Since 2021, the world’s largest economies have been pushing financial firms engaged in cross-border payment flows to adopt technology platforms that are cloud-enabled; can handle application programming interfaces (APIs) as well as real-time execution; and facilitate automated processes and repairs.
It is easy to see why there is so much interest in improving the speed, access, cost and transparency of the cross-border payments market given its status as one of the fastest growing money movement markets in the world as a result of expanding supply chains and international trade.
A new report by Finextra Research and Temenos suggests that progress towards these goals remains patchy though, with Q4 2024 data from the Financial Stability Board indicating more work will be needed to meet the targets across all market segments and that some regions continue to face greater challenges, particularly in meeting the targets set for cost and speed.
At the global level, the average cost of business-to-business payments was 1.6% and for many regions and use cases, costs were higher last year than in 2023. The percentage of payment services settling within one hour and one business day from initiation both decreased.
The report suggests greater systemic changes must be made at the heart of our financial institutions, starting with the modernisation of banking technology systems.
It makes a number of suggestions, ranging from increasing the field size of financial messages and the volume of remittance information to encouraging interoperability with APIs and optimising straight through processing.
Cross-border payments are a crucial aspect of international trade, enabling manufacturers to maintain smooth operations, manage their supply chains effectively and fulfil orders. Finding a reliable partner to streamline these payments is essential, particularly when delays in processing payments also negatively impact production schedules, customer satisfaction and overall operational efficiency.
These businesses must also consider the potential cost of hidden transaction and processing fees and the importance of verifying details before payments are sent.
Melecs, an independent electronic engineering and manufacturing service provider to the automotive, household goods and industrial sectors with sites in Austria, Hungary, China, Mexico and the US uses FX risk management strategies developed in collaboration with Convera to mitigate the impact of currency fluctuations on its global operations.
“Convera has helped us develop a much more strategic and proactive approach to currency hedging, which has ultimately helped us reduce our FX risk and consequently protect our margins,” says Ernst Mayrhofer, former CFO and co-owner of Melecs.
The company has reduced the FX fluctuation range in its balance sheet from approximately 5% of the currency requirement to around 1-2%.
“We have regular discussions about our risk appetite and the budget path we need at any given time and we refine the strategy together,” adds Mayrhofer. “We have not received this service in this way from other financial institutions.”
Mechatherm, which supplies the aluminium industry with customised equipment, has also utilised Convera’s FX hedging expertise to bolster its export-centred business.
“Our business growth was very restricted by our bank’s policies on currency transactions and I also can’t believe how much time I used to spend online watching currency movements to safeguard our profit margins,” explains Alan Burrows, Managing Director. “Having a currency specialist partner has made life so much easier.”
The company is now able to hedge much larger amounts without depositing funds in a security account, making its cash flow much more fluid.
