Member Article

Traditional foreign exchange models costing UK businesses millions

Research released today by freemarketFX reveals that although there is an increase in innovation in the foreign exchange (FX) services available to businesses, 70 per cent could still be paying significantly over the odds for their transactions (0.5 per cent or higher), with the majority not realising they could get a cheaper deal. 72 per cent of those surveyed by the peer-to-peer currency exchange provider believed that the rates they pay for FX are either ‘fair’ or ‘inexpensive’, despite the average fee being estimated at 0.8% on transactions.

The research also found that as international expansion increases, 83 per cent of UK businesses believe their FX transaction volume has increased in the last five years – and 81 per cent believe it will continue to increase over the next three years. As far as the service level businesses receive on their FX is concerned, 84 per cent believe technology is increasingly enabling alternative offerings to further improve their financial services.

Alex Hunn, CEO freemarketFX, explains, “The increase in FX volume suggests that currency exchange fees are going to become a bigger consideration in budgets. As margins come under pressure, CFOs need to prioritise cost cutting wherever possible and one of the most obvious places to start is cutting the amount they pay on converting the money they are making.

Many alternative FX providers are establishing new models that optimise technology to cut out a large part of the in-built cost of currency provision. This allows them to pass the savings on to the customer. Commissions as low as 0.2% on currency transactions are now available, and better value will become the norm in future. The FX market needs to continue to innovate and harness the new technologies available in order to up its game and lower transaction fees.“

Even with an increase in the awareness of alternative FX services, such as peer-to-peer currency exchanges, the majority of companies are still using traditional providers such as banks (83 per cent) and brokers (16 per cent). Only one per cent of those surveyed are currently adopting alternative models, despite 84 per cent stating they are prepared to use alternative providers in the future. Businesses also still accept the premise that inequality in the market is fair, as a whopping 90 per cent believe foreign exchange should be discounted based on the size of the transaction.

Hunn continues, “Traditional views on foreign exchange are costing UK businesses millions per year through expensive exchange rates and hidden charges. To put it into perspective, businesses trading £10m of currency at 0.8% commission currently pay £80k for their transaction. If they swapped to a 0.2% option, they would pay £20k, a massive75% saving of £60k. With the emergence of new FX models companies should demand transparency on services and charges. While banks have rightfully earned the trust of businesses to handle their FX, this perception needs to be challenged as other viable options are able to offer companies the same secure transactions, but at a lower flat rate, however much they exchange.”

The full whitepaper can be found at http://bit.ly/1A5BewJ

Methodology

102 key decision makers, responsible for foreign exchange transactions within their organisation, took part in a telephone interview during December 2014 / January 2015. Key decision makers were sourced from organisations with a turnover of between £5m and £25m. Research was conducted by Loudhouse, an independent research agency based in London.

About freemarketFX

freemarketFX is an FCA authorised and regulated currency exchange. We have created a marketplace that allows our customers to reduce the currency bought from banks and brokers by aggregating their currency requirements with their peers. This increases efficiency and significantly reduces costs.

By using this innovative approach, our customers generate supply and demand for currency pairings (not the banks), which influences the efficiency of our marketplace. The benefits of which are then shared equally amongst all customers. A true currency co-operative.

The exchange platform offers a secure, online solution providing enormous benefits, which include:

Significant cost savings of up to 75% reduction on FX costs A fixed commission of 0.2% charged on all transactions (whatever the transaction amount) or 0% if you are a registered charity No further payment charges Total disclosure and transparency on all currency pricing and the commission charge incurred through the transaction process Full account reconciliation and audit trail accounting No sign up costs, registration costs or annual charges

This was posted in Bdaily's Members' News section by Alex Hunn .