e-Forex has published an informative Special Report on Emerging Markets FX trading. The Special Report looks at the unique challenges presented by the Emerging Markets and how start-ups like AbbeyCross are helping banks, payment companies and other stakeholders overcome them.
They spoke to our co-founder Mike Robertson.
Download the full SPECIAL REPORT in PDF format below.
ABBEYCROSS AND THE EM FX PAYMENTS MARKET
AbbeyCross is a B2B FX trading and compliance marketplace or platform for emerging market currencies, co-founded by CEO Mike Robertson who previously ran the cross-border payments business at Bank of America. There are currently 145 currencies in global circulation and most banks offer a transparent, automated and efficient service for G10 currencies with full straight-through-processing. But it is a different and much more challenging picture when it comes to the EM currencies where banks don’t have an onshore presence.
Most of the banks have outsourced the payments process in these markets to one vendor, which, says Robertson, is “problematic”. “There are continuity issues from using one provider and best execution problems from only receiving a single rate when you have to show regulators you are executing at fair prices. That is the reality of the EM FX payments market,” says Robertson.
AbbeyCross has been developed as an alternative infrastructure to solve some of the problems with EM FX payments. “There has always been competition, especially with the emergence of payment-themed fintechs,” says Robertson. “However it takes a significant amount of time for these platforms to onboard new clients. And banks have an extremely limited budget for this, especially for EM currencies where the volumes are much lower. Our strategy is to create an infrastructure where integration is no longer an issue.”
Robertson says that AbbeyCross won’t necessarily make it easier – if a bank wants full API integration, it will take time – but the bank only has to do it once and then gains access to a whole host of payment providers. “We believe it is changing the narrative around EM payments,” says Robertson.
“There was a structural issue with EM payments. They are complicated and it differs by jurisdiction. Some require physical settlement and there are different documentation requirements and volume thresholds, so it is a messy combination of several structural issues,” says Robertson.
But things are changing. “Volumes are increasing and global trade patterns are changing. China has been the dominant manufacturing centre which has driven volumes into China but now we have manufacturing centres in Thailand, Indonesia and elsewhere becoming manufacturing centre,” says Robertson.
That said, EM currency payments still remain a very small percentage of overall payment volumes. An EY/McKinsey report shows that the payments market has $140trillion of volume daily - $100trn is in the same currency and $36trn is in G10 currencies while EM currency payments make up the remaining $3-4trn.
So what is it about the technology that has changed? Much of the technology investment to date has been on the funds settlement and trading side of things and less so on the payments side. Where money has been spent on the payments process, it has focused on the front end and user interfaces rather than the back-office infrastructure. “Legacy technology is really at the heart of it,” says Robertson. “We are not necessarily providing new technology but creating a payments marketplace that banks can use to access multiple payment providers.”
AbbeyCross is currently at the proof-of-concept phase and plans to have live trading clients by this time next year. “We hope to have live trading with at least one tier one bank, starting with EM payments. We believe it is a game-changer, not just in terms of pricing but also innovation,” says Robertson.