By Isabel Baransky and Dasha Dyomkina-Reece, Directors, Senior Product Managers, FX Payments, Bank of America
Corporations streamlining their cross-border processes are enjoying broad gains
Rapid globalization has brought exciting times to the foreign exchange (FX) market. With the accelerated rise and integration of artificial intelligence and big data into global finance, FX operations are being reinvented. Corporate treasurers share in this optimistic outlook, while also acknowledging that the rate of change makes it difficult to get ahead.
Data and analytics improving decision-making
Coupled with their deep market knowledge, global financial institutions are well equipped to use data and analytics to provide corporates with tools and insights that can drive more informed decisions. The practical impact on business operations is proving profound. Data analytics helps corporates to maximize FX cost reductions on the front end when making payments, while ultimately minimizing or even eliminating any overage costs throughout a transaction.
A few examples of how data can help corporates reduce costs:
- By analyzing certain factors such as destination countries, frequency, and volumes of transactions, corporates can look to further automate their cross-border workflows while also taking advantage of alternative payment methods, like Cross Currency ACH, to lower their settlement costs. The data evaluation that analytics generates also improves straight-through processing (STP) rates, reducing the reliance on slower and error-prone manual activities and other processing delays. This also offers corporates greater transparency and extensive cost- and time-saving benefits.
- When paying customers or suppliers in certain markets with more complex FX regulations, corporates can partner with a financial institution that uses the power of its global reach and intelligent data analytics to route transactions into these markets in more efficient and cost effective ways. These benefits are most evident when paying suppliers in restricted markets, such as China, Taiwan, and South Korea, as cross-border transactions are generally more complex due to tighter regulations, which in turn can lead to unanticipated costs. With analytics, sophisticated data elements automatically account for these irregularities and diminish their cost impact on transactions.
Empowering corporates with unprecedented insights and transparency
As the FX market is evolving, so are the expectations of corporates operating within it. They are looking for certainty and transparency in the multiple unknowns of a cross-border transaction.
Industry led tools such as SWIFT GPI and ISO 20022 are paving the way for financial institutions and their clients to further embed data into their core processes and infrastructure.
- The SWIFT GPI initiative compels financial institutions to share vital information throughout the payment life cycle with their corporates, including hidden fees and routing decisions. This allows corporates to gain greater control, certainty, visibility into end-to-end transaction and make better decisions to drive optimal processing outcomes.
- ISO20022 is aimed at standardizing the communication language between parties on the SWIFT network, allowing for richer data to be passed, creating opportunity to drive new, more detailed insights on transactions.
Specific to FX transactions, risk management tools, such as Guaranteed FX Rates, are available to corporates to gain greater certainty over FX rates applied to their cross-border transactions. This is becoming ever more important as the market is facing continued uncertainty and volatility in the face of various geopolitical and economic events. Algorithms and machine learning techniques are used by financial institutions to power such solutions, helping corporates effectively manage their FX risk.
Relying on data analytics to determine the optimal currency
When it comes to cross-border transactions, the decision of which currency to initiate a payment in is not always clear. Commonly, the currency of the beneficiary account is unknown, which creates downstream implications of how to route the transactions.
Financial institutions can apply data intelligence which helps corporates make informed decisions on the optimal currency to initiate payments in, gaining the ability to reduce cost, while gaining control and transparency over FX rates used for conversion.
The FX market will become even more intricate and challenging
Experienced financial institutions are well positioned to create more sophisticated and accurate tools that will continue to optimize cross-currency transactions.
Looking ahead, corporations will benefit the most by partnering with financial institutions that properly service them. At Bank of America, our highest priority is placed on being a trusted advisor to our clients. Using data tools and insights, we help our clients make intelligent and informed decisions needed for their businesses to compete in this constantly evolving marketplace.
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Key Takeaways
- Banks are using data analytics to drive incremental value for corporates in their cross-currency treasury management practices. Partnering with an experienced financial institution whose advice and guidance is powered by data will be critical for corporates to compete in FX markets.
- Data analytics are empowering corporates to rethink their operational approach to cross-currency transactions.
- With data, corporates can gain greater oversight with end-to-end transparency on transactions, reduce costs, and improve decision making to further optimize their cross-border flows.
