A global remittance platform for exchange houses and Money Services Businesses (MSBs) calculates exchange rates using various factors and methodologies. The goal is to provide competitive rates to customers while still ensuring the platform's profitability. Here are some common methods used to calculate exchange rates:
Interbank Rate: The global remittance platform for exchange houses may base its exchange rates on the interbank rate, which is the rate at which banks buy and sell currencies between themselves. The interbank rate is generally considered the most accurate reflection of the real market value of a currency.
Market Data Aggregation: The global remittance platform for exchange houses may use advanced technology to aggregate real-time market data from various financial sources, including banks, financial institutions, and foreign exchange markets. By analyzing this data, the platform can derive competitive exchange rates.
Spread or Margin: The platform adds a spread or margin to the interbank rate. This spread represents the profit margin for the platform, covering its operational costs and generating revenue. The wider the spread, the higher the profit for the platform, but it may result in less competitive rates for customers.
Volatility Consideration: Exchange rates can be highly volatile due to economic and geopolitical factors. To protect themselves from sudden market fluctuations, the global remittance platform for exchange houses may include a volatility buffer in their rates.
Regulatory Compliance: Exchange houses and MSBs must comply with various financial regulations and licensing requirements. The platform's exchange rate calculations may also consider compliance costs and risk factors associated with specific currency corridors.
Currency Liquidity: Some currencies may be less liquid in the market, making them more challenging to exchange. The global remittance platform for exchange houses may consider this factor while setting rates for less commonly traded currencies.
Customer Segmentation: The global remittance platform for exchange houses might offer different exchange rates based on customer segmentation. For example, high-volume clients or preferred customers may receive more favourable rates compared to retail customers.
Competitor Analysis: The global remittance platform for exchange houses may monitor the rates offered by its competitors and adjust its rates to remain competitive in the market.
It's important to note that exchange rates can fluctuate frequently, sometimes even multiple times within a day. Therefore, a global remittance platform needs to ensure that its rate calculation mechanisms are agile and responsive to real-time market changes.
Exchange rates provided by the global remittance platform for exchange houses might differ depending on the remittance corridors and the specific currencies involved. The platform's ability to offer competitive rates and efficient services plays a significant role in attracting and retaining customers in the competitive remittance industry.
Fable Fintech creates customizable international remittance SaaS solutions / white-label money transfer software / open banking APIs / white-label global payments platforms (SaaS/PaaS)/ Forex rate systems for banks and financial institutions. Fable Fintech also provides cross border B2B, DTC remittance solutions for businesses along with Fx rate systems. Learn more about cross-border remittances and international payment technology on Fable Fintech's cross border payments blog