The newest wave of financial technology companies – primarily small start-ups commonly referred to as fintechs – has been growing steadily in recent years. According to a recent report by Accenture Consulting since 2010 more than US$50bn has been invested in some 2,500 fintech start-ups. This total includes a 75% surge in global investment during 2015 alon;, a clear indication that the sector will continue maturing and thriving.
Generally speaking, fintechs use today’s latest technologies to make payments more efficient in order to support their clients’ core, non-payments business. The improvements range from transforming the way payments are initiated and processed to providing access to eco-systems and networks that meet specific requirements and connect to key counterparties.
Whether fintechs are disruptive or beneficial to the banking industry has long been a topic of discussion. The truth is, however, that it’s not an either/or proposition. The so-called disruption brought on by fintechs has prompted those in the traditional banking industry to push the boundaries of their own innovations even further, benefiting both the banks and their clients. At the same time, many of the new solutions being developed by banks could help fintechs add scalability and service their clients more completely.
With this, collaboration between the two parties is critical in successfully meeting the payments needs of an increasingly global customer base.
An ever-evolving payments landscape
Like fintechs, banks of all types and sizes are focused on one thing – making it easier for their customers to conduct business. For international banks, it means helping both buyers and sellers transact business seamlessly in markets around the world by continually simplifying cross-border transactions. As the global economy continues to expand, this involves managing new payment infrastructures and navigating regulatory changes impacting both banks and their clients.
With this ongoing evolution, the needs and expectations of corporate treasury are shifting as well. In addition to faster payment settlement, transparency is becoming ever more important in the supply chain network. This includes richer payment formats, with separate but integrated paths for data and settlement and enhanced visibility into fees, rates and positions – both in domestic transactions as well as foreign exchange (FX).
Maximising efficiency of cross-border transactions
When doing business internationally, today’s buyers are looking for access to accurate pricing along with the ability to make payments in their own currencies. Conversely, suppliers want to receive payments in their home currencies. Traditionally, making this happen involved outsourcing FX conversion to credit card processors or other third parties, which could often lead to hidden conversion fees.
Many international banks are working to help clients overcome these challenges. HSBC has developed a suite of solutions that move the conversion process and currency management into its FX wholesale marketplace. The HSBC FlexRate service, for instance, allows suppliers to take over FX conversion by embedding it directly into each transaction. The result is a completely transparent process, whereby suppliers can provide pricing and accept payments in their buyers’ local currencies.
At the same time, by integrating FX into the process suppliers can receive funds in their currencies – potentially minimising or eliminating the risk of unexpected conversion fees. This also gives suppliers greater visibility into each transaction with a clear picture of pricing, FX and receipts to help simplify reconciliation and improve end-to-end currency management.
Delivering end-to-end solutions for fintechs
This same technology can benefit fintechs and their clients as well. As an example, fintechs that specialise in streamlining transactional information flows between buyers and suppliers have typically turned to other fintechs for payments processing or worked through local or regional banks. In either case, this means different systems and processes in each country, and potentially for each client.
Since payments are not a part of the end-to-end process and are typically handled by multiple providers, information is coming in from a variety of sources and in several formats and makes reconciliation for suppliers cumbersome. This disconnect in the process is particularly challenging considering that both buyers and suppliers have been working to centralise treasury as much as possible in recent years.
A service such as HSBC FlexRate enables fintechs to add payments and FX into their existing systems to help tie the processes together and effectively bridge the gap between information and payment flows.
Delivering a single, seamless process for financial transactions in this way further helps the bank’s clients consolidate payments coming into and out of their organisations, for better visibility and control over cash flows.
The added value of an international banking partner
International banks also provide an array of solutions in addition to comprehensive payments and FX treasury services, which can further enhance experiences for a fintech’s clients. This is especially critical as corporate treasuries are in search of more and more specialised solutions – either based on functional needs such as treasury, payroll and procurement or by industry for claims, content producers, pensions and more.
For international banks such as HSBC, integrating these types of services into a fintech’s platform means we are able to take advantage of the agility of their technology. This benefits our clients by giving them access to the banking services they rely on in a faster, more transparent manner.
Beyond embedding an array of solutions in their existing offering, well-established international banks offer fintechs something most don’t yet have access to – a far-reaching global network. As start-ups, fintechs are typically small with limited infrastructure. Leveraging the strength of a global bank’s network adds scalability to their business model, enabling them to expand into markets around the world quickly and easily without the time and expense of building out the necessary infrastructure.
In addition, a truly international bank – one with a significant global presence in the world’s most important economies – is very often likely to have an existing business relationship with both buyers and sellers in the supply chain. This fact alone may make it that much easier for fintechs to close the financial transaction loop for their clients and ultimately enrich their processes.
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