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Part two: FX and hedging for SMEs - between a rock and a hard place

FX execution and hedging have been a widely mismanaged feature of small and medium-sized enterprises (SMEs) for years, with no automation or analytics and high transaction costs.

The need for a modern, comprehensive and cost-effective TMS

In many regards, treasury management remains hindered by increasingly outdated and fragmented processes. This becomes all the more apparent as other areas of finance move ahead in terms of efficiency, customer satisfaction and cost-saving benefits resulting from fintech adoption.

A survey by Citi’s Treasury Diagnostics division[1] found that over half of respondents believe their treasury management system (TMS) does not support financial risk management processes. Furthermore, nearly two-thirds of respondents are looking at new opportunities across the treasury function as a result of emerging technologies.

The need for a modern TMS that offers a comprehensive and holistic approach incorporating the full package has never been more important. If corporate treasurers continue to suffer from old, cumbersome technology and extortionate fees remain the norm, the effectiveness of their organisation’s broader risk management and cash flow strategy will be hampered.

The ability to buy and sell currencies, effective hedging and risk management, real-time cash flow management, international multi-currency bank accounts and fast payments all in one place – underpinned by cutting-edge fintech and with appropriate regulatory oversight – should not be restricted to a handful for large corporations.

 

An ecosystem and infrastructure fit for the fintech revolution

Fintech innovation has transformed financial services at a rapid pace, enhancing customer experiences and accessibility and making services faster and more streamlined. As a result, costs have fallen, barriers to entry have been reduced and new entrants have emerged to take on the incumbents.

Yet, amidst the rise of challenger banks and alternative payment providers, relatively few innovations have found their way into the corporate treasury space.

Take international payments and bank accounts, for example. In an increasingly globalised world, very few companies operate using a single currency. Despite this, making international payments remains a costly and cumbersome process, and multi-currency accounts remain inaccessible, require manual input to operate and take weeks to open.

This is hard to justify when supply chains and customers span multiple nations, currencies and continents – treasurers need an equally global bank account that is fit for purpose.

To address these issues, treasurers have sought to utilise different platforms and integrated technology systems to ramp up efficiency and automation, while reducing costs. But this has only created layers upon layers of complex technology systems, processes and plugins.

This approach is not sustainable – it increases maintenance costs and hinders operational stability in the long-term. If one cog in the machine breaks down, the knock-on effects could be disastrous.

Buying your way out of a problem that has hampered corporate treasurers for decades is not the answer – it’s not the number of plugins, add-ons and systems that will bring corporate treasury into the twenty-first century, but the functionality, interoperability, security and ease of use of a treasury management system. This has become even more critical as treasurers become accustomed to working remotely.

Put simply, enabling treasurers to perform all of their key functions without having to switch between different platforms and technology providers is crucial. The days of plugin tangles and convoluted processes are over.

In order to fully address the pain points faced by treasurers today, modern systems and platforms must address the lack of availability and high costs associated with multi-currency accounts, payment processing and FX conversion fees.

There is a huge opportunity to streamline existing processes and access all of the key services treasurers need – multi-currency IBANs, automated payments and collections, FX hedging and risk management and enhanced security – from one comprehensive dashboard. With the technology and knowledge available today, such services recognise the digital and global requirements of a modern, global corporate treasury division. 

 

Getting bang for your buck

SMEs are the engines of the global economy, but this segment of the market has historically been overlooked by fintech revolution that instigated a wave of business and product innovation over the past decade or two.

 FX execution and hedging have been widely mismanaged features of small and medium-sized enterprises (SMEs) for years, with no automation or analytics and high transaction costs.

That is now changing. With some banks choosing to leave this space and other incumbents failing to adapt to the new technology landscape, it has left a gap in the market for new fintech solutions to take their place. 

Of course, nothing in life is free and the concept of paying a fee in return for receiving a service is embedded into our day-to-day lives. But the fees paid should offer value for money and align with the quality of service received.

Crucially, corporate treasurers are the 99% of businesses who are now charged fees that mirror what we see at the top and bottom end of the market – typically below 0.5% in some cases. 

This coincides with the emergence of TMSs using nimble and modern technology that is accessible to corporate treasurers of all sizes. Through the efficiencies offered by modern technology, these systems offer the same services and tools available to those at the top end of the market, but at the fraction of the cost.

It's been a long-time coming, but corporate treasurers are finally getting bang for their buck.

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Laurent Descout

Laurent Descout

CEO

NEO Capital Markets

Member since

07 Mar 2019

Location

Barcelona

Blog posts

7

This post is from a series of posts in the group:

Treasury Management

This network brings together treasury and financial professionals who manage treasury functions. Members share a common interest in treasury, cash management, banking, risk management and investments.


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