Banks now have a new way to offer foreign exchange services to their business customers, through an offering from Wells Fargo (San Francisco) and S1 Corp. (Atlanta).
Wells Fargo provides approximately 2,800 correspondent bank customers with various services; of those, about 400 resell foreign exchange products to their own customers. But, the Foreign Exchange Online software Wells Fargo had been using had reached its limitations. "Foreign Exchange Online is traditionally used in a back-office environment," says Gregg Napoli, senior vice president, Wells Fargo Foreign Exchange Services. "It doesn't offer online banking customers the capability to do foreign exchange straight-through under that bank's brand name."
The solution was a partnership with S1, which recently released its Enterprise Banking 3.0 platform. Now, business customers can use the private-labeled S1 software to execute foreign exchange transactions through Wells Fargo's trading floor without intervention by the correspondent bank.
The correspondent banks gain the ability to offer a sophisticated FX service, rather than have to refer customers to competitors to send a wire in a foreign currency. "This can enable banks to offer a full foreign exchange product offering without having to build the infrastructure it takes to build that kind of service," observes Napoli.
Through the service, banks can assess transaction fees or trading margins on foreign exchange transactions that may have otherwise gone to a foreign bank. "When an international payment is sent, if it's sent in U.S. dollars, it's received and converted into local currency by the receiving foreign bank," Napoli says. "The difference in doing foreign exchange-denominated payments is that those payments originate from within that foreign destination country and go direct to the foreign beneficiary bank in that country."
Since the receiving bank doesn't need to convert U.S. dollars into local currency as part of the process, it's "a more direct path to the final beneficiary," Napoli explains. "That means less intermediary bank fees, [and] they know exactly how much money is going to be received by the foreign beneficiary, because the foreign exchange rate in dollar equivalents has been established at the time of payment initiation."
The business benefits to U.S. companies can be striking. "You can sometimes gain efficiencies by being willing to pay in local currency to a supplier country," Napoli says. "We have customers who have received 15 percent more-favorable pricing because they're willing to pay in Japanese yen rather than in U.S. dollars."
Similarly, on the receiving side, Wells Fargo's service can allow a bank's customers to receive funds in foreign currencies easily, leading to expanded opportunities abroad. "Those funds can be converted into U.S. dollars [by Wells Fargo] as opposed to being converted by the originating foreign bank," Napoli relates. "The Wells Exchange interface would send an exchange rate to be used to convert at the prevailing U.S. dollar equivalent."
Wells Fargo also benefits - from increased FX trading volume and a transaction fee, which it splits with S1. S1 also earns revenue from selling the software on a subscription basis, either hosted at its data centers or installed in-house.
Where No Code Has Gone Before
The software itself is something of a milestone in its use of Web services standards. "The communication between S1's platform and the Wells Fargo core FX systems is a Web services call through Wells Fargo's firewall, using XML over the open Internet," says Brian Hamilton, vice president and technical sales manager, Wells Fargo Foreign Exchange Services. "There's no dedicated network connection or line between the two services."
Thus, S1 and Wells Fargo have cleared some of the security and interoperability hurdles that have stood in the way of greater adoption of Web services. "It has not yet been a widely accepted practice to allow transactional XML through the firewall at major banks," Hamilton notes. "This is, from what we can tell, the first service to do that."
That's good experience to have. "Architecturally, we've got something that's very scalable and allows us to extend that interface to any customers that may want to use it," Hamilton adds.