By Jakub Makurat, country manager Ebury Poland, Czechia, Slovakia, balkan states
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Transactional banking solutions in the FinTech version complement the offerings of traditional banks in the field of company finance management and foreign trade in an excellent way. Entities active in international business and foreign trade pose considerable challenges to service providers from the financial sector, as their requirements are constantly growing along with their ambitions now reach the farthest corners of the globe. The world of international settlements is very complicated, diverse in terms of currencies and payment systems, and also very demanding in terms of regulations. The multitude of these challenges results in many inefficiencies that have accumulated in the banking world over decades. Nowadays, it is the FinTechs and neobanks that are trying to meet these challenges and are increasingly becoming partners for business in this area.

An important part of the FinTech industry are entities specializing in currency exchange and foreign exchange risk management, among others. The volatility of exchange rates in recent years has been exceptionally high and risk factors are rather increasing. Some of the most significant include politics and geopolitics. A good example is the situation of the United Kingdom and, consequently, the British pound, which is one of the key currencies for settling Polish foreign trade.

Parliamentary and presidential elections are taking place this year in many countries. The first post-Brexit parliamentary elections in the UK can also impact the situation of the pound, which will also be felt by Polish entrepreneurs from the SME sector developing business with British partners. It is worth taking care in advance so that volatility does not deprive businesses of expected profitability. What support can FinTechs offer? What else is worth knowing about their tools?

Already in summer, parliamentary elections will be organized in the United Kingdom – before the expiration of five years since the first session of the current parliament, which took place on 17 December 2019. These will also be the first elections since the United Kingdom’s departure from the EU on December 31, 2020.

Although polls indicate a decisive victory for the Labour Party, and most respondents consider such a scenario favourable for the market, the upcoming pre-election weeks can still bring clear fluctuations in the sterling’s quotations. Even more so because a few months later, presidential elections will take place in the US (a rare case – in the 20th century, elections in the US and the UK in the same calendar year occurred only twice).

The prospect of a politically hot second half of the year and the potential for fluctuations in the foreign exchange market should encourage exporters to consciously, strategically manage foreign exchange risk – especially SMEs that may neglect this aspect.

Record imports of Polish goods to the United Kingdom are worth the effort

Polish companies quickly dealt with the bureaucracy resulting from Brexit and swiftly returned to fighting for British consumers. According to the UK statistics office (ONS), the value of goods and services imported from Poland to the United Kingdom in 2023 reached £20.5 billion. This is not only 14% higher than in 2022 but also a significantly higher result than before Brexit and the pandemic (£15.4 billion in 2019), and an all-time record.

On the other hand, Statistics Poland (GUS) reported that at the end of April 2024, the share of the UK in the structure of Polish exports increased to 5.4% from 4.8% in the corresponding period of 2023. The UK is currently Poland’s fourth-largest export market (having fallen from second place before Brexit).

Maintaining such a favourable trend for Polish exporters will not be easy if companies properly protect themselves from losing margins due to fluctuations in the foreign exchange market. This issue was already particularly important recently as we saw in 2023, when the sharp strengthening of the zloty led many an export business to the limits of profitability.

Expansion to the UK: how FinTechs can help SMEs

One of the advantages of FinTechs is efficient financial service across many foreign markets, while banks most often focus on the domestic market. In the case of Ebury, the scale of activity includes over 25 countries and over 38 offices, which in the case of support for the SME segment remains unique in the Polish market. Polish entrepreneurs appreciate the ability to obtain direct support from our colleagues from the London office. We serve both entities with Polish capital in the UK and British companies operating in Poland. Our payment capabilities allow for real-time transaction settlements, meaning that they are very fast and also competitively priced.

Our international presence allows us as a FinTech to provide quick transaction service on a global scale, including the management of tools that accelerate the inflow of receivables. In the case of the UK, we belong to the Faster Payments network, which enables secure and rapid settlements between accounts in British banks. Thanks to this, an exporter to the Islands can receive a payment made to an account in pounds at Ebury within a few minutes.

At the same time, as part of support for foreign trade, we provide many tools: payments, collections, settlement accounts, and currency exchange, as well as tools for hedging currency risk. Thanks to forward transactions, the entrepreneur knows in advance at what rate they will be able to exchange pounds for zlotys, and therefore what their income from sales will be, expressed in Polish currency. In the case of the pound, this is crucial as the volatility on the GBP/PLN currency pair over the past few years has been very high – from levels around six zlotys per pound to levels below five. More and more companies are also taking advantage of the Ebury Trade Finance opportunity to finance commercial purchases, which are available both in Poland and in the UK market.

Among the interesting innovations, it’s worth mentioning dedicated solutions for the investment-fund industry provided by Ebury Institutional Solutions, as well as the advanced platform for settling employee benefits and HR issues, international payroll solutions.

As a company enabling transactions in more than 130 currencies from around the world (including British pounds, Chinese yuan, and Argentine pesos), we also know how important it is to have reliable knowledge on minimising currency risk. At Ebury, we have been educating SMEs that want to develop trade with foreign partners for years, on how to effectively manage currency risk. We organise meetings and webinars, and also prepare materials to help business owners systematise knowledge in this area.

Our experiences show that this topic is particularly important for companies that see an opportunity in trade in the cross-border e-commerce model and decide to sell goods on marketplace platforms.

In cross-border e-commerce, margins should additionally be taken care of

As estimated by Ebury, in 2023 on the UK’s Amazon service alone, there were over 3,500 Polish businesses, each carrying out transactions worth more than €10,000 euros per month. We see further expansion of Polish entities from the cross-border e-commerce sector into foreign markets, including the UK. And at the same time, we see that such businesses, in particular, find it difficult to find suitable financial services for themselves in traditional banks.

FinTech proposals targeted at SMEs stand out in this respect in the market. From our experience, it turns out that a significant facilitation for domestic e-exporters is the possibility of opening an account in British pounds with an individual IBAN number. Thanks to this, the business will receive funds from British contractors quickly and in the selected currency –without currency conversion, the cost of which could consume up to several percent of the revenue. This gives the business full freedom in terms of exchanging funds – as well as settling liabilities directly in pounds to some of their suppliers (such as paying, rent for a warehouse in the UK).

In the case of the e-commerce sector, opening a currency account in pounds in a Polish bank will not give the expected result. This is because foreign marketplace platforms recognise that the account is assigned to a bank in Poland based on the IBAN code before the pay-out and, as a result, the marketplace will exchange the funds from the pound to the zloty. That’s not all. Later, to credit them to the pound account, the bank again carries out – for the second time – a currency conversion. Therefore, the exporter incurs a double cost of the spread in such a case.

It’s worth remembering this not only during heightened fluctuations on the GBP/PLN currency pair. After all, stability and predictability of income and margins count in business.

About Ebury

Ebury is a global payment institution providing transactional banking services for business. The FinTech team, comprising over 1,700 specialists, works in more than 38 branches, offices, and subsidiaries located in over 26 countries on six continents. Ebury enables transactions for companies in over 130 currencies. It also maintains accounts for companies in local currencies in more than 20 countries, including in Hong Kong, Canada, Australia, Hungary, and the UK. The volume of transactions carried out by Ebury amounts to over $20 billion annually. Since 2020, the main investor in the company has been Banco Santander, one of the strongest European financial groups.

Fintech specialises in financial services for the SME sector and large enterprises. It helps exporters and importers develop business in foreign markets, eliminating barriers in the area of settlements, trade finance, currency transactions, and foreign exchange risk management.

SEE MORE: https://www.ebury.pl