Brilliant start to the year with HSBC head of wealth announcing a new Foreign Exchange (Forex) app to take on Wise (1). The app is for existing and new customers wanting to make foreign exchange transactions instantly. This activity fully supports the 695th Lord Mayor of London Lecture on “Harnessing Entrepreneurship to Build a World-Class Economy” (2).

Forex World’s Largest Market.

The Forex market, the historic domain of banks and supported by archaic, pre instant, FX and international payment transfers and cash management techniques.

Forex is the world’s largest financial market at $805 billion per day in 2023 and expected to grow to $1.5 trillion per day by 2032. The market is responsible for exchange rates for every currency and offers continuous pricing to banks, companies, and individuals.

London, given its central location time wise (GMT) – picks up the close of the Asian and the opening of the American markets – represents the leading exchange. The US Dollar is the world’s preferred currency and involved in high percentage of forex trades.

Rise of Instant Payments adds to GDP.

The globalisation of businesses and the underlying improving technology allows greater inter-connectivity and less time delays. Given the rise of instant payments domestically (in local currency), e.g., US/UK/EU/Australia, money goes from account to account in seconds.

The key to an international payment is the IBAN (International Bank Account Number). The issue is the IBAN does not identify true owner of the bank account. Domestically this is being addresses by Confirmation of Payment (CoP). CoP for International payments are aligned by currency pair, e.g., USD to GBP, GBP to euro, USD to euro and a new service(s) IBAN-name check are well on the way.

Wise started with companies.

Wise started working with companies on their FX trades as bank margins were high, often up to 20% of the traded amount. Also, unlike domestic payments where no fees are charged, international payments can be charged by banks in the payment chain. The traditional Correspondent Banking chain of four banks, using SWIFT, continues today.

At the time Wise arrived Citibank was (and is) a major FX trader. Citibank on its 200th Anniversary asked academics to identify both triumphs and lost opportunities. One of the latter, a subsidiary with the mission to transform the manual and time-based processes through technology to the dealing room. The issue was the status quo – traders, relationship managers and management - as revenue flows were superb. Academics reported the opportunity to be the Google of forex had been missed.

What is changing.

The timeframe of an FX transaction and the resulting movements of currency and payments are instant.

The need to know the latest on know your customer (KYC) needs happen before the payment.

Open Banking allows individuals to select bank accounts with liquidity (either cash or credit).

Asset tokenisation will accelerate and use AI for liquidity and risk management.

eWallets, with high level security, to protect the currencies and, in time, crypto and NFTs.

The City of London

City of London dilemma is replacing the current conservative, defensive and steady-as-it goes culture to a more adventurous mindset.

After a long history of being entrepreneurial and benefiting UK GNP, it needs rejuvenating to keep pace with technology change. RegTech and Fintech are the keys for global growth. The City is synonymous with Global Financial Services. Time to back Mayor Michael Mainelli on this initiative.

We are ready, are you?

John@tec8.co.uk, AndyC@wearertp.com, Bob@payments-smes.com

(1)   Finextra

https://www.finextra.com/newsarticle/43477/hsbc-to-take-on-wise-with-launch-of-money-transfer-app

(2)   City of London

https://register.gotowebinar.com/register/2833075761998378336

(3)   Forex Market Size

https://www.imarcgroup.com/foreign-exchange-market#:~:text=The%20global%20foreign%20exchange%20market%20was%20valued%20at%20US%24%20805,6.92%25%20during%202024%2D2032