Morgan Stanley last week became the first investment bank to partner with London-based real-time money transmitter Wise, whose Wise Platform connects banks and other financial institutions to payment rails around the world and lets them pay a set rate regardless of how the market moves.
At a time when global foreign exchange trading has soared—the New York Fed reports monthly volumes are up 27% since last year to $1.16 trillion—a wave of banks including Bank of America, Goldman Sachs, and Standard Chartered have launched similar custom tools to attract new traders.
“The barriers in cross border payments have long been delays and uncertainty in the payment,” says Ryan Zagone, head of bank partnerships for Wise Platform in the Americas. “These two core barriers were painful for retail customers, but also a big blocker for small businesses to want to expand globally. These barriers are now going away.”
The Morgan Stanley integration is part of its TFX Hub, launched earlier this month, to help corporate and institutional foreign exchange clients trade nearly instantly around the world.
The high volume, low value transactions most foreign exchange traders conduct can result in an record-keeping headache for financial institutions as they seek to reconcile a flood of transactions with different fees. The new system of rate freezes alleviates this, but does introduce a degree of risk when rates decrease below the agreed upon rate. Nonetheless, Bank of America’s head of transactional FX trading in global markets, Bhupen Velani, says the risks are well offset by the lowered accounting costs on the backend.
“It provides them with a hedge and at the end of the day most treasurers are trying to reduce risk,” says Velani. “Yes, the rate could move higher or lower, but you’ve fixed in your cost, and that’s prudent risk management.”
In October, Bank of America launched an FX rate lock for up to one year as part of its CashPro digital banking platform and number of banks are capitalizing on similar services. In November, London-based Standard Charted integrated with the Wise Platform for its SC Remit software and Wise now works with 90 banks globally. Last year, Goldman Sachs partnered with San Mateo, California-based Coupa, to provide similar offerings to Goldman Sachs TxB, the investment bank’s treasury management software.
This April the New York Federal Reserve published its 40th survey of North American foreign exchange volume, based on data reported by 21 banks including Morgan Stanley, Bank of America and Standard Chartered, finding that FX volume has grown 247% over the past 20 years.