Currency brokers and credit lines

By on December 3rd, 2015 in FinTech, Peer-to-peer FX

For many, brokers offer a cheaper alternative to exchanging currency with a bank. That being said, brokers still have their overheads, so why stop there if you don’t require their additional services?

Brokers make their money not only by charging fees on currency transactions (visibly or as part of the rate) but also by extending credit lines and other financial services to their customers.

These services are attractive — they offer ways of putting money to work, for example hedging unused funds on the currency markets, or tiding things over in a period of negative cash flow.

The catch

The downside is that such services are costly to provide. To offer credit requires credit checking, which can be labour-intensive. That means people, which means salaries, heating and lighting, the lot.

In general these overheads are not allocated to specific services, as that would be unmanageable for any broker. Rather, they are spread across all service offerings.

The result, at first glance, is a one-stop shop for all an organisation’s currency related needs. Peel back the layers however and you realise you are paying for the coffee machines, the car park, the staff canteen… and you won’t see a currency broker, nor a credit checker, on a bike.

Complexity costs, sometimes considerably more than individual services. Simplicity on the other hand, the delivery of a single service efficiently and well, can result in a substantial cost saving.

In addition, the perceived advantages of trying to be clever may require more effort than a client can actually allocate. Hedging, for example, is not that different from other forms of gambling – take your eye off the ball and you risk losing out, but the bookkeeper always wins!

The alternative

At freemarket, we just don’t go there. We could be clever and call it disintermediation — less intermediaries means less costs. But actually what we’re really looking to do is one, simple thing, well — matchmaking funded parties and mechanising the exchange.

Which means no credit checks, no staff overheads, and no fancy gold Rolex watches. Just simplicity and efficiency, at a low cost.


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James is freemarket’s Chief Commercial Officer. He has a history of finding new ways to solve age-old financial challenges and was responsible for launching some of the first online money transfer and prepaid card initiatives in Europe.


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