Strategic FX management: reducing costs and mitigating risks in cross-border payments

The global foreign exchange (FX) market is undergoing an unprecedented transformation. With the increasing digitalization of international payments and growing economic instability, the way companies manage FX can determine whether their operations remain profitable or suffer significant losses.

For businesses dealing with international payments, strategic FX management is critical. It can mean the difference between healthy profit margins and substantial financial setbacks. This is where fintechs and new technologies are reshaping the cross-border payments landscape, offering more efficient, transparent, and cost-effective solutions.

In this article, we explore the challenges of FX in cross-border payments, strategies to reduce costs and currency volatility, and how technology is redefining efficiency in the global FX market.

What’s at stake? The role of FX in cross-border payments

The foreign exchange (FX) market is the backbone of cross-border transactions, enabling businesses, financial institutions, and governments to convert currencies for trade and investment purposes.

According to the Bank for International Settlements (BIS), the global FX market reached a staggering $7.5 trillion in daily trading volume in 2024, marking a 20% increase since 2022.

Why does this matter?

Any company handling international payments must navigate FX strategically. Exchange rates fluctuate constantly, transaction costs can erode profit margins, and regulatory barriers can restrict operations.

Without an efficient FX strategy, companies risk losing millions each year due to:

• High spreads and hidden fees imposed by traditional banks;
• Slow payment settlements, negatively impacting cash flow;
• Unforeseen currency fluctuations, increasing import and export costs;

Every company should ask itself: Is my FX strategy truly optimizing my global operational costs?

The impact of currency volatility

Currency volatility is one of the biggest risks for companies making international payments. Even minor fluctuations can lead to significant financial impacts, affecting everything from import costs to product pricing in global markets.

Here are a few recent examples:

• The Brazilian real (BRL) depreciated 7.3% against the US dollar in 2024, affecting importers and businesses operating in foreign currency (AP News, 2024)
• The Turkish lira (TRY) lost 34% of its value against the US dollar in 2024, making imports significantly more expensive for Turkish businesses (The Luxury Playbook, 2024)
• The euro (EUR) fluctuated 4.8% against the US dollar in 2024, impacting European companies that pay US suppliers (ECB,2024)

Now, consider a company handling $100 million in annual international payments. A 5% currency fluctuation could result in a $5 million loss if no proper risk mitigation strategy is in place.

The solution isn’t just to track the market, it’s about adopting a strategic approach that integrates intelligent hedging, advanced currency conversion technology, and real-time liquidity access. Having a specialized FX partner like FacilitaPay can be a competitive advantage, ensuring greater predictability, reduced risk exposure, and more efficient operational costs.

Strategies to reduce costs in international transactions

Exchange rate fluctuations and hidden fees from traditional banks can make international payments unnecessarily expensive. To optimize financial resources and ensure greater predictability, companies must implement strategies to reduce FX costs, such as:

1. Smart currency hedging:

FX hedging is a crucial tool for businesses looking to protect themselves from currency fluctuations. Studies show that companies implementing hedging strategies experience greater financial predictability and reduced exposure to currency-related losses. Common strategies include:

• Forward contracts: Lock in a future exchange rate to ensure cost predictability;
• Currency options: Protect against currency devaluation without sacrificing potential gains;
• Financial netting: Offset payables and receivables across subsidiaries to reduce the need for frequent FX conversions;

2. Leveraging fintechs to cut costs:

Fintechs specializing in FX, like FacilitaPay, are eliminating intermediaries and providing instant liquidity with reduced spreads. These solutions offer:

• Real-time currency conversion for better exchange rates;
• Faster settlement times, improving cash flow efficiency;
• Full transparency, avoiding hidden banking fees;

3. The role of AI and blockchain in FX:

Artificial intelligence (AI) enhances FX pricing, adjusting exchange rates in real time to minimize losses, while blockchain and stablecoins eliminate intermediaries and ensure instant settlement. Companies integrating these solutions reduce operational costs, increase predictability, and optimize global cash flow.

Turning FX efficiency into a competitive advantage

The FX market increasingly demands strategy, technology, and innovation. Companies that fail to optimize their FX transactions risk substantial financial losses. However, the solutions are available, for example, real-time FX pricing, automated hedging strategies and blockchain-based cross-border payments. Those who leverage these solutions will gain a competitive edge in global markets, improving operational efficiency, reducing financial exposure, and unlocking new growth opportunities.

If your company is looking for a strategic FX partner to help reduce costs and optimize international payments, get in touch with one of our specialists today.