International payments have primarily been the territory of large banks, but a growing number of community banks have begun to offer international payment services – including foreign currency and wire transfers – to meet the needs of their commercial and retail customers.
Bankers’ Bank Northeast of Glastonbury, Conn., has created an international payments service in a partnership with Thomas Cook Financial Services. The program allows New England community banks to offer the services and retain fee income from transactions.
“Years ago it was only the big banks that had international branches,” Sposito said. “Now all the big banks have made arrangements with international correspondents. With the advent of improved communications between banks, we’re now able to offer the service through community banks.”
Six banks have enrolled in the service, and the bank expects to sign another six institutions soon, officials said. Banks in the region can benefit from offering international payments because of New England’s international trade.
“I think there’s a tremendous demand for international payment services in New England, particularly in Connecticut and Massachusetts,” said Bankers’ Bank Chief Financial Officer Allen L. Nielsen. “Approximately 70 percent of businesses in both states either buy or sell something overseas.”
Community banks that provided the service in the past often passed orders on to a larger bank and made little or no money on the transaction, Nielsen said. Those that did not provide the service at all risked sending customers out the door to another bank to conduct their transactions. While some banks look at international payments as a way to keep valuable customers, it can also set a bank apart from its local competitors.
“I think many of the banks start off in a defensive posture, but once they get into it and realize how easy it is for them to take advantage of the new capability, they’re using it as an offensive weapon,” Sposito said.
Thinking Globally
The demand for the payment services has grown as more companies have become involved in international business transactions. The Bankers’ Bank service allows banks to honor checks written in foreign currencies or to send checks in foreign currencies. That can ease the process for banks when a business customer wants to deposit a check that one of the business’ German customers wrote in Deutsche marks.
“I think it’s a direct result of what’s going on globally,” said Bankers’ Bank Northeast President and Chief Executive Officer Peter J. Sposito. “Various businesses throughout the [United States] are doing more and more business overseas, both buying and selling. That’s reflected on their demands on their banks.”
Officials at Peoples Savings Bank in Holyoke asked Bankers’ Bank Northeast to provide such a service to meet the needs of its commercial customers, said Peoples Vice President Thomas Senecal.
“We had commercial customers mostly that were demanding access to foreign currency markets as well as foreign wire transmissions,” Senecal said. “We were looking to get away from large correspondent banks … for fee reasons.”
Because Bankers’ Bank Northeast works with many community banks and has more experience in international payments, it can help the $650 million-asset Peoples Savings Bank navigate the foreign markets, Senecal said. The bank’s next step is to educate the staff at its eight branches about the services, then market the services to customers.
Offering the service to customers gives Peoples Savings Bank a competitive advantage, Senecal said. In the bank’s Western Massachusetts market a string of mergers has caused community banks to compete for commercial customers.
“In our market right now a lot of the regional banks are going through mergers and acquisitions,” Senecal said. “A lot of commercial customers are looking for these services other than the large regionals.”
The key advantage for bank customers in using the service is the ability to save money on currency exchanges. By wiring funds to Singapore in Singapore dollars, a customer can save the money that previously went to converting the U.S. dollars to the local currency.
“We’re going to try to encourage our customers to transfer in foreign currency,” Senecal said. “A lot of foreign countries are dictating their own conversion rates, which can be highly inflated.”
Through the program Thomas Cook Financial Services will help banks lock in rates that secure an exchange rate for up to one year, and foreign currency from more than 100 countries. The service will allow customers traveling overseas to obtain pounds or pesos before boarding the plane.
International payments by businesses and consumers will likely continue to grow in tandem with electronic commerce, Nielsen said.
“With the increase in the global economy, we haven’t even begun to see the effects of e-commerce internationally,” Nielsen said. “If you want to buy French antiques you might just go online and find somebody in France. It’s not just the business sector but the whole area of e-commerce and how people buy things.”
The Bankers’ Bank Northeast formed in 1998. The state-chartered financial institution provides correspondent products and services for more than 45 New England community banks.