Driving the Digital Reinvention of Transactional FX 

By Gregory Edwards, Global Head of Transactional FX, HSBC and Les Radvanyl, Director - Foreign Exchange, HSBC Canada

Whilst the banking industry continues to embrace digitalisation, corporate treasurers continue to face multiple challenges in supporting their expanding international operations. While each organisation will have different priorities, treasurers are typically seeking to simplify and improve efficiency in managing foreign currency operations, protect the business against the impact of currency fluctuations, achieve price transparency, and manage operational risks. Accessing effective, convenient and transparent foreign exchange services is key to achieving these objectives, including managing foreign currency payments and collections efficiently. 

 

While these objectives are likely to be similar for all organisations operating across markets, from the largest multinationals through to emerging microbusinesses, there are clear differences in the resources and technology they have to address them. Solutions combining advanced, scalable market technology with specialist FX expertise can be a vital way to overcome these challenges. Furthermore, these solutions present entirely new opportunities, leveraging both new and existing technologies to create new business models and potentially new treasury models.

Drivers of digitalisation in banking and applications in FX

A recent McKinsey report [1] reveals that twice as many leading companies closely align their digital and corporate strategies than those that don’t, and winners tend to respond to trends in digitisation by changing their corporate strategies significantly. Digital investment can be an important differentiator, not only in the efficiency of an organisation’s internal processes, but also the way it engages with, and offers solutions to its customers. HSBC has placed digitalisation at the heart of its corporate strategy, transforming systems, processes, solutions and customer service models to offer unique client offerings and playing a leadership role in the digital banking agenda.

There are a variety of factors that together have acted as a catalyst for the bank to embark on this digital transformation, not only within the bank, but also to support the customer journey.

Firstly, customer expectation has evolved, particularly given the impact that digitalisation is having on the way that individuals and businesses consume products and services, communicate and collaborate.

Secondly, in an environment of increasing regulation and compliance requirements, combined with the critical need for efficiency and security, digitalisation enables the bank to fulfil these essential requirements in a cost-effective, robust way. 

Thirdly, technology has a major role to play in areas such as FX services, a key activity for HSBC, in order to increase speed and convenience of execution, reduce costs, and enhance transparency and reporting.

The first point is partly inspired by a generation of emerging technology companies, including fintechs, who are using new and alternative deployments of established technologies to challenge and push the boundaries of established business practices. While technology innovation and entrepreneurship associated with smaller fintech companies is just as apparent amongst large international banks, the delivery challenge is far greater. HSBC’s customers expect consistent processes and reporting, and a cohesive experience globally, rather than fragmented solutions that may offer excellent functionality but lack global applicability or integration capabilities. The task for HSBC has therefore been to harness the best in technology design, functionality and integration, whilst creating a cohesive customer experience globally.

Digital innovation in context: FX made easier

While innovative technology is often exciting and challenging, it can offer genuine value where it solves a problem or creates opportunities that did not exist previously. FX is an area that offers potential opportunities for automation and transparency, which over the long term could help many corporations achieve transparency and better understanding of their operations. While every organisation’s – and indeed every customer’s – needs, preferences and priorities will differ, HSBC has worked extensively with customers to understand the key characteristics of FX technology that they value the most, and what has the greatest positive impact on their experience of working with the bank. This ongoing analysis reveals that customers are seeking:

• Simplicity and speed. Customers are looking for technology that is easy to use, to simplify and accelerate processes.
• Reliability and standardisation. Solutions need to be robust and consistent across countries, regions, organisational structures and technology infrastructures so that different treasury centres, business units and mobile users can rely on consistent processes and reporting in each location.
• Real-time 24/7 FX rates. With the extent of change that is taking place in international commerce and the evolution of the payments landscape, it is no longer sufficient for treasurers to receive daily FX rates for cross-border payments and FX conversions. Instead, they are looking for dynamic rates to allow more precise funding and hedging.
• Tailored cost structures. Given the diversity of corporate FX requirements, customers expect this to be mirrored in cost structures that are appropriate to the currency, amount and channel, and therefore reflect their business needs more precisely.
• Transparency of FX rates. Visibility over FX rates is a key objective for corporate treasurers both for accounting, audit and best-value purposes: in fact, in many cases, visibility and auditability can be more important than the rate itself. 

 

Note
1  ‘The Case for Digital Reinvention’, Jacques Bughin, Laura LaBerge, Anette Mellbye, McKinsey. McKinsey Quarterly. February 2017.

 

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HSBC’s innovative transactional FX offering includes  a number of strategic solutions that ultimately help clients to support their diverse and evolving requirements, whether seeking to optimise sales, make irregular payments in a handful of currencies, or manage a large volume of complex exposures globally:

• Dynamic Currency Conversion - a solution that presents the end customer’s currency at the time of payment or checkout;
• Multi-Currency Pricing - a popular solution that displays the end customer’s currency throughout the entire browsing and payment journey, typically based on the user’s IP address or self-selection;
• HSBC Global Disbursements – allows clients to make cross-border payments in more than 120 local currencies from a single operating account;
• HSBCnet Get Rate - enables clients to view and instantly book FX rates for priority payments and inter-account transfers in real-time.

HSBC is well-positioned to develop and deliver a wide range of innovative, currency and payments tools that offer comprehensive client solutions. In particular, these solutions rely on a high degree of interaction and co-operation across different business lines, leveraging a combination of the bank’s long-standing expertise in foreign exchange markets, the technological strength of the liquidity and cash management business, and a collaborative approach.

 

Spotlight on Canada: HSBC’s FX solutions in practice Corporations headquartered in, or with significant activities in Canada, value HSBC’s footprint across 70 countries globally, including supporting major trade corridors, whether north-south, east-west, or increasingly within Asia. Illustration #1. Multi-currency, high volume payments. A Canadian corporation that operates in Canada, the US and the UK launched an RFP process for a foreign currency payment solution. The company has a large volume of low value payments, which ultimately created significant FX exposure, but it was difficult to hedge this exposure via conventional FX transactions due to the potential timing mismatch and difficulty in applying hedge accounting treatment.  Treasury selected HSBC as its FX partner bank, although it was not the company’s key relationship bank, due to the bank’s ability to offer FX evolve across these markets, the solution’s robustness and price transparency, and high quality support across all three locations. Having implemented FX evolve, the company has eliminated FX exposures whilst reducing costs and errors. Illustration #2. Blended solution. A second corporation was attracted to the ability to combine HSBC’s FX solutions by obtaining upfront FX rates each day which was then applied to foreign currency payments throughout the day. This provides the treasurer with complete visibility and control over FX rates, enabling them to make the decision of whether to convert foreign currency amounts through the FX markets or leverage HSBC’s FX evolve solution for foreign currency payments.

Anticipating the direction of digitalisation 

HSBC’s investment in transactional FX innovation is not a one-off initiative but these solutions must reflect the changing financial environment. Until now, payments have been made during designated processing windows according to the currency and clearing system. Consequently, FX exposures are created, funded or hedged within these same time periods. Today, individuals and businesses buy and sell around the world, 24/7. Payment systems and instruments are evolving as a result, with instant, 24/7 payments processing becoming a reality. For example, faster or instant payments are already in use in countries such as UK, Sweden and Singapore, with initiatives also in place for euro instant payments (SCTinst), Canada and the United States amongst others. Furthermore, cross-border payments are also under the spotlight, such as SWIFT’s global payments innovation (gpi) initiative. These changes in the payments landscape have an impact on FX, as businesses need to manage exposures far more dynamically than in the past. 

As people rethink the way they do business and interact with each other in an increasingly international, technology-driven world, their digital needs will continue to evolve. Furthermore, the ‘need for speed’ will become ever more important to enable faster decision-making and more precise liquidity and risk management. Delivering on customer demand for convenience, simplicity, speed and security will continue to underpin HSBC’s digital strategy, across the full spectrum of the bank’s customers, from individuals through to the world’s largest corporations. 

For more information, please visit www.gbm.hsbc.com/dealing-room-of-tomorrow  

 

Gregory Edwards Global Head of Transactional FX, HSBC Greg Edwards is Global Head of Transactional FX at HSBC, heading a front-to-back team of dedicated professionals delivering client integrated solutions for cross currency payment requirements.   Before joining HSBC in 2014, he worked at Deutsche Bank, where he was latterly Head of eFX sales and distribution for Europe for over six years.  He has extensive experience in FX, having worked in North America and Europe focusing on customised FX risk management, eCommerce solutions and FX advisory services.   He  is also a Trustee of African Wildlife Foundation and Girry Giraffe Trust.

 

Les Radvanyl Director- Foreign Exchange, HSBC Canada  Les is Director - Foreign Exchange at HSBC Canada. He joined the bank 23 years ago, with a focus on foreign exchange, and has since held various roles spanning trading, corporate and institutional sales. He also led the implementations of various electronic foreign exchange systems and solutions for HSBC Canada.