For decades, international payments have served as the facilitator for cross-border trade and commerce, paving the way for the emergence of new industries and market providers. Post the pandemic as we saw the world’s economies rebounding, process management for global commerce has experienced renewed importance.
For corporates in particular, international payments to vendors, manufacturers, suppliers, and service providers have never been more critical. In parallel, we have seen increasing focus on liquidity management for global corporates who need to expatriate payroll, support intercompany flows or make international tax payments. Those are only some of a long list of use cases that Goldman Sachs transaction banking has been supporting.
Of course, many corporations know that payments, especially cross-border transactions in different currencies, can be complex. They can involve numerous time zones, jurisdictions, and payment regulations. Global payments can be hard to track and slow to settle.
Traditional transactional FX solutions have been constrained by a lack of flexibility, visibility, and complex implementations between currencies. Furthermore, the back-end systems that help power many industry incumbents are often powered by legacy mainframe computers which need regular functionality and maintenance updates whilst facing difficulty in dealing with high-volume processing at scale. This creates inefficiencies and a workflow that has little room for error, requiring mitigants like early cut-off times to manage the throughput.
Another frequent challenge faced by corporates is the lack of transparency in terms of the cost to execute FX payments. Many multinational corporations still face issues when trying to determine their complete end-to-end cost base when it comes to transacting their foreign currency payments.
We believe that navigating payment complexity, modern technology and cost clarity, are all issues that can be addressed and solved.
There are multiple factors which comprise the cost of an FX transaction. These include base exchange rate (including internal profit), spread, cost of funds, correspondent banking transaction fees and the fees charged by the bank originating the transaction.
When clients consider the cost of FX payments, they should be cognizant of the overall cost to execute their FX payments to ensure the most optimal output of the pricing that they receive across these different transaction components.
In parallel, there are also other factors to consider. Some financial institutions charge commissions for handling and executing the trades, either as a fixed fee (irrespective of value), or a relative fee (the higher the value, the higher the commission). It is also common for banks to charge for reporting, posting payments to accounts and running analytics on client accounts.
Frequently, the complex cost-base described above is justified by incumbents due to complex and legacy technology. Therefore, when Goldman Sachs launched a transaction banking business in 2020, it found a strong advantage in building a cloud-based and horizontally scalable business from scratch. “We weren’t saddled with legacy infrastructure and processes,” said Luc Teboul, Co-head of Transaction Banking (TxB). “We challenged ourselves to find out if there was a better way and, if so, to build a better system.”
From its inception, TxB™ prioritized robust cross-currency payment solutions that could scale with client needs and enable them to know what they pay at each step of the process.
Whilst there are fees, such as correspondent banking fees, which TxB cannot predict upfront, we provide GPI tracking (ability to see reported fees by each bank in the chain) at no additional cost to our clients, and we built an optimization engine which allows us to enrich intermediary details for payments to optimize the ultimate cost.
In parallel, we provide our clients with the ability to select their settlement parameters based on their target currencies. Leveraging the same integration, a client can select to pay using cross-border ACH (to avoid correspondent banking fees), or select to absorb fees (and avoid those being borne by the beneficiary).
TxB’s response was to adopt a technology-and-digital-first mindset regarding transaction banking— introducing a platform developed from scratch on the cloud, built entirely on APIs, which offers the possibility for a more intuitive, flexible, and data-rich approach. These features could make clients’ lives easier by digitizing and improving the payments experience. And critically, it could give them control over what processes are most important to them.
In terms of pricing, TxB has worked to eliminate traditional market charging and billing practices–opting for a simple pay-for-what-you-use model. There are no miscellaneous FX fees, such as a monthly fee to turn on FX services. If payments are routed using the correspondent banking network, the correspondents being used can be tracked by the client through our GPI tracking APIs.
“When you build from scratch in the cloud with agile digital architecture you don’t need to defend a range of fees to offset the cost of legacy infrastructure,” said Mark Smith, Global Head of Payments and Strategic Liquidity Solutions at TxB. “We don’t have those costs so we can price our offerings for the value of the services we are providing to our clients.”
Allowing clients to operate in multiple currencies, especially for collections and receipts, is another example of how the TxB approach to solving simple problems is front and center in its solution strategy. For instance, consider a credit card processing client who does not need every inbound payment converted into a single currency but rather would prefer to hold multiple currency accounts. TxB supports clients to hold and operate currency accounts in all G20 currencies. This enables clients to hold currency without conversion. TxB also offers a multi-currency account in the UK which allows clients to hold a single physical account with multiple underlying currency accounts.
It is abundantly clear that the global payments market will continue to evolve. A confluence of factors is driving that change, including the impact of technology, client expectations, global demographics, and regulations. There are also a significant number of changes in global trade flows and industry fluctuation, as developments in a post-COVID-19 economy continue to emerge.
The market is already being reshaped by both traditional and emerging payment providers—not only legacy banks but also fintech firms and corporates that are pivoting to offer payment solutions. As a result, service providers as well as users are beginning to seek off-the-shelf solutions that can be tailored to achieve the best results for all parties.
Payments are at the core of transaction banking, and the drive toward more transparency—from the operational execution to the cost of making the payment itself—has emerged as crucial. Global payments are even more integral to international business operations in need of supporting their customers and dealing effectively with their suppliers. Only with additional information can a company make informed decisions about how to optimize its operations. For years, this was an opaque corner of operating a treasury or cash management function; clients struggled with setting up the most-efficient FX execution processes and continued to face miscellaneous and ancillary fees that had frequently become viewed as the cost of making FX payments.
Moving cash from one location to another should be a simple process. That is what Goldman Sachs built when developing its Transaction Bank. By helping clients navigate the current complexities of the global payment ecosystem, TxB is striving to put its clients back in control when it comes to managing their cross-currency payments.
Transaction Banking services are offered by Goldman Sachs Bank USA (“GS Bank USA”)in the Americas, United Kingdom and Japan. GS Bank USA is a New York state-chartered bank and a wholly-owned subsidiary of The Goldman Sachs Group, Inc. GS Bank USA is a member of the Federal Reserve System and Member FDIC. In the United Kingdom, GS Bank USA, London Branch is authorized by the Prudential Regulation Authority, and subject to regulation by the Financial Conduct Authority and the Prudential Regulation Authority. In the EU, Transaction Banking services are offered by Goldman Sachs Bank Europe SE (“GS Bank Europe”), a wholly-owned subsidiary of GS Bank USA. GS Bank Europe is a German credit institution and, within the EU’s Single Supervisory Mechanism, subject to direct prudential supervision by the European Central Bank and in other respects by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) and Deutsche Bundesbank. Information contained herein does not constitute an offer by GS Bank USA or any of its affiliates. In Japan, Goldman Sachs Bank USA, Tokyo Branch is authorised by the Japan Financial Services Agency, and subject to regulation by the Japan Financial Services Agency.
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