With the macroeconomic outlook seeming more unpredictable than it has in years, the foreign exchange (FX) market is experiencing considerable volatility. Shifting trade policies are proving a notable headwind – driving liquidity and working capital challenges,
as well as geopolitical uncertainty.
Fortunately, there are opportunities to be seized amidst this volatility. The payments market, for its part, is holding fast – benefitting from greater levels of speed, transparency, accessibility and harmonisation than ever before. This is in part thanks
to the trajectory provided by the G20’s roadmap for enhancing cross-border payments. Indeed, the Bank of England estimates that the value of cross-border payments globally will reach $250
trillion by 2027. By modernising and refining payments and FX strategies, organisations can leverage this opportunity to deliver concerted growth.
But what would such a strategy look like in practice? How should corporate treasurers capture the FX opportunities that are emerging within new trade corridors? And how are corporates optimising their workflows, expanding their digital capabilities, and
tapping into multi-currency opportunities?
Meeting payments challenges on an evolving landscape
Amidst today’s macroeconomic uncertainty, global payments have become a complex machine, in high demand. As supply chains fragment, trade volumes are being redefined, and new corridors are emerging. A good example of this is the China-South America corridor,
which is developing as a result of China’s investment into South America. One consequence of this emerging corridor has been an uptick in payment requests into Brazil, which may sound straightforward to deliver, but demands considerable resources from a conversion
and technological standpoint.
In an interview with Finextra, Standard Chartered’s global head of payments, David Rego noted:
“There is an increasing two-way trade flow between South America and China. Similarly, there’s India to Africa and numerous other intra-ASEAN [the Association of Southeast Asian Nations] trade flows. With these developments, we are seeing more organisations
looking for better solutions to manage FX exposure, execute hedging strategies, and optimise currency conversions.”
As well as facilitating emerging currencies, organisations must remain abreast of rising digital commerce models and new payments schemes – while at the same time delivering on consumers’ calls for real-time services. Today, ecommerce demands that end-users’
options for paying and receiving cash are highly nimble and dynamic, with FX conversions available 24/7, across the board. Adding to these challenges is the fact that all payments activity must be compliant – and so too must every currency bought and sold.
“Growth in business’ trust for buying and selling in digital formats over marketplace platforms has resulted in companies expanding their procurement, manufacturing and sales from domestic to regional – and even global,” explained Rego. “With this trend,
their currency exposure has changed from only domestic currency and dollars, to sometimes over 50 different currencies.”
These requirements are proving a considerable challenge for corporate treasurers, driving the need for cutting-edge payment solutions in both the domestic and cross-border space – encompassing technological and liquidity support.
In the long-term, further compliance obligations and technological advances – as we have seen with the
GENIUS Act in the United States – will unlock more ways to streamline cross-border services.
How can corporations re-imagine their FX and cross-border strategies?
Against this unique, shifting backdrop, it is more important than ever for corporate treasurers to stay on top of their payments and FX workflows, in order to ensure their organisations have the resilience and momentum to scale. Increasingly, treasury teams
are leveraging the expertise of a variety of partners to help them do this more effectively – particularly in terms of modernising internal FX processes through automation or integration into existing workflows.
This modernisation imperative applies to almost any entity working across borders. Indeed, “organisations’ business models are increasingly regional or global,” underlined Rego. From aviation and tourism to luxury hotel chains, shipping, logistics and manufacturing,
businesses in most sectors – as well as their downstream customers – stand to benefit from refined, compliant FX strategies. Even public services and governments have an obligation to ensure their FX strategies are finetuned to their unique needs; visa payments,
taxes, and pension payments, for instance, must continuously support innumerable micro-transactions in hundreds of currencies – online and instantly. Shipping organisations, too, must pay thousands of wages to crew members across the world in a single month,
while the kitchens of luxury hotels frequently order delicacies from the likes of Japan, Spain, and France, and therefore need to transact in a handful of currencies at any given time.
Suchit Parikh, Standard Chartered’s head of
SC PrismFX sales, Asia and South Asia, observed:
“Tourism and travel have massively picked up. Since more tourists now spend digitally, rather than currency notes, companies have greater cross-currency needs. FX pricing transparency, speed of collection and disbursement, full value delivery, and simplified,
digitised flows are critical – even in markets traditionally requiring documentation for cross border payments.”
So that these increasingly complex payment demands – often spanning local and global schemes – can be met, banks are investing heavily in technology and accelerating innovation in their cross-border and FX streams.
Some of the tools and techniques that growth-oriented corporate treasurers can leverage include:
- Robotic process automation (RPA) – automating FX conversions and settlements, 24/7 (as opposed to calling the bank and booking FX trades over the phone). Nota bene: It is vital that such processes are plugged into the organisation’s enterprise resource
planning (ERP) or treasury management system (TMS), to enable seamless transfer of payment information and documentation.
- Host-to-host (H2H) – by integrating multi-currency FX flows with the ERP, organisations can access accounts payable and receivables financing in a single step.
- Centralised accounts – enabling payments and FX flows (across hundreds of currencies) to be executed automatically, and overall positions and prices to be viewed with ease.
- Advanced liquidity management solutions – cross-border pooling, for example, can enable optimisation of yields and liquidity for better visibility and control over cash balances.
- Real-time or intraday FX risk management – to handle fast-moving cash positions.
- AI-enabled strategies – to improve the quality of FX pricing, through better assessment of risks associated with currency fluctuations.
- AI-enabled volume forecasting – to enable suitable and effective pre-hedging.
- Application programming interface (API)-enabled hedging for micro-transactions – to insulate from adverse moves in the FX market, by efficiently opening additional positions and limiting trade risk in the short term.
- AI-enabled screening – to efficiently sift out incompatible payments, such as those with improper purpose codes or incomplete information.
Reflecting on these capabilities, Parikh said:
“By combining FX and payments into a single-step initiation, treasury teams can get a clear picture of the amount of functional currency that is expected to arrive at the beneficiary bank, keeping settlement flows intact.”
“Enhanced automation and control improve cash flow predictability,” he added. “Given these benefits to corporations, FIs should streamline clients’ FX on the back of transactions, helping treasurers better manage currency risk and execute more seamless transactions
at scale.”
Overall, such techniques serve to modernise corporate treasurers’ workflows and enable efficient FX management, at scale. Through this approach, organisations can unlock liquidity and deliver growth on today’s unpredictable macroeconomic landscape.
Change is the new constant
In the next five to 10 years, the cross-border payments sector will continue to evolve. Change will be actioned not only by the regulatory space and the G20’s roadmap, but through market competition – that is, between banks and non-bank payment service providers.
These players are locked in a race to grow volumes and develop solutions that enhance end-user experience in the most cost-effective manner.
New methods of paying and settling may be kicked into play – most notably, stablecoins. These have the potential to revolutionise liquidity, FX delivery, and 24x7 settlement.
Despite all this change on the horizon, we continue to live in a globalised world; our interconnectedness is not something that can be reversed, despite what recent geopolitical noises may suggest. With this truth as their impetus, corporates must continue
their journey to thrive across borders. That means collaborating with partners to ideate modern and novel FX and risk management strategies, which leverage the latest digital tools and insights – thus supercharging business growth and financial resilience.