The traditional model of financial services is being overhauled, and foreign exchange is no exception. Between new regulations, digitalization and the rise of FinTech companies challenging banks, the banking market is almost unrecognizable from twenty or thirty years ago. This year we can expect to see a new range of changes & challenges as banks have only a few months left to adapt to the new Cross-Border Payments Regulation.
Since its inception, the European Union’s policy has been to minimise the borders between countries and ultimately create a true single market. The recently updated EU Cross-Border Payments regulation will mark another step in improving consumer access and understanding to cross-border payments. This regulation means that traditional banks are facing a significant change as to how they communicate with cardholders regarding foreign exchange. These changes bring significant challenges in their implementation.
Adapting to the new era in pricing transparency
The EU Cross-Border Payments Regulation will create a common approach for card issuers and acquirers to communicate the price of cross-border (FX) transactions to consumers. This will herald the introduction of a new era in pricing transparency on cross-border activity. Setting up systems to compare the bank’s own charges to the daily ECB reference rate will greatly increase consumer awareness of differing pricing points and the value available from different payments providers. However, at a time where new competitors, such as Revolut are increasing their presence and leading the way on foreign-exchange based innovation, banks need to respond to the competition that arises with this newfound transparency, while also ensuring compliance and managing legacy infrastructure.
As banks must now face both the introduction of these regulatory requirements and the impact these have on the consumer’s experience, several factors must be taken into consideration.
Consolidating methods of cross-border pricing strategies
A bank may have as many as eight cross-border payment pricing strategies across multiple lines of business, all of which need to be benchmarked to the latest ECB reference rate. requirements.
Complications from multiple back-office systems
Bank card products typically utilise a range of back-end systems (in-house, outsourced, debit, credit, etc.) and multiple card schemes (e.g. Visa, MasterCard, UnionPay International, Diners Club etc.). This variability complicates the ability to both provide a consistent experience to the cardholder and deliver comprehensive reporting to establish ongoing compliance with the requirements to regulators across all of their products.
Delivering a consistent customer experience is seen as the major challenge for the 2021 deadline
The increased visibility brought to customers by this regulation will likely create queries and confusion where pricing varies by product, by currency & by day and will give cardholders pricing information that is directly comparable to competitor propositions. This will result in consumers changing behaviour by taking more active decisions around how to spend in a different currency.
Each consideration above represents a challenge for banks, card issuers and acquirers to address in a relatively limited timeframe. Cambrist’s product is designed to support all phases of the EU cross-border payment regulation as defined by both the 2020 and 2021 mandates, to make the implementation as effective & efficient as possible.
In Sweden, Cambrist’s products have ensured that Länsförsäkringar Bank AB has already complied with EU Cross-Border Payments Regulation requirements. Now, Cambrist’s aspiration is to support more Nordic issuers in becoming leaders the new era of pricing transparency.