The opacity of payments can be intimidating. In the same way, operational costs can be many and frequent, yet you can’t afford to ignore the places those costs are being incurred. To effectively optimize payments and save on operational costs and overhead, you need to know what’s possible within your existing payments infrastructure. From an FX perspective, that means you’ll need to learn how currency moves from and to your business. What payment features do you need, if you don’t have it? What could you do without?
Asking questions like these is your first step to uncovering your payments capabilities.
There are a few key questions you should ask about your current payments structure:
1. What currencies are you paying out? Where to, and why?
2. Is your current foreign exchange provider offering you transparency and cost-effectiveness?
3. Are you being charged extra (hidden) fees? Where do they happen in the payments process?
4. How can you compare your current service and rates with other providers?
With each of these questions, you’ll be one step closer to finding the right FX provider. One way to get to the heart of that matter is to consider how often rates are updated.
Does your provider quote rates once daily? Or are the rates constantly updated, in real time?
Because exchange rates can change literally every second, once daily FX rates is far past what you could consider “up to date” information. Even if you are quoted a so-called “real-time” rate, be sure to check that said rate isn’t substantially higher than the daily average. Unless your FX provider shows the live mid-market rate and the rate you’re being offer, what may seem like transparency may actually be a way to squeeze more profits from your exchanges. Put your trust in a provider that offers total rate transparency into the lowest rates available, so you can gain margin and pass savings along to your customers.
Your main priority in assessing your FX capabilities should be in understanding where you are bleeding money that could otherwise be used in your business. Too often, that bleed occurs in hidden fees. To discover where you’re hemorrhaging money, first look at the “spreads” — price difference between where a trader may purchase or sell an underlying asset. Here’s how you can tell: use a reputable source like xe.com to check for live rates. If your provider’s rate is exorbitant, there’s probably a hidden fee added to your conversion. Secondly, assess whether or not each transaction incurs a fee for “funds delivered.” If so, you should move toward a provider that doesn’t tack fees onto standard aspects of the transaction which shouldn’t require such charges.
A main component of your FX provider’s success as a provider for your business is its ability to deliver funds both reliably and quickly. Having options is key. Yes, the SWIFT network is the industry standard for sending payment communications between banks, with security controls in place. And because wires are quick (though expensive), you’ll be guaranteed receipt of funds straight away. However, sometimes you may not need a payment to be delivered same- or next-day. If your payees are comfortable with payments being delivered over two or three days at a lesser cost, they may want you to use local payment routes instead. In this case, it’s beneficial to partner with a provider who can offer local payments in a slew of local currencies. Understanding your options and selecting the FX provider who offers the options that work best for you and your customers is a must.
However you begin to assess your FX capabilities, you have to begin, period. Your business and your customers may be losing out on possible profits all because you aren’t looking deeply enough at your providers and the costs you incur from these providers. Start today with these three key considerations in mind.