PaymentsJournal
SUBSCRIBE
  • Analysts Coverage
  • Truth In Data
  • Podcasts
  • Videos
  • Industry Opinions
  • News
  • Resources
No Result
View All Result
PaymentsJournal
  • Analysts Coverage
  • Truth In Data
  • Podcasts
  • Videos
  • Industry Opinions
  • News
  • Resources
No Result
View All Result
PaymentsJournal
No Result
View All Result

Sterling for Some, a Pounding for Others: Managing International Payments Post- Brexit

Natasha Lala by Natasha Lala
December 6, 2016
in Industry Opinions
0
Credit Card Interest Rates and Revolving Debt Hit Historic Highs in 2019:

Credit Card Interest Rates and Revolving Debt Hit Historic Highs in 2019:

0
SHARES
0
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn

Following Brexit the pound has been anything but stable – a godsend for some but a nightmare for others. With this in mind, Natasha Lala, Managing Director at OANDA Solutions for Business, takes a closer look at how treasury teams can manage their payments when dealing with the plummeting pound.

In 2016, little hogged the headlines quite like Brexit. A four to one outside shot that came true, Britain’s decision to leave the EU sent the pound reeling and the blows have continued to rain down since. Political musical chairs in Number 10 rocked the currency as Cameron was replaced by May while the Bank of England’s tactics to shore up the economy caused investors to sell, sell, sell. Having recently hit a 31-year record low, the pound now sits at approximately £1.22 to the dollar – and with Article 50 still yet to be invoked the future of the pound hangs on a shoe string.

For treasury teams executing cross-border money transfer, sterling’s fall from grace is either an opportunity or a worry. UK firms focused on exports that earn profit abroad and US companies will all feel a boost in profits with favourable exchange rates. On the other side of the coin, so to speak, UK based firms exposed to sterling, such as those regularly paying for goods or services from abroad, will feel a significant squeeze in regards to their international transactions. With these contrasting fortunes in mind, there are a number of FX best practices that financial controllers on both sides can take to minimise the risks or maximise the rewards associated with a weak pound.

1. Hedge risk by using forward contracts: Considering the negative short-term impact on sterling witnessed since June 23rd, financial controllers should firstly consider utilising forward contracts. Locking in a determined purchase at a favourable rate now and hedging your payments can, depending on a firm’s position on sterling, prove profitable or prudent. Take a US company involved in buying goods from the UK. Almost overnight what the dollar could buy you in Britain increased significantly. A company in this position could look at utilising forward contracts to lock in the pound at, for example, £1.22 to the dollar. This way, even if sterling rebounds and strengthens, the company can still benefit from a favourable exchange rate.

2. Transparency in exchange rates: Alongside forward contracts, rates transparency is also an important consideration. While it may have been acceptable not to second-guess the exchange rate from a traditional payments provider previously – today’s volatile pound means corporates cannot afford to trade at sub-optimal or opaque rates. Treasurers and other corporate finance professionals need to investigate the exchange rates they’re being offered and a clear view of the fees involved, such as lifting fees charged by intermediaries.

3. Payment provider’s global reach: The weak pound isn’t necessarily doom and gloom for all. For UK exporters, the sterling fall has increased the competitiveness of their prices and presented opportunities to expand operations and explore new markets. In this situation, a financial controller should take the time to reassess their provider, and make sure that it offers a competitive solution when it comes to new uncharted territories and currencies.

The weakened pound not only benefits UK exporters, the rest of the world now has a chance to take advantage of a low sterling rate to increase their imports of UK products and services. A country based in the US for example should also evaluate their provider and assess whether it has a strong presence in the UK and the US. If it doesn’t, then the lifting fees and associated inefficiencies could very well eat into any potential profit.

4. The advantage of multi-currency accounts: Finally, in a situation where a currency has continued to fall over a prolonged period, corporates can’t afford to lose time. Therefore, having the ability to manage multi-currency accounts in one place becomes a competitive advantage as it simplifies FX payments processes and practices, reducing time and potentially cost.

Ultimately, sterling volatility is unlikely to fall away until Article 50 is invoked before the end of March 2017 and until then it will continue to be acutely sensitive to political and economic announcements, such as the Chancellor’s Autumn Statement in November. Treasury teams that take the necessary steps around risk exposure and having full insight into how market events affect their payments processes, will be the ones best placed to seize the opportunity or avoid the risks of a lack luster pound.

0
SHARES
0
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn

    Analyst Coverage, Payments Data, and News Delivered Daily

    Sign up for the PaymentsJournal Newsletter to get exclusive insight and data from Mercator Advisory Group analysts and industry professionals.

    Must Reads

    cross-border payments

    Cross-Border Payments: Fighting
    E-Commerce Fraud Using Data

    March 20, 2023
    fraud, ChatGPT-4

    How to Fight Fraud While Still Enabling a Great Online Customer Experience

    March 17, 2023
    RTP

    Financial Institutions Without an RTP Strategy Risk Being Left Behind

    March 16, 2023
    visa chargeback

    New Visa Chargeback Guidelines Will Be a Game Changer

    March 15, 2023
    liquidity management

    Liquidity Management Takes on Increasing Importance in Uncertain Economic Times

    March 14, 2023
    payments

    Key Challenges from Growing Payment Methods and Volume

    March 13, 2023
    Data Governance is a Journey, financial data

    How FIs Can Power Their Operations with a Modern Data Architecture

    March 10, 2023
    ISO 20022

    How Banks Can Realize Business Benefits and Reduce Payments Fraud With ISO 20022

    March 9, 2023

    Linkedin-in Twitter

    Advertise With Us | About Us | Terms of Use | Privacy Policy | Subscribe
    ©2023 PaymentsJournal.com

    • Analysts Coverage
    • Truth In Data
    • Podcasts
    • Videos
    Menu
    • Analysts Coverage
    • Truth In Data
    • Podcasts
    • Videos
    • Industry Opinions
    • Recent News
    • Resources
    Menu
    • Industry Opinions
    • Recent News
    • Resources
    • Analysts Coverage
    • Truth In Data
    • Podcasts
    • Industry Opinions
    • Faster Payments
    • News
    • Jobs
    • Events
    No Result
    View All Result

      Register to download the Autorek complimentary report: Payments Industry Outlook 2023: