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The impact of tech on currency exchange

Disruption similar to that seen in transportation, retail and dining is creating opportunities for smaller institutions to gain market share.

Dec 14, 2022 / Digital Banking
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Once a primarily face-to-face process, technology and necessity have turned currency exchange into a relatively seamless and contactless back-and-forth. The sudden halt of international travel forced physical currency exchange counters, kiosks and some financial service institutions to shutter their offerings and lean on technology to act as a go-between.

American banks are partnering with currency exchange specialists that deliver currency right to their door. Technology enabled a better, more convenient customer experience with round-the-clock order-placing capability and customer service seven days a week — and that’s just scratching the surface of what it can add to the conversation.

Fintech’s continued influence within the industry is prompting foreign currency specialists to look for better ways to cater to the customers. Everything from blockchain and crypto assets to artificial intelligence and 5G are disrupting the established players and finding market success doing it.

Ultimately, technology improves your industry position by allowing you to pivot and absorb market turbulence. Using the right tools, anyone from small startups to large enterprises can take business from foreign institutions by offering lower fees on exchanges versus traditional ATMs and counters.

Even when traveling abroad, people often prefer to do their financial business at home, where finances are more familiar. Innovative technology solutions allow currency exchangers the chance to connect with travelers on their own terms and provide them with a highly tailored, efficient brand of care.

Here are three predictions I foresee impacting the future of currency exchange.

Partnerships to avoid liability: Previously, banks developed their own currency-exchange platforms. Now, many don’t want the burden of oversight, accounting and additional customer service load that comes with the territory.

Banks can shift the liability to a third party that is compliant with all of the other industry standards. Because most currency-exchange vendors are specialized, banks can work with a partner that offers customer service every day of the week and facilitates round-the-clock ordering.

The Uber of currency: Currency exchange is going to be disrupted in the same way as legacy industries like transportation, retail and dining. Banking apps and Venmo are gradually decreasing the need for cash deposits, as digital cash is paving the way in convenience and functionality. ATMs and branches were built for physical convenience, but the new generation is bringing banking to your front door – what’s more convenient than that?

A portion of society will always push the change in the way all consumers do things, and technology enables online ordering and home delivery for currency just like anything else. Travelers want the added security of knowing that even if their credit card is rejected overseas, they can have cash waiting as soon as their plane lands or boat docks.

Outsourcing to specialists: While large enterprises have access to technologies unavailable to community banks and credit unions, some of these smaller institutions are gaining market share by outsourcing their currency exchange to specialists.

An S&P Global Market Intelligence report examining mobile banking capabilities of 70 banks found the four U.S. megabanks with over $1 trillion in assets had more advanced features than smaller banks. The report examined 15 advanced mobile capabilities beyond simple account balances and transfers and found that while the Big Four averaged 13, banks with over $50 billion in assets averaged eight, and those with $10 billion (the lowest studied) to $50 billion only averaged five.

By partnering with specialists, smaller financial institutions can adopt advanced capabilities for less overhead. This lets them pivot and pull market share from larger competitors, and that will inevitably disrupt an industry that hasn’t seen much disruption over the past several decades.

Foreign currency exchange is a long-standing industry that traditionally stayed in the hands of a few who have been deeply entrenched for generations. There are many positives to learning from the past, but newer generations are finding innovative ways to rethink the old ways of doing things through technology.

As these advanced solutions continue to evolve, it increases the likelihood for disruption. Smaller companies leveraging intelligent technologies can find a lane in the financial industry and connect with an engaged group of world travelers.

Robert Hoffman is the founder and CEO of Xchange of America.