What banks are getting completely wrong about FX transactions?

High FX spreads

When exchanging currencies, most commercial banks will offer higher spreads than brokerage firms, which is not an attractive deal for anyone transacting on the forex market. Furthermore, while the mid-market rate is available publicly, banks typically add a substantial markup, sometimes as much as 2-5%. 

For businesses and individuals transacting in higher volumes, such discrepancies can lead to considerable missed opportunities or losses. It is worth noting that most clients do not realize how much they are losing per transaction because banks bundle fees into the exchange rate, making comparisons difficult. This lack of competitiveness has created opportunities for fintech firms to take advantage and offer lower spreads and transparent pricing.

Lack of real-time execution

Unlike forex trading platforms that offer instant order execution, especially on major currencies, many banks still process currency transactions manually or in periodic batches. Such delays can cause slippage, where the exchange rate changes unfavorably between the time a client submits a transaction request and the time when it actually goes through. This makes it very inconvenient for traders who need transactions to be executed immediately, which forces them to operate active brokerage accounts, particularly for transactions of a larger volume. 

In volatile markets, even a few minutes can make a massive difference when it comes to the exchange rate between two currencies, making it a dealbreaker for individuals who exchange currencies on a frequent basis.

Limited transparency

Banks rarely provide clear insight into how they calculate their FX rates or how much they charge in spreads. Clients often receive a single all-inclusive quote with no detailed breakdown of the spread or other associated fees. This opacity makes it difficult for users to compare options or understand if they are getting a fair deal. On the other hand, forex trading platforms and other fintech firms tend to be much more forthcoming with their fee structure, which fosters greater trust and loyalty. 

While some banks have taken the efforts to modernize their systems and make them more attractive to forex traders, the overall divide still remains stark.

Slow settlement

Bank-based forex transactions can take a couple of business days to settle, which comes at a stark contrast to forex trading platforms, where transactions are executed instantly. The processing times are particularly long when it comes to international wire transfers involving correspondent banks.
These delays are typically due to outdated infrastructure, compliance checks, and intermediary steps. On the other hand, fintech platforms leveraging modern payment rails, blockchain, or local payment networks can often deliver same-day or near-instant transactions. For businesses managing cash flow or responding to real-time opportunities, banking delays can be costly and infuriating.

Inflexible accessibility

Some banks restrict their forex trading services to institutional clients or high net worth individuals, offering limited functionality or poor rates to smaller businesses and retail customers. This exclusivity leaves out a large market of SMEs and freelancers who regularly exchange currencies and deal with cross-border transactions. 

Fintechs and trading platforms capitalise on this gap by offering user-friendly apps, competitive rates, and services tailored to unbanked client segments.

Weak tech integration

Many legacy banking systems are not often built with the modern forex trader in mind, which means that they simply offer an exchange service, while more complex instruments are either not available or reserved for VIP and high-net-worth clients. Therefore, commercial clients are unable to easily automate forex transactions, integrate with ERP systems, or access real-time market data feeds. 

On the contrary, fintech competitors often offer seamless integration, programmatic trading, and even white label solutions. Which enable businesses to build forex functions into their own platforms. This discrepancy in technical capabilities often means that traditional commercial banking institutions fall short of the expectations of their clients who are engaged in active forex trading.