How can fintechs address the challenges of scaling overseas?

By Oliver Carson
Oliver Carson, CEO of Universal Partners, examines the oft-overlooked challenges that exist for fintechs when scaling overseas

Expanding beyond national borders has become integral to any substantial growth strategy for businesses. Yet, while scaling overseas opens up a plethora of opportunities, it also poses new challenges. Among the most significant and often overlooked are the financial obstacles businesses encounter due to the complexities of foreign exchange and the administration of international banking.

The devil, as they say, is in the detail, and when it comes to international trading, the details lie in the exchange rates: traditional banks and card firms often charge hefty fees for foreign exchange transactions. According to a McKinsey report, cross-border payments revenues add up to US$200bn globally, relatively evenly divided between transaction fees and foreign exchange (FX) revenues.

Such expenses can quickly add up and put a significant strain on financial resources. Over time, these costs can become a persistent drain on profit margins, turning what should have been profitable ventures into break-even endeavours or, worse, financial losses. Consequently, the unpredictability of exchange rates coupled with these fees can wreak havoc on forecasting profit margins.

Unstable exchange rates can lead to an unexpected rise in costs or a sudden drop in revenue, throwing even the most meticulous business plans into disarray. Even the big businesses can fail to spot and manage risk properly. Last year, Microsoft saw its revenue negatively impacted to the tune of US$595m due to foreign exchange rate movement, while Netflix's revenue was reduced by US$339m in the second quarter due to currency fluctuations.

More partnerships with fintechs ahead

Picture this: you've decided to start selling in a foreign country. The natural assumption would be to extend your existing banking relationship to your new location. However, this is rarely the case. More often than not, you end up opening a new account with a different bank, dealing with a different relationship manager, and facing a diluted product suite of currencies and risk management tools. Even if your’re a big-ish fish in your local pond, that won’t matter if you’re a small fish in a new pond.

This dilution of service is due to you being a new, and often less prioritised, customer in the overseas bank's portfolio. As a result, the communication and service efficiency that you were accustomed to back home is lost in translation. This can lead to your overseas operations suffering due to inferior financial services.

Additionally, the necessity of local accounts in foreign markets further complicates matters. Some marketplaces insist on having local accounts in-country, adding another layer of banking bureaucracy. Also, when selling overseas, offering clients a local account to pay into is not just a matter of convenience but also of cost-effectiveness. Paying into a UK bank account in the client's currency often means they still incur wire fees, creating another financial hurdle.

This is where fintechs can make all the difference. A PwC survey found that 82% of financial institutions expect to increase their partnerships with fintech companies over the next three to five years. With their innovative solutions and platforms leveraging technology and intelligent systems, fintechs can offer better exchange rates with minimal transaction fees, protecting businesses from the volatility of foreign exchange markets.

This can be a game-changer for maintaining healthy profit margins when dealing with multiple currencies. Fintechs can also offer businesses a uniform banking experience, regardless of the country they operate in. By acting as a bridge between different banking institutions across countries, fintechs can provide consistent and reliable service, eliminating the need for multiple relationship managers and product suites.

Several fintech platforms allow businesses to quickly open local accounts in various currencies, reducing the time and effort spent on dealing with administrative hurdles. This enables businesses to offer their clients local accounts to pay into, eliminating the extra wire fees associated with international transfers.

In this new world, fintechs are not just service providers; they are game-changers, shifting the power dynamics within the financial services industry. No longer are businesses bound by the rigid structures of traditional banks. Instead, they can now select from an array of fintech services that best suit their specific needs.

About the author

Oliver Carson

Oliver Carson is CEO of Universal Partners, one of the UK’s leading cross-border payment providers. Operating from Canary Wharf, their objective is to help businesses grow through offering exceptional international payment services and bespoke risk management tools.

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