The speed was so great, and the transformation so total, that it’s sometimes hard to remember what banking was like before the digital revolution.
Digital banks such as Monzo and Revolut have seemingly come from nowhere to be leading players in a highly regulated industry that until recently regarded chip and pin payment cards as the last word in technological innovation.
The digital upstarts quickly won praise, and huge numbers of users, with their seamless customer experience. A recent survey by the consumer group Which? ranked Monzo, along with other app-based lenders Starling Bank and Triodos, as best for customer satisfaction and mobile apps. By contrast, traditional retail banks languished far behind in the ranking.
If you have an issue with your conventional high street bank, the chances are you’ll endure a long wait to talk to someone in a call center. Yet with digital banks, most customer service issues can be resolved quickly, and at the touch of an app. It’s no coincidence that the neobank N26 was named the best bank in the world by Forbes last year.
Winds of change
These disruptive winds of changes have blown through a series of other financial services too. Klarna has risen to become a giant player in the world of buy now, pay later lending. The Swedish payments firm is currently valued at $46 billion, making it Europe’s biggest fintech unicorn.
Meanwhile in the consumer foreign exchange (FX) space, Wise (formerly Transferwise) has revolutionized international money transfers by charging a flat, low fee for each transfer, rather than an opaque exchange rate mark-up.
And finally, Stripe, the brainchild of two Irish wunderkind brothers, has streamlined the processing of payments so that transactions can be integrated effortlessly into a customer’s online experience.
By contrast, the commercial FX sector has proved stubbornly resistant to innovation and the benefits that new ideas and technology can bring. In fact, its biggest players still look and act much like the high street banks did before the digital revolution forced them to change.
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Targeting transparency
Despite regulation that is supposed to protect the interests of customers, commercial FX is still crying out for more transparency and competition. Instead, it is too often opaque, a closed shop in which rival FX brokerages woo clients with the promise of ultra-low fees and supposedly razor-thin commissions, but seldom reveal what they’re actually charging.
This lack of transparency is even worse when it comes to forex hedging – a more sophisticated service that enables businesses that trade regularly with foreign countries to protect themselves from the exchange rate volatility.
Company Finance Directors and their teams who want to hedge their currency exposure invariably find it to be an analog experience, with sales conducted largely at the end of a phone.
This archaic business model means the client has no visibility of the actual market rates. As a result, in a darkly ironic twist, their desire to project themselves from exchange rate risk may also open them up to the risk of shady practice by their broker.
Once a broker has established a rapport with a client and conducted a few trades there is nothing to prevent them from, almost imperceptibly, edging up their commission rate. Of course, when the client eventually realizes that their FX trades are costing them more than they should, they tend to move to a rival broker, where this merry-go-round of trust begins again.
This depressing cycle costs businesses time and money unnecessarily.
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It’s time to break that cycle. Customers deserve clear and fixed pricing, in which the commission rate will stay the same for every transaction. And, inspired by the digital banks, commercial FX must be brought into the 21st century; where customer experience is paramount, clients can trade in seconds and are guaranteed a rapid and effective response around the clock.
Only through digital disruption can clarity and genuine competition be brought to the commercial FX sector. The revolution is long overdue.
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