When corporates look for growth, overseas markets are often high on the list of options. Accessing new customers in fast-growth economies, or sourcing suppliers in lower-cost areas, can make all the difference to growing revenues and profits.
With the growth in international trade comes an increase in demand for cross-border USD payments and foreign exchange services. For banks, this should be an opportunity as corporations often turn to their local banking providers to execute those cross-border wire transfers.
However, many smaller banks lack the infrastructure, the accounts and the mechanisms to handle the currency conversion of these payments themselves. Therefore, it is often the recipient bank that converts the transfer into the local currency of the beneficiary. In this scenario, the sender may lack transparency on what rate will be applied to the payment and how much will arrive at the beneficiary, which can lead to customer dissatisfaction. In addition, they are allowing the recipient bank to determine most of the FX spread revenue that goes with the transaction.
CONVENIENCE AND REVENUE GENERATION
Automated foreign exchange conversion is an increasingly popular approach whereby the sending bank uses a correspondent bank with FX trading and payment capabilities to automatically convert the payment into the local currency of the beneficiary. Automated FX conversion provides a convenient way for the sending bank to offer competitive FX rates, improving the experience for its clients, while generating the revenue from cross-border wire payments.
OFFER PAYMENT IN MULTIPLE CURRENCIES
For that sending bank, there is no additional cost beyond the per-item fee it has agreed to with the correspondent bank. From a client bank’s point of view, the bank just pays the variable cost. If you’re a bank in Peru, for example, and you have a flow of dollars from your customers through your Bank of America Merrill Lynch account, you can offer payment in 41 currencies, with no increase in your cost base, other than what you pay Bank of America Merrill Lynch per item.
The AutoFX service covers the most commonly traded currencies and can be applied to any transaction up to a mutually agreed threshold. In some cases, it isn’t always appropriate to convert the payment before transmission — for example, when recipients have a USD account of their own or when there is a pre-agreed exception for specific customers. Our solution helps determine the currency of the payment to the beneficiary before it is sent. It’s an integral part of the service, benefiting all parties involved in the payment chain.
As its name suggests, once set up AutoFX runs automatically, comparing each transaction to the database and converting those that are not filtered out. At the end of each month the client gets a report detailing the transactions converted, the FX spreads and the amount of the revenue that will be credited to a designated account.
AutoFX is one part of a full suite of correspondent banking services Bank of America Merrill Lynch provides to our bank clients. As corporations look overseas in their quest for growth, an ability to provide these services will become ever more essential to local and regional banks. As new technologies evolve and impact the global commerce landscape, cross-border payments must keep pace. In that context, we continue to roll out new developments like AutoFX — offering an expansive global reach with up to 89 countries and 41 corresponding currencies — to enhance the value chain to our financial institution client’s clients.
- International transactions require resources that local banking providers may lack, making currency conversion before payment difficult
- AutoFX enables you to use a correspondent bank with FX trading and payment capabilities to automatically convert payments into a beneficiary’s local currency
- It means smaller institutions can offer competitive FX rates, improving client relationships while generating revenue from cross-border wire payments