exchange rate sounds too good to be true, it almost certainly is. Additionally, some providers may encourage you to speculate in the currency markets or tell you that they can help you to second guess rate movements. In reality, it’s impossible to know how the markets will move, and you should be wary of anyone claiming that you will always be on the right side of market motion.
A provider that understands your needs. You shouldn’t be the only one asking the questions. Your provider should be doing everything they can to understand your business, what you do, and how you do it. A provider that doesn’t take the time to learn about your business will not be able to offer the quality of service that you’re looking for.
Bespoke solutions to fit your needs. Continuing from that last point, a provider that only offers a generic service will only be able to provide generic protection. As we mentioned in our article last week you should look for a provider with solutions that meet all your foreign exchange needs, including helping you to manage future risk more effectively. Don’t settle for anything less.
Get in touch with XE.com
About XE.com
XE can help safeguard your profit margins and improve cashflow through quantifying the FX risk you face and implementing unique strategies to mitigate it. XE Business Solutions provides a comprehensive range of currency services and products to help businesses access competitive rates with greater control.
Deciding when to make an international payment and at what rate can be critical. XE Business Solutions work with businesses to protect bottom-line from exchange rate fluctuations, while the currency experts and risk management specialists act as eyes and ears in the market to protect your profits from the world’s volatile currency markets.
Your company money is safe with XE, their NASDAQ listed parent company, Euronet Worldwide Inc., has a multi billion-dollar market capitalization, and an investment grade credit rating. With offices in the UK, Canada, Europe, APAC and North America they have a truly global coverage.
Are you curious to know more about XE?
Maurits Houthoff, senior business development manager at XE.com, is always in for a cup of coffee, mail or call to provide you detailed information.
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Visit XE partner page
The global FX market, do you want to be a part of it?
02-09-2020 | Niki van Zanten
The straightforward answer is ‘No’. Unfortunately, saying ‘No’ does not imply that you don’t play a part in the global casino named: The FX market. It could be a sane procurement, sales or investment decision that brings you a seat at the table. Unless you are a in this market to make commissions or in some rare instances a (successful) prop trader, you will most likely lose more then you gain when willfully playing the game.
The FX market is by far the largest market in the world easily exceeding equity, bonds markets or any other asset class. Estimates in daily turnover are north of 6 Trillion USD. The vast majority of trades have a USD leg and EUR is coming at a good second place making EURUSD the most traded pair. Comparing this to the Global Domestic Product (GDP) of let’s say 140 Trillion USD as a ballpark figure, the FX market monthly turnover exceeds the world’s annual GDP. Taking into account that not all global GDP related transactions in the world have a FX component, this tells us that a large percentage of the FX are not real money flows.
So what are they? For a part these are institutional investors like pension funds. Pension funds can choose to allocate in different currencies, but the more likely explanation is that a large part of the FX transactions are of a more speculative nature. Hedge funds for instance do not have a functional or group currency and therefore can freely take currency decisions when allocating assets.
So in summary, the largest market place in the world is driven by forces which are extremely difficult to predict by any form of scientific research or even looking into economic data like monetary flows. Not to imply that economic indicators and central bank policy don’t have its influence, but in the end, a market is primarily driven by supply and demand and there is vast speculation in buying and selling of currencies.
Switching to the corporate point of view, companies usually don’t want to be a part of the FX market. It’s the same story as you might wish to procure and/or sell in different currencies than your own for a variety of reason. It’s an open door to mention that this can be very beneficial but all cost need to be factored correctly before taking a decision. With Foreign Exchange this can be a difficult task and considering what is mentioned above, the FX market does not actually make things look better.
A basic example of why it’s hard to get a grip on the currency markets is available when looking at CNH (offshore RMB) forward markets in 2015 and 2016. Although there are structural differences between CNH and CNY in both spot and outright forwards, typically the pricing is at comparable levels (for the majority of us, at least the large China interest does not apply this). Yearend brought a liquidity squeeze and the forward markets showed huge spikes in volatility as well as extreme differences between the CNH and CNY yield curves. There are many more stories like this to share and recently even G10 doesn’t seem excluded from Emerging Market (EM) like volatility, particularly when looking at Brexit and the Swiss Franc peg release of January 2015.
So a few basic assumptions can be helpful when participating in the FX market for real money requirements
• Don’t think you can predict or beat the market
• Price in risk
• Risk can go both ways but spreads are by definition a cost
• If you choose to hedge make sure you get your exposure right and hedge to mitigate this exposure (in other words don’t use derivatives which don’t offset the hedged item)
• Be aware there is a difference between advise on a financial product and actually risk mitigation on a more holistic basis
• It’s hard to beat years of market experience, don’t hesitate to reach out to seasoned professionals who will prevent you from making expensive mistakes
Hope this was a good read and for any questions or feedback please share and keep things interactive.
Niki van Zanten
FX specialist
Partner Interview Series | A deeper dive with Paul Simpson from Kyriba
01-09-2020 | treasuryXL | Kyriba |
In the upcoming weeks, you will get inspired by the treasuryXL partner interviews. Each interview will be different, the only thing we can recommend: Learn, Discover and Enjoy!
The first interview to start with is Kyriba where we will take a deeper dive into their recent hosted webinar about Mitigating Fraud With a Corporate Payment Hub.
AN INTRODUCTION TO
Paul Simpson is Strategic Payments Director at Kyriba who also was one of the presenters during the webinar in July.
We asked him 9 questions and 3 bonus questions. Let’s go!
INTERVIEW
1. Can you tell us about the Corporate Payment Hub and your specific role?
My role is to promote the Kyriba Payment Hub, to make customers and prospects aware that we also have a powerful payment module. Often people think of Kyriba for TMS, but we have far more to offer, for example an anti-fraud solution in addition to payments. As part of my role at Kyriba, I look at the constantly changing payment landscape to inform treasurers and finance teams of these changes, whether that’s regulatory or technological. The Kyriba Payments Hub detangles what I call the “ERP payment spaghetti”, streamlines global bank connectivity and format transformation, whilst providing companies with real-time fraud detection. This can also accelerate ERP cloud migration projects.
2. What is the core issue the Corporate Payment Hub aims to address and how does it differentiate it from the other players in the market?
Essentially a payment hub gives our clients a single, consolidated point of access across bank accounts, giving the ability to set up payments, define different payment types and provide notification of pending approvals. Kyriba provides this visibility by consolidating payment streams from different systems – ERPs, finance, treasury, legal, capital markets and decentralised teams, thus transforming dis-aggregated processes into a single source of record for all outgoing payments, all done with built-in fraud detection. We also, uniquely, support and maintain a “bank” of over 45,000 bank formats in-house via our bank formats team. This allows the payment hub to transform payment data into bank-specific file formats and connects directly with global banks via multiple protocols, including host-to-host, SWIFT and regional networks. Other providers build each bank format for each customer at a high cost and development time. The Kyriba payment hub is designed to work across different ERP solutions, whereas ERP systems will not work across other instances.
3. Can each ERP work with the Corporate Payment Hub also when you work with multiple ERP’s located in different countries?
Absolutely. The Kyriba payment hub is designed to work with multiple ERP systems across different countries.
4. What are the most common fraud scams that businesses are dealing with?
Fraudsters are trying to use the current crisis to their advantage. With people working from home, for example, they may attempt to ask finance to make payment to a new bank account – knowing the sign off process is not as robust as it was when teams were all together in the office.
5. What’s the difference in Fraud Scams before COVID19 and the time we live in now?
We have research that shows the number of fraud scam attempts is up by nearly a 1,000 times since Coronavirus. The finance sign-off process for making payments are defragmented as people are working from home. This is where the Kyriba payment hub can bring standardised workflows, sign-off and approvals together to help eliminate fraud
6. What critical elements of Fraud are often overlooked by businesses?
Businesses fail to use AI and machine learning in addition to rule-based technology and processes to reduce fraud. This is a key component of the Kyriba Payment Hub
7. What has been the best experience of one of your customers working with the Corporate Payment Hub?
We are able to cut the time and cost of a customer migrating their ERP solutions to the cloud, as we can handle all the payment connectivity and formats etc “out the box”, thus saving the company many 100,000s of Euros, and 6 months or more in time, whilst also providing and standardising work flow sign off processes etc.
8. What is, in your perception, the biggest benefit of a working with the Corporate Payment Hub?
True, real-time visibility of all payments, from all systems, in one place with enhanced fraud protection and built in work flow.
9. What is your best fraud prevention advice for businesses?
Prevention is always better than cure! I always preach this. Always use combined workflow and AI / Machine learning technology together – the best of both worlds.
BONUS QUESTIONS
Have you ever experienced a fraud scam yourself? If yes, how did it impact you?
I have never experienced a fraud scam myself, the protection I had in place alerted me to a potential scam and I took action.
How are you defending yourself against payments fraud?
Every payment has to be checked via a rule and AI/Machine Learning process.
How does the future of fraud prevention look like in your perspective?
Fraudsters are getting more sophisticated, with only 6% of Corporates using machine learning/AI, they need to use the latest technology or be left behind and suffer fraud.
About Kyriba
Kyriba is the global leader in cloud treasury and finance solutions, delivering mission-critical capabilities for cash and risk management, payments and working capital solutions.
Kyriba empowers CFOs and their teams to transform how they activate liquidity as a dynamic, real-time vehicle for growth and value creation, while also protecting against financial risk. Kyriba’s pioneering Active Liquidity Network connects internal applications for treasury, risk, payments and working capital, with vital external sources such as banks, ERPs, trading platforms, and market data providers. Based on a secure, highly scalable SaaS platform that leverages artificial and business intelligence, Kyriba enables thousands of companies worldwide to maximize growth opportunities, protect against loss from fraud and financial risk, and reduce costs through advanced automation. Kyriba is headquartered in San Diego, with offices in New York, Paris, London, Frankfurt, Tokyo, Dubai, Singapore, Shanghai and other major locations.
Visit Kyriba