The importance of FX-as-a-Service: An Amadeus approach

What are the latest trends in cross-border retail payments from consumers’ and merchants’ perspectives that drive this market’s growth? 

Globalisation created shoppers without borders, and the current state of affairs illustrates this fact even more: cross-border ecommerce now represents 20% of global ecommerce, while the compound annual growth rate (CAGR) for cross-border B2C ecommerce is 29% according to Accenture. The most proficient cross-border shoppers are the Irish, and 84% of Irish consumers buy online from overseas – more than any other country in the world.

Merchants can no longer ignore the opportunities offered by a global customer base. To serve global customers, merchants are placing emphasis on delivering the right user experience, which needs to be seamless across borders. This means having the combination of payment methods, languages, and currencies that shoppers relate to. Currencies, languages, and payment instruments are cultural and part of the user experience. Both individuals and corporates expect payments to be transparent, trackable, frictionless, and secure.

Taking control of the foreign exchange component of cross-border payments has therefore become more important for corporates. By enabling transparency around FX rates and efficiencies in end-to-end processing, technology has supported the boom in global ecommerce, and now FX and transfer costs have been repriced. Banks and fintechs are collaborating to deliver global payment infrastructures, to meet regional specificities and regulatory requirements. Many new interfaces and mobile applications result from the collaboration between banks and fintechs. New FX management tools enable end-to-end automation – from pricing to reconciliation of large volumes of low-value transactions, facilitating the implementation of multicurrency strategies. 

Did you know that foreign exchange is the most traded commodity in the world? USD 6 trillion of FX is traded every day. By comparison, the trading of all equities markets combined reaches USD 190 billion a day. Doing business internationally means corporations face currency risks classified as transaction, translation, and economic risks. Each company is unique in its currency exposure and operating cycle. An effective FX policy begins with a clear understanding of the company’s financial objectives, and the potential effect the changes in FX rates might have on them. Small businesses as well as large corporates can benefit from automating their FX handling. Automating FX management can free up resources, eliminate manual tasks, and minimise operational risk and human errors. This is where FX-as-a-Service comes in.

Could you please explain why FX-as-a-Service has become essential for merchants? 

FX-as-a-Service describes an ecosystem in which technology companies access licenced financial institutions, generally via the use of APIs, to deliver FX services to their own clients. FX-as-a-Service enables payment and technology providers to deliver engineered solutions around currencies, from the payment initiation to the settlement, isolating the currency element of payment to bring value to merchants and their customers. 

FX-as-a-Service reengineers the payment chain end-to-end to deliver automated solutions that offer more transparency around FX rates and payment fees, and less friction between the different touchpoints of a payment. The FX-as-a-Service solutions leverage the wealth of data in the Amadeus payment gateway platform, adding a sophisticated FX management layer to support merchants. In competitive industries, where profit margins can be thin, a managed FX solution can substantially improve a company’s ability to collect FX margins. A good FX solution will allow corporates to gain visibility of their currency pools (on payables and receivables) and the volumes at hand, as it aims to control or manage volatility for short or longer periods. 

In a merchant environment, FX-as-a-Service can apply to card issuing, acquiring (card and non-card), as well as on stand-alone multi-pricing solutions. In partnership with banks, Amadeus offers strategies for multi-currency pricing, including creating marketing prices to meet local pricing habits on multiple payment solutions and supporting refunds at the original FX rate paid by the customer. 

Amadeus also goes deeper into the value chain, for example, by offering guaranteed FX rates for merchant-specific periods, netting FX positions in customers’ payments, and supporting propositions involving complex currency combinations. 

Could you please depict several key takeaways from Amadeus’ ‘The hidden opportunity in multi-currency pricing’ report? 

As part of its thought leadership programmes for merchants, Amadeus commissioned primary research around FX sensitivity from customers booking flights in a foreign currency. The independent survey was conducted in Q3 2021 among 5,500 flyers across the US, the UK, France, Italy, Germany, Spain, India, China, Japan, Brazil, and Mexico.

The first insight of the report was that the ability to change currency on airline websites drove purchase conversion. 89% of the customers tested prefer to see a price in their currency when booking a flight. 

The second insight was that foreign exchange rates are a secondary priority when booking international flights, as customers are primarily driven by the logistics of their journeys. 

The final insight was that consumers have different anchor points for the FX spreads they will accept. Frequent flyers have a lower acceptance threshold when it comes to spreads than occasional flyers. There are also substantial differences linked to where customers are from. Generally, a 3% spread on retail payments is well accepted, and customers start to look for alternatives at the 5% mark. 

As merchants control the FX spread and internalise the proceeds of the transaction, it is important to deliver the right user experience. Amadeus works with merchants to deliver the optimal user experience.

This interview was first published in our Cross-Border Payments and Ecommerce Report 2021–2022, which taps into the fast-growing cross-border market and provides a comprehensive overview of trends and developments that are pivotal in this space, being the ultimate source of information for ecommerce businesses interested in expanding globally. 

About Beatrice Bouju

Beatrice is Amadeus’s Global Head of FX Product. She is responsible for all customer propositions involving FX-as-a-Service. Leveraging straight-through-processing, Amadeus delivers fully integrated, managed FX propositions to Amadeus worldwide client base. Amadeus FX solutions support inbound and outbound payments. Beatrice joined the Payment team at Amadeus after 20 years at RBS Natwest Markets and Western Union, where she held EMEA and global management positions in transactional FX and cross-border.

About Amadeus

Amadeus is a gateway that offers services to travel companies, helping them take payments from their customers, pay suppliers, and optimise both. We apply global payments expertise and a network of trusted partnerships integrated into our smart payment hub to provide travel companies and their customers with a seamless payments experience.