Any SME or mid-cap relying on their bank for foreign exchange transactions, and international transfers in particular, can testify that the system in place is both opaque and costly. Today, however, a number of economical and transparent solutions provide SMEs and mid-caps with real-time exchange rates, enabling them to make transactions at the most opportune moment in terms of market value.
What is the real-time exchange rate?
Before going into greater detail, we need to better understand precisely how exchange rates work, and indeed how having access to real-time exchange rates can provide an advantage. Let’s start by defining these concepts.
An exchange rate is defined as any operation enabling you to convert one currency to another. The exchange rate can therefore be seen as the conversion rate from currency A to currency B, and it is used to calculate the amount of currency B obtained in exchange for a unit of currency A.
The real-time exchange rate refers to the actual rate of a particular currency, in constant flux, observed at a given moment in time. It is now possible to track real-time exchange rates online with minimal effort, notably through platforms like iBanFirst. This differs markedly from what is termed “the interbank exchange rate” (or the "mid-market"), which is the gross rate at which banks exchange currencies.
Why SMEs and SMIs do not benefit from the exchange rate in real time today?
As we have just seen, real-time exchange rates fluctuate according to supply and demand on the market, with values changing constantly. However, today, SMEs and mid-caps do not always benefit from real-time exchange rates when trading in foreign currencies. Why is this so?
This is partly because access to bank trading rooms is reserved for larger companies. The latter benefit from a range of financial services, including real-time currency pair quotes. They can therefore take advantage of favourable market conditions for their foreign currency transactions.
SMEs and mid-caps, on the other hand, do not necessarily have the critical volume of foreign exchange transactions that would grant them access to trading rooms. According to the current system, which is both obscure and insufficiently adapted to their needs, SMEs and mid-caps pay significant fees on each transaction made in foreign currencies.
This presents such businesses with a familiar conundrum. Once the instruction has been given to the bank for its supplier’s payment order, the issuing company does not know when the transaction will be carried out, and therefore does not know the rate at which the exchange will take place or the margin to be deducted by the bank. The actual cost of the transfer will only be known after the fact.
The 4 benefits of real-time exchange rates for SMEs and mid-caps
As mentioned above, the real-time exchange rate reflects the situation on the financial markets. If SMEs can gain access to it, they can use the exchange rate to carry out their transactions at the right moment. Offering SMEs and mid-caps the exchange rate conditions they deserve is at the very heart of iBanFirst’s mission.
Being able to benefit from an exchange rate in real time offers companies four specific advantages:
Knowing the exchange rate at which a transaction will be carried out, ahead of time, is the first advantage. This provides transparency in foreign exchange transactions, something SMEs and mid-caps usually miss out on.
As the company will benefit from real-time data presented in a transparent manner, they will be able to carry out their transactions at the most opportune moment for them.
With this added transparency, it is possible to seek insight from intermediary institutions, such as iBanFirst, which provide factual information and allow them to make an informed decision with regard to their transactions.
As the company is equipped with all the information needed to execute their transactions at the right time, it can leverage this awareness to regularly save money on its transactions.
But how is it that an institution like iBanFirst can offer SMEs and mid-caps access to real-time exchange rates when banks cannot?
Technological developments have made it possible to democratise access to foreign exchange-related financial services, including real-time exchange rates. This has led to the emergence of new financial institutions, such as iBanFirst. Thanks to the volume of our clients’ transactions, we can offer them access to trading rooms, and therefore allow them to benefit from real-time exchange rates, opening up a whole host of possibilities.
Moreover, because a payment services institution like ours is not weighed down by a traditional bank’s fixed historical costs, the rates levied on foreign exchange transactions is significantly lower than those applied by banks.
SMEs and mid-caps finally have access to the conditions they deserve, while saving on their foreign exchange transactions. If you too want to optimise your foreign exchange transactions, our account managers will be happy to tell you more.