In this article we look at the most important things to consider when choosing a currency broker

The international payments industry is more fragmented than ever before, with a seemingly endless list of suppliers all claiming to do things differently and be better than the rest. With the way the industry is now regulated, peace of mind with regards to security of funds will be a given for any provider you choose, with the only consideration being do they hold an API license, or an e-money license. Your funds are secure in either scenario, however dependent on your requirements, if your provider holds an e-money license then it will provide any individual or business with far greater flexibility. Taking security as a given, below we explore the three key areas we feel are crucial when assessing who to use for your cross-border payments:

Payments technology:

Consider the following scenario, a UK business sells its product across Europe and therefore receives regular receipts in Euros which they need to convert into GBP. They have an existing broker who they are happy with, everything seems to work well as far as they are concerned, and they have never considered the need to look for alternatives. When they receive Euros from their clients, they are paid into their Euro account with their bank, this is because their broker can neither accept funds in from third parties, or offer them a Euro account to collect and hold funds in. Once the funds are paid into their Euro account with their bank, they call up their broker or go online to book a trade with them to sell their EUR and buy GBP. They then arrange a transfer from their EUR account with their bank over to their brokers EUR account to settle for the trade, they then need to wait for their broker to receive the Euros, once received the broker will settle their GBP back to the same bank where their Euros first arrived up to a couple of days earlier. Cornerstone FX offer clients the ability to hold their own named currency accounts to collect and hold funds in and then convert as and when required. We offer local collection in Europe, so in the scenario outlined above their customer would simply settle directly into their named Euro account where the funds would be instantly available to convert and settle to their bank, convert and hold in GBP to pay other costs, or simply hold in EUR to convert or pay out at a later date.

The first scenario on the face of things may seem to work well and not need addressing, for many it is just how it has always been done and they have never really considered if it can be done differently, however for many businesses when comparing the first scenario to the second, over the course of a year it is not an exaggeration to say they may lose days or even weeks of valuable time, simply logging into different platforms or making phone calls just to move their funds around to settle for their trades. Their own funds could also be 'out in the ether' for days at a time. It can not only save time, but improve cash flow, make reporting easier, provide greater visibility of funds and save money on, or even completely eliminate bank charges.

Service:

For businesses or individuals with perhaps a lower FX requirement, which is more transactional in nature, the main consideration is can I speak to somebody quickly if I have a question or if things go wrong? With any currency broker this should be a given, the very point of their existence is to provide a better more specalised service than the high street banks. For those who are comfortable with what they are doing and are happy with a more basic level of support which is generally provided online, then some of the challenger bank providers such as Transferwise are a good option. If you are a business (or an individual) who make relatively infrequent payments of maybe a few hundred or few thousand pounds, the reality is fluctuations in the currency market, whilst still a consideration, are unlikely to have any meaningful impact on your bottom line. The newer Fintechs and challenger banks offer competitive and transparent pricing with a level of service which although basic and generally web based, is normally adequate enough in such circumstances. This is why for every £25 sent around the world £1 is sent with Transferwise. It is when the amounts start to get more meaningful that service starts to become a greater consideration and a basic web chat or FAQ page does not cut the mustard. When you consider exchange rates move every few seconds twenty four hours a day, when the amounts being transferred start to reach the tens of thousands and there is some flexibility on when they can be transferred, focusing just on the rate achieved is the very equivalent of not seeing the woods for the tree. For some, even in this situation their priority is still to achieve the best rate at the point they make the transfer, which is something Cornerstone FX can of course still help them do. For many businesses however, the one dimensional and transactional nature of fintech or challenger bank providers, irrespective of price, would actually be a detriment to their business. As a business or as an individual, if you are transferring five figure amounts then you should be engaging the services of a specialist provider like Cornerstone FX. The final consideration when it comes to service is whether your provider or potential provider is acting in your interests, or their own? A good provider will take the time to understand the impact of currency exposure on a business and their objectives when it comes to managing it. Is it an opportunity? A risk? Who is your competition? What are your margins relative to your FX exposure? That is really just a snapshot of the sort of understanding a good provider should have to be able to recommend the most appropriate solutions for you or your business. All too often the service provided by a specialist provider is based on their own interests rather than that of their client. If a broker is driven purely by revenue rather than client retention, then there will always be a conflict between doing the right thing for a client and making as much money as possible out of them. At Cornerstone FX we solve this issue by providing guaranteed margins and then focusing purely on client retention as a means of growth. We can do nothing to influence your actual FX turnover, therefore with guaranteed margins, encouraging our clients to trade or adopt strategies that are not right for them would be entirely counterproductive for us and for them. Focusing on understanding our clients and always doing the right thing for them is our sole focus.

Price:

Banks offer particularly poor pricing, with the emergence of more advanced payments technology and e-money licenses the need to use them has now greatly diminished. It is now no easier to use a bank but it is more expensive and with poor service to boot. Brokers and challenger banks (in most cases) offer significantly better pricing which is normally the first reason businesses or individuals look beyond their bank, to achieve a better price on their transfers. Challenger banks offer transparent pricing by way of a separate charge, suggesting their client is achieving the real exchange rate which of course they are not when the fee is factored in. There are a few considerations when assessing challenger banks and fintech providers when it comes to pricing and picking the right provider for you. At the outset the pricing they provided was almost too good to be true, backed by huge investment they were able to run at a loss while they grew their client bases to huge numbers. Much like Facebook, Instagram, Snapchat, Uber and Airbnb before them, like death and taxes, the need to actually make money has caught up with them. Their pricing is still good, and the transparency is a big positive when looking at which provider to use, however it is simply not as good as it was and can only really get worse if they are to become profitable, and if they IPO or are sold at any point this need will become magnified. Another consideration much like with companies such as EasyJet and Ryanair, are hidden costs and add ons. Some fintech providers offer attractive headline rates, but if you opt for a faster transfer then the fee can double. Because of our local settlement and collection options faster settlement comes as standard in all possible transfers with Cornerstone FX. Many people are now comfortable using challenger banks however they are not necessarily achieving the best price they can, they just assume they still are. The other consideration is the currencies you need to exchange. In the main converting to or from GBP in either EUR or USD with a challenger bank or fintech provider is still relatively good value, but when it comes to other currencies this is not necessarily the case. Some fintech providers charge over 2% for some less common currencies, when in reality there is no reason to charge anymore for them. If you have decided you would prefer or need the more specalised service of a currency broker the consideration you have when comparing them to a challenger bank on price is transparency. Often the only determining factor of the price you get from a broker is what they can get away with at the time. This can lead to a ridiculous scenario where a client feels they need to obtain prices from several brokers, then at the end of the process they go back to the provider who quoted the best price only for that provider to then take a wider margin anyway. Something which should be saving them time and money is actually costing them both. The other consideration is your margin changing over time. Many brokers adopt a similar approach to that of car insurance providers, offer a cheap price to get you through the door, then hope that apathy sets in at renewal as they widen it out. They might offer to beat any rate and give you a price that seems too good to be true, in the hope that you won’t notice as it gradually gets worse. All this can be solved very simply, with a provider such as Cornerstone FX that offer a guaranteed and transparent margin that will not change or get worse at any point.