International trade is growing by leaps and bounds for Wells Fargo, which hopes a Web-based foreign exchange alliance with S1 will place it firmly ahead of the curve as cross border business banking continues to grow.
The financial institution and the Internet technology firm have entered into an agreement that will give financial institutions of all sizes the ability to offer international banking services to their business customers. The new service allows a range of foreign exchange services under the bank's own brand, which is designed to provide a seamless user experience to that bank's customers.
The agreement come as the environment for small business and banks to do business cross border is improving, as the long-term impacts of currency and regulatory changes from several years past come to fruition.
"We've seen rapid growth and demand in international trade, with 30 percent yearly growth five years running," says Gregg Napoli, svp of Wells Fargo Foreign Exchange Service, who attributes the growth to the movement toward free trade that followed the North American Free Trade Agreement and the introduction of the euro. "It's made trade with foreign countries much more accessible as barriers have been removed."
Napoli says the dollar volume of international transactions is growing at a fast pace, and with that comes a growth in business transfers, small businesses and plenty of individuals transferring money as well. He also says there has been an increase in residents repatriating money to their countries of origin.
The Wells/S1 offering, believed to be the only one of its kind in the market, is aimed at the segment of businesses and banks that increasingly have international customers, but don't have the critical mass to operate their own foreign exchange platform. "The technology is aimed at smaller banks that can't afford the high investment that's needed to run a high-profile foreign exchange operation," says Lee Kidder, director of wholesale banking research for TowerGroup. "They don't have the volume of traffic from their clients to make the investments."
But these smaller banks and businesses are driving the current growth in international business. The Commerce Department says that about 90 percent of all exporters in the U.S. are small businesses. While the actual dollar volume of foreign transactions from these small businesses may lag behind the activity of large corporations, small businesses still constitute an important part of the foreign exchange market.
Under the new arrangement, banks that do not have the infrastructure to support the international needs of business clients will have a direct connection to Wells Fargo's execution capabilities. The new service is an extension of Well Fargo's existing Foreign Exchange On-line application, which is a real-time foreign exchange delivery system that supports a bank's foreign payment transaction and information needs via the Internet. The existing service offers banks with access to buy or sell a wide range of currencies on both a spot and forward basis, and print drafts locally. It also offers reporting and straight-through processing.
For its part, S1 has developed an on-line interface that enables businesses to initiate foreign exchange transactions from their own PCs, reducing the costs associated with providing this service. The new service is delivered as a module that is fully integrated with S1 Business Banking and S1 Enterprise Platform, and is made possible by connection to Wells Fargo's WellsXchange Web service.
The service will provide final payment settlement to foreign beneficiaries in addition to foreign exchange liquidity in a number of currencies. Wells Fargo will provide real-time exchange rates and manage trade execution and initiate settlement instructions on behalf of its correspondent bank customers. These correspondent banks will in turn provide foreign exchange services to their own business customers. Wells Fargo will handle all aspects of payment execution, but the service itself will appear under the brand name of the correspondent bank. That will give the local banks their own on-line foreign exchange offering, including the incremental revenue, without the complexity of managing the back-end operations that are required to process foreign transactions.
These banks will be able to initiate foreign transactions through a single on-line solution, without phone calls or waiting for confirmations, reduce the need for manual entries on foreign exchange transactions, accelerate the completion of foreign currency payments and access reports that provide users detailed data on existing and pending transactions at a glance. Wells Fargo has about 2,800 correspondent banks and S1 has about 4,000 banking clients. "Wells gets the new business, and both S1 and the bank get transaction revenue," says Ross McKay, vp of product management for S1.
"The smaller bank wins because it can offer its own clients a first-rate foreign exchange service without having to invest any capital in the technology required for that," Kidder says. "And the end customers thinks he's getting the service from the smaller bank."





