Foreign exchange software already integrated in a small bank’s existing financial system provides a new revenue stream, eliminating a longstanding forex barrier to entry
Historically, there has been a significant barrier to entry for community banks and credit unions to fulfill their customers’ foreign exchange transaction needs. Lacking the technology platforms and the in-house forex expertise, they have had to rely on correspondent banks to service their customers while losing out on the lion’s share of revenue.
Fortunately, the fast-growing fintech sector is bringing forex solutions to smaller community banks and credit unions that allow them to deliver the service directly, with competitive rates for customers, increased profit margins, and greater transparency.
When the forex solution is already integrated into the bank’s financial system, such as Fiserv’s Payments Exchange, implementing the service can be as simple as selecting the option from a drop-down menu. By doing so, community banks can quickly begin capturing this valuable additional revenue stream while building stronger and more loyal customer relationships.
“Traditionally, community banks have forfeited forex revenue when working with correspondent banks,” says Andrew Dillard of Acceleron Bank, in formation, a digital correspondent bank that provides forex technology solutions for community banks and credit unions. “Now, there is software that levels the playing field so small community banks and credit unions can deliver a forex service that is competitive with the alternatives offered by large banks or standalone fintech apps.”
Eliminating forex opportunity costs
Although many community banks and credit unions offer some type of foreign exchange or international payments capability for their customers, these services typically require the bank to work with a correspondent bank to process the transactions. Although correspondent banks provide a good service, there is little incentive for them to share the fees or offer the customer a competitive rate.
“Correspondent banks are focused on maximizing their own margin on each transaction,” adds Dillard. “If the forex experience is less than satisfactory due to high fees or lack of transparency, it can also reflect poorly on the community bank. They could end up losing a valuable customer to a larger bank as a result.”
Although forex was once considered the domain of larger banks serving international business clients, community banks may not realize the current demand that exists for international payment or foreign exchange within their customer base. Given the explosion of global e-commerce, cross-border transactions are more important than ever. With Forex services, companies can make payments in local currencies and receive payment in their home currency through a suite of international payment types: incoming and outgoing wire transfers, forward contracts, cross currency transactions, and foreign currency drafts.
“Forex should be considered a strategic tool for community banks and credit unions,” explains Dillard. “It represents another revenue stream and a way to build stronger and more loyal client relationships by taking care of more of the customer’s banking needs.”
A competitive fintech solution
According to Dillard, some banks see fintech applications as disruptive technology that – like correspondent banks – can gobble up the bulk of the generated fees. However, this does not have to be the case. Acceleron Bank has created software that is embedded within Fiserv’s Payments Exchange that utilizes an Application Programming Interface to exchange information safely between the applications.
The secure web-based Fiserv Payments Exchange is already used by many small banks and is a single entry point that triggers verification, OFAC screening, posting to the account processing systems, delivery to the Federal Reserve and automated customer notifications. Security features include customized authorization levels, dual controls, and data encryption to protect the privacy of the wire transfer data.
“The capability for a small bank or credit union to offer a competitive forex service is likely already built into the system they are already using,” explains Dillard. “When that is the case, there are no incremental costs to start, and the option is almost immediately available to implement.”
When integrated into Fiserv’s Payment Exchange, the current processes wire initiation, approval, and release processes remain unchanged. “Because it is part of the small bank’s existing technology system, partners and processes, there is no significant learning curve. The bank can simply ‘turn on’ the service and begin processing forex payments in just a few days,” says Dillard.
Unlike other single source forex alternative from larger correspondent banks, the Acceleron software is based on having multiple correspondent banks bid on each customer’s transaction. The bidding occurs seamlessly behind the scenes, with the customer benefitting from more competitive rates.
“What really excites me about an integrated, competitive forex model is what this can do for the smaller bank or credit union,” says Dillard. “The pain points of utilizing forex technology and the barrier to entry have essentially been eliminated.
“This is about giving these smaller financial institutions an ability to compete, generate new revenues, while taking care of their customers’ needs. It’s about leveling the forex playing field,” he adds.
For more information about integrated forex payment solutions for community banks and credit unions, visit www.acceleronbank.com.