What is Fintech?
Financial technology, otherwise known as Fintech, describes the growing use of new technology to deliver innovative financial products to both individual and business customers. Fintech companies compete directly with traditional banking services, to make financial transactions easier, quicker and more cost effective. The Fintech industry covers a wide area of financial services including lending, financial advice, wealth management, fund raising, insurance, money payments, currency transfers and retail banking.
Regulatory changes
Since the last banking crisis financial regulators, including the UK’s Financial Conduct Authority (FCA), have been exploring ways of increasing competition in the financial services sector. Their aim is to reduce the virtual monopoly enjoyed by the established banks and deliver more choice to consumers. Part of this strategy involved the creation of a regulatory environment that encourages Fintech firms to invest and deliver viable tech alternatives to traditional banking. Paradoxically, the banks themselves have been under investing in new technology and even pulling back from certain retail banking services. Initiatives such as Open Banking, which allows financial data to be shared amongst pre-approved financial institutions, will undoubtably shape the way in which we choose to run our financial lives in the future.
Banks’ foreign exchange dominance challenged
One area that has benefited from Fintech is the foreign exchange and international payments market. Having long been a very profitable line of business for the banks, transactions can now be routed through specialist FX brokers at significantly reduced cost. By cutting out the middlemen and using technology to process orders, brokers can provide their customers with much better prices.
Jamie Holmes, director of FX broker CurrencyWave explains: “For far too long, the banks have been able to command big margins on their foreign exchange business largely due to a lack of transparency in the market. This allows them to hide charges within the exchange rates they pass on to their customers. Even worse, there are no regulatory obligations on the bank to disclose just how significant those charges are”.
For Fintech firms like CurrencyWave, there is an opportunity to squeeze value out of the payment process for their clients whilst at the same time improving the customer user experience. Their platform shows not only live exchange rates but also displays wholesale interbank rates for instant comparison. Real-time transaction updates, free SWIFT payments and currency risk management are just some of the other benefits available.
Currency transactions for businesses and individuals
Large corporations have always had the financial buying power to access near wholesale exchange rates in the forex market. The new generation of specialist FX firms are now giving SME sized business and individuals the opportunity to transact on similarly competitive terms.
For business, these services can be invaluable for transactions such as: –
- Paying overseas suppliers
- Import/export payments
- Sending funds to/from an overseas subsidiary
- Buying plant/machinery/property overseas
- Acquiring/selling foreign businesses
- Repatriating foreign currency receipts
For individual clients, uses include: –
- Buying or selling an overseas property
- Currency transfers for the purchase of cars, yachts, antiques and other imports
- Paying overseas tuition fees
- Emigration and repatriation costs
- Conversion of overseas salary, pension and mortgage payments
- Conversion of rental income on property owned abroad
Significant savings to be made
CurrencyWave regularly reviews the exchange rates that are available through the main high street banks and publishes a comparison table on its website. Particularly for higher value payments, it reveals just how significant the savings can be. For example, taking the exchange rate offered by the most expensive high street bank can mean paying up to £1,000 more on a €65,000 payment.
When choosing a specialist currency broker, it is important to use only those platforms that are authorised by the FCA and can offer complete transparency of charges and consistency of rates.
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