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The Future of Cross Currency Payments

Banks Help Corporates Respond to Rising Volume, Risk, and Innovation

The landscape of cross currency payments is taking on a whole new look — creating challenges for corporate financial managers and the need for new banking solutions.

 

The volume of cross-border payments, particularly transactions in the $500 to $500,000 range, keep escalating for a variety of reasons. Global trade continues to recover, spurred on by new trading routes and alliances. Borderless e-commerce is on the upswing, along with cross-border business-to-consumer payments, due to workforce mobility and the fact that more companies are using foreign contractors and outsourcing overseas. In addition, new global business models — like those of web-centered businesses Airbnb and Booking.com — are contributing to the growing volume of these payments.

 

One illustration of this growth can be seen with the tremendous rise of borderless e-commerce. PayPal estimates that online shoppers spend over $300 billion a year across borders, up from $105 billion in 20131.

 

At the same time, the FX volatility associated with these payments has continued to grow, due to economic and political uncertainties, central bank interventions, ambiguity in Europe and the long-term strengthening of the U.S. dollar. Many of the “safe haven” currencies deemed as major currencies generally associated with less volatility have continued to fluctuate significantly, with some losing over 30%2 of their value over the last two years, as can be seen with EUR and CAD versus USD with exotics fluctuating much wider.

Payments risk viewed as a growing concern

 

Even as the volume of small- and mid-sized cross-border payments has been climbing, very few companies have been actively managing the FX volatility associated with such payments. It hasn’t been a major focus of corporations for a few reasons. One reason is that the relevant transactions — often payments to global supply chain partners — are typically handled by Procurement or Accounts Payable teams, which aren’t primarily focused on risk management. The cross-currency component of these transactions is treated as a byproduct of the payment process, rather than as a priority.

“
Even as the volume of small and mid-sized cross-border payments has been climbing, very few companies have been actively managing the FX volatility associated with such payments. ”

It also doesn’t help that managing and hedging high volumes of smaller payments is perceived as inefficient, both in terms of cost and the internal work flow changes that are required.

 

This inattention to FX volatility risk is increasingly being viewed as a problem, particularly as more and more CFOs and treasurers are required to explain to shareholders the impact that such volatility is having on earnings.

Payments innovation also requires a response

Along with the growing volume of cross currency payments and the need to manage the associated risk, corporate financial managers are facing decisions and challenges related to the incredible amount of innovation that’s occurring — and the opportunity to better manage payments that it presents.

We are seeing a proliferation of new technology and payment methods — from myriad digital wallet alternatives around the world, to “push-to-card” options like Visa Direct and Mastercard MoneySend, to blockchain technology and virtual currencies — as well as the emergence of numerous non-bank payment providers, who are creating innovative e-payment options, but which still ride on the rails of traditional bank or card payments.

 

How will the new technology and providers impact the ability to manage the risk associated with the rising volume of everyday cross-border payments? How will banks support corporates as they attempt to seize the opportunities presented by “disruptive” payments technology? And how will banks participate in future innovation in support of their corporate clients?

“
This inattention to FX volatility risk is increasingly being viewed as a problem, particularly as more and more CFOs and treasurers are required to explain to shareholders the impact that such volatility is having on earnings. ”

Banking solutions in the works

Banks are responding to these changes in the cross currency payments landscape by working on tools that will enable corporate clients to better manage payments risk, including FX volatility risk, as well as leverage new technology to speed up payments and allow businesses to better serve customers and vendors. Solutions in various stages of development include:

 

Integration of currency trades with payment work flows.

 

Today, most banks offer separate online tools for booking an FX trade and initiating a cross-border payment. Bank efforts to integrate these tools are aimed at enabling payments to clients to more easily engage in hedging without sacrificing the efficiency for making high volumes of cross-border payments.

 

For example, a U.S. company that has 100 employees in London knows in advance exactly how many pounds it must pay out to them on a monthly basis. With new integrated tools, that U.S. company will be able to go online each month and enter into a forward contract that locks in the number of dollars it will need to purchase those pounds, in order to mitigate FX risk, and use the same portal to execute delivery of the payments using the most efficient method, such as a cross-currency ACH payment.

 

FX rate lock-in/guarantee for longer tenors.

 

Banks want to enable clients to lock in spot FX rates for a longer tenor without having to use a derivative product (like a forward, swap or option) that they would need to record in their annual statements. This will allow clients to expand more freely, while mitigating exposure to FX volatility risk in a systematic fashion for their high volumes of low-value payments. This should reduce the worry usually associated with high quantities and large values of cross-border payments which can be a make or break decision for a product launch or for a global expansion effort.

“
Banks are responding to these changes in the cross currency payments landscape by working on tools that will enable corporate clients to better manage payments risk, including FX volatility risk, as well as leverage new technology to speed up payments and allow businesses to better serve customers and vendors. ”

Enabling bank payments to be delivered via consumer-directed channels (no bank account required).

 

The idea is to change the paradigm from corporates asking their bank to make a payment by wire, ACH or check, to asking the bank to make a payment to a certain party by using whatever payment channel the consumer wants or is best suited for their needs, regardless of where they are located. Such delivery channels could include a push-to-card technology, delivery via digital wallet. This new frontier will potentially open additional borders and create an easier experience for consumers in the long term.

 

Better consultative support for developing payment migration strategies.

 

All of the new payment methods and channels can be dizzying. Banks are developing consulting capabilities to assist clients in deciding, for each payment, which instrument and which currency they should be using. For instance, when does it make sense for a company to migrate from making a particular payment via a U.S. dollar wire to making it via an FX wire — or from a cross-currency draft to a cross-currency electronic payment? And should the company use an existing method or one of the new emerging payment channels?

 

New payment rails leveraging blockchain and other new technologies.

 

The drive to move money instantly yet securely has the payment industry looking beyond traditional payment clearing rails for wires, low-value electronic payments, cards and checks. Banks are involved in the discussion about what new rails might look like, and seeking practical applications to streamline workflows and accounting needs associated with cross-border payments using blockchain technology.

 

Indeed, the coming year promises to be a busy one for banks committed to global payment services, as they engage in not only their own product development, but also cooperative efforts with other banks as well as non-bank payment providers to support emerging corporate needs.

 

 

 

 

1 WePay’s Cross-Border Payments Strategy,” PYMTS.com, Feb. 12, 2015.

2 Oanda.com Historical rates 1-14-2014 to 1-14-2016.

Key Takeaways

  • The landscape of cross currency payments is taking on a new look creating challenges for corporate financial managers.
  • We see a proliferation of new technology and payment methods and the emergence of numerous non-bank payment providers, who are creating innovative e-payment options.
  • The drive to move money instantly yet securely has the payment industry looking beyond traditional payment clearing rails.

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Certain hyperlinks on the Sites may link websites maintained by the Affiliates, which are not to be considered a part of the Sites. Certain other links on the Sites to non-affiliated third-party sites may contain information over which we have no control. We take no responsibility for the content, accuracy, content, completeness, timeliness, current value or any aspect of the information on these sites and disclaim any liability to Client for it or for any consequence of your decision to use the links provided or your use of such information. Links to non-Bank of America sites do not imply any endorsement of or responsibility for the opinions, ideas, products, information or services offered at such sites, or any representation regarding the content at such sites. We also disclaim all liability and make no representations or warranties for any products or services sold or provided to Bank of America or its Affiliates by any third party. Your purchase of products or services through one of those other sites is subject to agreements and/or the terms and conditions in effect between Client and the providers of products and services at those other sites. Client agrees that it shall not bring a suit or claim against Bank of America or its Affiliates arising from or based on your purchase or use of products or services through those other sites. Links do not imply that Bank of America, its Affiliates or the Sites sponsors, endorses, is affiliated or associated with, or is legally authorized to use any trademark, trade name, logo or copyright symbol displayed in or accessible through the links, or that any linked sites is authorized to use any trademark, trade name, logo or copyright symbol of Bank of America or its Affiliates.

CONTENT AND SERVICE AVAILABILITY

Bank of America or its Affiliates may make changes to the Sites and reserves the right to do so without prior notice to you. Client acknowledges that not all products and services listed or discussed in the Sites are available in all geographic areas. Your eligibility for particular products and services is subject to final determination and acceptance by Bank of America or its Affiliates.

CONSENT TO ELECTRONIC DELIVERY

You agree to receive certain documents and information provided by Bank of America and its Affiliates through the Sites and/or through email provided to you via the Sites. This delivery will generally consist of certain Content on the Sites, and certain other documents relating to Bank of America and its Affiliate’s business. This electronic provision and delivery will be regarded by you as appropriate delivery pursuant to any delivery requirements under the various statutes and rules, where applicable, of the Securities and Exchange Commission, the National Association of Securities Dealers and any state or other jurisdiction. You acknowledge that you have the appropriate technological equipment to use the Sites and to receive email via the Internet and understand that your use of the Internet may incur certain operational costs such as monthly fees for a service provider. You agree to notify Bank of America or the applicable Affiliate in the event that you no longer desire to receive content through this delivery procedure and will allow a reasonable amount of time to permit proper delivery to you through other means.

NO WARRANTY

Client acknowledges that any information provided through the Sites is not intended to be a recommendation, offer or solicitation of any particular products or services. In addition, all research, analysis and similar market information from non-affiliated third parties provided represent the views and opinions solely of the author or the indicated source. Bank of America and its Affiliates do not independently verify the accuracy or completeness of such information, nor does Bank of America and its Affiliates endorse any particular views expressed therein. Except for offering memoranda, Bank of America and its Affiliates disclaim any liability to Client for this information or for any consequence of your decision to use it. Client agrees that it shall independently confirm any such information presented through the Sites before relying on such information. Bank of America, its Affiliates and their respective employees, contractors, agents and various contributors to the Sites have no duty to correct or update any inaccurate or out-of-date information on the Sites.

Client acknowledges that it is acting for its own account, and it has made its own independent decisions to enter into a Transaction and as to whether a Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisors as it has deemed necessary. Client is not relying on any communication (written or oral) of Bank of America or its Affiliates as investment advice or as a recommendation to enter into a Transaction; it being understood that information and explanations related to the terms and conditions of a Transaction shall not be considered investment advice or a recommendation to enter into that Transaction. Further, Client has not received from Bank of America or its Affiliates any assurance or guarantee as to the expected results of a Transaction.

COMPLIANCE WITH LAWS AND INDEMNITY

The Sites may be used only for lawful purposes. Client’s conduct may be subject to local, state, national and international laws. Client agrees that it and any of its Authorized Persons shall comply with this Agreement, applicable laws, rules, regulations, ordinances and other similar national and international requirements of the country, state and province in which you are accessing and using the Sites.

Client agrees to abide by applicable export control laws and not to transfer, by electronic transmission or otherwise, any content on the Sites subject to restrictions under such laws to a national destination prohibited under such laws, without first obtaining, and then complying with, any requisites government authorization. Client further agrees not to upload to the Sites any data or software that cannot be exported without prior written government authorization, including, but not limited to, certain encryption software. This assurance and commitment shall survive termination of these Terms and Conditions. Offices, residents and operations of your organization in Cuba, Iran, Iraq, Libya, North Korea, Sudan, Syria and any other countries that are the subject of sanctions by the United States Office of Foreign Asset Control or other general U.S. embargo restrictions are not permitted to access and use the Sites, and any such access and use is a violation of these Terms and Conditions.

Upon request by Bank of America or its Affiliates, you agree to defend, indemnify and hold harmless Bank of America, its Affiliates, their officers, directors, employees, agents, contractors or other suppliers from all liabilities, claims and expenses, including attorneys fees, that arise from a breach of these Terms and Conditions for which you are responsible, or from third-party claims arising from your use of the Sites. Bank of America and its Affiliates reserve the right to assume the exclusive defense and control of any matter otherwise subject to indemnification by you. Notwithstanding the foregoing, you are not required to indemnify Bank of America or its Affiliates for its own violations of applicable laws.

  • FOR RESIDENTS OF BRAZIL:

    The information contained here does not constitute a public offering or distribution of securities in Brazil and no registration or filing with respect to any securities or financial products available on the Sites has been made with Commisao de Valores Mobiliarios.

  • FOR RESIDENTS OF CANADA:

    The information contained here does not constitute a public offering or distribution of securities in Canada or any of its provinces. No registration or filing with respect to any securities or financial products available on the Sites has been made with any regulatory agency thereof.

  • FOR RESIDENTS OF FRANCE:

    The Sites do not constitute a solicitation to enter into a transaction involving financial instruments, is not being distributed in the context of a public offer in France within the meaning of Article L. 411–1 of the Monetary and Financial Code, and has thus not been submitted to the COB for prior approval and clearance procedure. Any offers, sales or distribution of financial instruments through the Sites shall only be made in France to qualified investors (investisseurs qualifi?s) as defined in and in accordance with Article L. 411-2 of the Monetary and Financial Code and d?cret no. 98–880 dated 1st October, 1998. The contents of the Sites may not be redistributed or reproduced (in whole or in part) by any User. The Sites are made available with the understanding that Users will make investment decisions for their own account with the conditions set out in d?cret no. 98–880 dated 1st October, 1998. By using the Sites, Users undertake not to transfer, directly or indirectly, any financial instrument acquired through the Sites to the public in France, other than in compliance with applicable laws and regulation. Services hereunder may be provided by Banc of America Securities, Limited, as agent or otherwise.

  • FOR RESIDENTS OF GERMANY:

    The Sites are made available only to professional investors as such term is defined in the Securities Sales Prospectus Act.

  • FOR RESIDENTS OF HONG KONG:

    Access to the Sites is by invitation only to institutional investors. No information or material contained in the Sites is or should be construed as amounting to an offer to enter into any transaction or investment whatsoever. The information on these Sites is provided by the Hong Kong branch of Bank of America, N.A., and is compiled from information prepared by subsidiaries and affiliates of Bank of America Corporation. Your agreement for the use of this Site is with the Hong Kong branch of Bank of America, N.A.

  • FOR RESIDENTS OF IRELAND:

    Access to the Sites is by invitation only to professional investors.

  • FOR RESIDENTS OF ITALY:

    Access to the Sites is by invitation only to professional investors as defined in article 31 of CONSOB regulation no. 11522 of July 1, 1998.

  • FOR RESIDENTS OF JAPAN:

    Access to the Sites is by invitation only to financial institutions as defined under the Law Concerning Foreign Securities Firms.

  • FOR RESIDENTS OF KOREA:

    Access to the Sites is by invitation only to professional investors with a valid password. The information contained here does not constitute a public offering or distribution of securities in Korea.

  • FOR RESIDENTS OF NETHERLANDS:

    Access to the Sites is by invitation only to professional market parties as defined in the Dutch Securities Transactions Supervision Act 1995. Securities or other instruments on these Sites are only offered to professional market parties.

  • FOR RESIDENTS OF SINGAPORE:

    Access to the Sites is by invitation only to institutional investors. The information contained here does not constitute a public offering or distribution of securities in Singapore. The information in these Sites is provided by Bank of America Singapore Limited and is compiled from information prepared by subsidiaries and affiliates of Bank of America Corporation. Your agreement for the use of these Sites is with Bank of America Singapore Limited.

LIMITATION OF LIABILITY

THE FOLLOWING LIMITATIONS OF LIABILITY IN THIS SECTION SHALL NOT APPLY TO VIOLATIONS OF LAWS RELATING TO THE OFFER AND SALE OF SECURITIES. YOU ACKNOWLEDGE THAT NEITHER Bank of America, ITS AFFILIATES NOR THEIR OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, CONTRACTORS OR OTHER SUPPLIERS MAKES ANY WARRANTIES OR GUARANTEES WITH RESPECT TO THE SITES, INCLUDING WITHOUT LIMITATION, WARRANTIES REGARDING THE ACCURACY OR COMPLETENESS OF ANY CONTENT, OR WARRANTIES OF MERCHANTABILITY, NON-INFRINGEMENT OF INTELLECTUAL PROPERTY, TITLE OR FITNESS FOR A PARTICULAR PURPOSE. Bank of America, ITS AFFILIATES AND SUCH PERSONS SHALL NOT BE LIABLE TO YOU FOR ANY LOSS, COST, DAMAGE OR OTHER INJURY, WHETHER IN CONTRACT, TORT, NEGLIGENCE OR OTHERWISE, ARISING OUT OF OR CAUSED IN WHOLE OR IN PART BY (I) CLIENT'S USE OF OR RELIANCE ON THE SITES, OR (II) Bank of America’s PERFORMANCE OF ITS OBLIGATIONS UNDER OR IN CONNECTION WITH THESE TERMS AND CONDITIONS. Bank of America DOES NOT REPRESENT, WARRANT OR GUARANTEE THAT THE SITES WILL BE FREE FROM ERRORS OR WILL BE AVAILABLE. FURTHERMORE, Bank of America WILL NOT BE LIABLE FOR ANY DELAY, DIFFICULTY IN USE, INACCURACY OF INFORMATION, COMPUTER VIRUSES, MALICIOUS CODE OR OTHER DEFECT IN THE SITES, OR FOR THE INCOMPATIBILITY BETWEEN THE SITES AND FILES AND THE USER'S BROWSER OR OTHER SITES ACCESSING PROGRAM. NOR WILL Bank of America BE LIABLE FOR ANY OTHER PROBLEMS EXPERIENCED BY THE USER DUE TO CAUSES BEYOND THE Bank of America’s CONTROL. IN NO EVENT WILL Bank of America, ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, CONTRACTORS OR OTHER SUPPLIERS BE LIABLE TO YOU OR ANY THIRD PARTY FOR ANY PUNITIVE, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR SIMILAR DAMAGES, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.

Because some states or jurisdictions do not allow the exclusion or limitation of liability for certain damages, in such states or jurisdictions, the liability of the Bank of America, its officers, directors, employees, agents, contractors or other suppliers shall be limited in accordance with this agreement to the extent permitted by law.

Neither Bank of America, its Affiliates nor any of their officers, directors, employees, agents, contractors or other suppliers shall be liable in any way, and you agree to indemnify and hold harmless Bank of America, its Affiliates and such persons for (1) any inaccuracy, error, or delay in, or omission of (a) any information on the Sites, or (b) the transmission or delivery of any information on the Sites; (2) any loss or damage arising from or occasioned by (a) any such inaccuracy, error, delay, or omission, (b) non-performance, (c) interruption of use of the Sites due either to any negligent act or omission by Bank of America, its Affiliates, their officers, directors, employees, agents, contractors or other suppliers or to any "force majeure" (i.e., flood, extraordinary weather conditions, earthquake, or other act of God, fire, war, insurrection, riot, labor dispute, accident, action of government, communications, power failure, or equipment or software malfunction) or any other cause beyond the control of the Bank of America, its Affiliates, their officers, directors, employees, agents, contractors or other suppliers. You understand that Bank of America accepts no responsibility for security of information on the Internet.

UK CONDITIONS

Banc of America Securities Limited has approved the Sites for the purpose of Section 57 of the Financial Services Act of 1986. Banc of America Securities Limited is regulated for the conduct of investment business in the United Kingdom by the Securities and Futures Authority Limited. No access to the Sites shall be given in the United Kingdom to Private Customers, as that term is defined under the rules of The Securities and Futures Authority Limited; and any investments will not be made by us to any Private Customer.

CHANGES TO AGREEMENT

Bank of America may make changes to this Agreement at any time, without prior notice to you. Your continued use of the Sites indicates your continued agreement to be bound by this Agreement, as changed from time to time. You should view these Terms and Conditions often to stay informed of changes that may affect you.

GOVERNING LAW

This Agreement shall be governed by and construed under the law of the State of New York and the Federal law of the United States. You hereby consent and submit to jurisdiction in the Federal or state courts of the State of New York, U.S.A. You hereby irrevocably waive your rights to a jury trial.

THIRD-PARTY LICENSORS

The Sites may, from time to time, provide Client with various licensed programs ("Licensed Programs") from third-party vendors ("Vendors") which have been licensed by Bank of America for Client use and/or which require Client to sign a third-party license agreement ("License Agreement"). In using the Licensed Programs, Client agrees that it will

  • protect any confidential information of Bank of America, its Affiliates or Vendors contained in the Licensed Programs;
  • restrict the use of the Licensed Programs by Client solely to conditions agreed upon in the Agreement and the License Agreement;
  • restrict the copying of Licensed Programs to that number reasonably required for Client use and backup purposes
  • include Bank of America and Vendor copyright and all other proprietary notices in the use of all Licensed Programs;
  • prohibit the sale, relicensing, leasing, rental, lending and transferring of Licensed Programs;
  • prohibit, and take reasonable measures to prevent, the decompiling, disassembly, reverse engineering or modification of Licensed Programs;
  • comply with all export laws in respect of Licensed programs;
  • disclaim any liability on the part of Vendors for damages, liabilities, costs or expenses incurred by Client in the use of License Programs; and
  • make all vendors a third-party beneficiary of all Client waivers, disclaimers, limitation of liabilities, confidentiality and IP provisions contained in the Agreement.

BOFA SECURITIES, INC. – FURTHER INFORMATION

"Bank of America Merrill Lynch" is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation ("Investment Banking Affiliates"), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BofA Securities, Inc. and Merrill Lynch Professional Clearing Corp., all of which are registered as broker-dealers and members of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. BofA Securities, Inc. and Merrill Lynch Professional Clearing Corp are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed.

© 2021 Bank of America Corporation.

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