The foreign currency exchange market, a fundamental part of the global economy that enables cross-border trade and international travel, has historically been dominated by banks. Substantial regulatory hurdles, technical infrastructure requirements, and a mandate for ample liquidity have kept the competition out. That is until FinTech came along.
New players have upended some of the industry’s fundamentals with innovative foreign exchange software that significantly lowers operational costs by cutting out the middlemen and using technology to process transactions. For a market with a global daily turnover of $6.6 trillion and rising, even the smallest change in margins significantly impacts the bottom line.
Source: Bank for International Settlements
To this day, only a few banks offer rates close to the interbank rate to their customers. Outdated currency exchange solutions used by incumbents do not allow customers to see and use a real live exchange rate. The vast majority of banks set a daily exchange rate with a widespread to compensate for daily fluctuations. Poor rates, hidden fees, and lack of transparency result in a poor customer experience.
While banks focused on passing high costs arising from outdated technology onto consumers, FinTech software providers like SDK.finance want to help make currency exchange as seamless and cheap as possible. Their white-label currency exchange software, for example, enables clients and their customers to exchange money using live rates, improving transparency, user experience, and cost-effectiveness.
The public health crisis triggered by COVID-19 has led to significant fluctuations in currencies worldwide. Countries are adapting their monetary and fiscal policies to counteract the pandemic’s economic consequences that have a considerable impact on exchange rates. Sharp movements in currency due to uncertainty, policy shifts, and trade changes affect consumers as well as banks.
As customers look for more cost-effective ways to trade with overseas clients, incumbent banks with legacy currency exchange solutions and high costs will likely lose market share to more agile newcomers. Revolut, a UK-based challenger bank, has already attracted millions of customers with free and instant exchanges using live interbank rates.
How do currency exchange services make money?
Banks, brokers, and other financial companies can transfer money between themselves using the interbank exchange rate, which is not normally accessible to customers. Banks can also set their spread based on the interbank rate. When a client wants to exchange money, a bank offers its bid or ask rate given their spread and can also charge a percentage or fixed fee for the transaction.
Banks have been using big margins on foreign exchange, primarily due to a lack of transparency in the market. They could hide high fees within the exchange rates and pass them onto customers because there are no regulatory obligations to disclose the markups. Without incentives to keep the costs down, many banks have chosen not to invest in currency exchange software to provide their customers with superior service.
How to add currency exchange functionality to your business?
It is essential to decide on the business model, pricing, customer acquisition, and growth strategies before registering and getting a license. After completing the legal hurdles, the next step is to choose the right currency exchange software partner to enable the operation of the exchange service. Besides front and back-office functionality, good software providers offer a great user experience on different platforms.
Developing a currency exchange solution from scratch is a long and challenging process that requires a dedicated team and a lot of resources. Partnering with a provider to customize existing white label software can significantly speed up time to market, offer better security, and make the whole process a lot easier.
SDK.finance currency exchange software
Global core banking software providers like SDK.finance support businesses and fintechs of all kinds at every digital transformation stage. The currency exchange solution is the easiest way to start providing consumers with a next-generation customer experience.
SDK.finance currency exchange software features:
- Real-time currency exchange rate tracking. Exchange rate alerts, real-time updates.
- Set up custom commission rates. Includes forecasting the results of the commission’s changes.
- Powerful payment dashboards. Everyday dashboards to get quick insights, profit & loss calculations.
- Customer management. Customers can be registered on your currency exchange platform.
- Customizable software. Currency converter designed precisely for your business needs.
- Secure exchange software. Online banking security standards. SSL encrypted connection.
What is money exchange system?
Banks, hotels, and resorts may also provide currency-changing services. Currency exchanges make money by charging a nominal fee and through the bid-ask spread in a currency.
What are the two main functions of the foreign exchange market?
The basic function of the foreign exchange market is to transfer purchasing power between countries, i.e., to facilitate the conversion of one currency into another. The transfer function is performed through the credit instruments like, foreign bills of exchange, bank draft and telephonic transfers.