One of the key obstacles to profitability for a corporate banking franchise can be the use of a middleman, a multibank platform (MBP), to obtain liquidity from the bank. MBPs charge a significant fee for the service of connecting buyers and sellers and, for some banks, this fee can be one of the biggest costs of doing business, impacting revenue from FX. According to Stead, this gives neither banks nor corporates a fair deal. “These hidden costs to the banks are huge, making some corporate business almost unprofitable,” he says. “Although the costs to corporates seem low, in fact, they are hidden. Some bank costs inevitably trickle down to corporates. Conflicts of interest faced by MBPs earning money from each trade mean that they favour or promote high revenue feeds, and some liquidity providers may not be available if they are seen as competitors.”
Ludovic Blanquet notes that banks are becoming smarter at concentrating their FX flows across all activities (retail, SME, wealth, corporate, lending, import/export financing and cross-border payments). Because of this, he expects new workflows and services to emerge, such as auto hedging of forecasted cashflow for corporates, lower payment fees on monthly recurring cross-border payments and structuring of the FX components of import/export financing.
“smartTrade is keeping track of all of these market developments”, he says. “We are engaging with our customers to develop the tools required to cater to the evolving needs of their clients.”
John Stead is keen to point out that smartTrade is a signatory to the FX Global Code – common sense guidelines and procedures for vendors, banks and all market participants should adhere to as they grow their businesses. smartTrade is committed to two key principles of the code: to abide by its spirit and letter, and to provide technology and solutions that enable clients to do the same. To that end, smartTrade’s procedures and processes are specifically designed to minimise risks to counterparties. “That should also be good for business overall,” says Stead, “which is a win-win for all parties.”