John Min, chief economist at Monex USA, joins the Purposeful Banker podcast to share how community banks can strengthen business relationships and boost their bottom line by offering foreign exchange services.
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Full Transcript:
Cheryl Brown
Hello and welcome to The Purposeful Banker, the leading commercial banking podcast brought to you by Q2, where we discuss the big topics on the minds of today’s best bankers. I’m Cheryl Brown. Welcome to the show.
I’m welcoming John Min to the show today. John is chief economist for Monex, a Q2 Innovation Studio partner that provides foreign exchange risk management and global payment solutions. And John’s also a professor of economics at George Mason University in Virginia, and he’s on the advisory board of ClearShift, which is a fintech that enables cross-border payments. John’s a busy guy. Welcome to the show, John.
John Min
Thank you. Thank you so much. Glad to be here.
Cheryl Brown
So one thing I love to do with our first-time podcast guests is just get to know you a little bit better. So just tell me a little bit about yourself, how long you’ve been in the baking industry.
John Min
Oh man, I can’t believe I’m saying this. I’ve been in the banking industry for 32 years, and in fact, just recently I’ve been playing with my retirement calculator at my university because technically I’m State of Virginia employee. So yeah, 32, 33 years. I know banking from back in the day was very small. The cross-border payment was so new and now it’s just blown into one of the largest markets in the world ever.
Cheryl Brown
And so you’ve been with Monex for seven years, is that right?
John Min
Seven years, yeah. Previous to that, I started another fintech with my neighbor. We ran that business for four or five years and we made a big mistake. We brought this private equity in because we needed their cash to go to Asia and to the Middle East and Europe. And then later the private equity folks kicked us out.
Cheryl Brown
A hard lesson learned there.
John Min
Yes. No, there’s no free lunch. That’s what I teach my econ students. There’s no free lunch and we needed the money, but oh gosh, four or five years later, they took us out. But subsequently they built it up and they sold it to another bigger company, Alibaba, out of China. So it was about $700 million deal. Previous to that, we did a consulting, my business partner and I, so I worked for various banks like JP Morgan, EverBank, and everything else. We helped them get enlightened with cross-border payment opportunities and so on. But all this time I got my MBA, PhD. I ended up being an econ teacher.
Cheryl Brown
So deep, deep experience with foreign exchange.
John Min
And the reason I got into teaching is because I thought I was … can I use the word “BS” on the podcast?
Cheryl Brown
Sure, go for it.
John Min
So in the banking days, I used to say, well, this is what’s happening. That’s what’s happening. And I thought I was BSing people. I really didn’t know. So I took graduate school classes for 10 years just to figure out how this world operates, global economy payments and all that. And I ended up getting a PhD, not that I was pursuing it, just because I want to be able to know what the confidence, what I say to my client is exactly what it is. It’s not made up. It’s not regurgitation of someone else’s opinion. So I got that academic side, the business side, but combined is a very good combination because a lot of my students get internships with companies I’m involved in, and then of course, I bring in the real world example to my classes. So I think everyone benefits now.
Cheryl Brown
And as the chief economist at Monex, you bring that combination of real world experience and academic experience to help banks and credit unions, right?
John Min
Yeah, I’m the chief nerdy economist. That’s my nickname. I’m that nerdy dude that shows up and answer questions about what are the risks of getting into cross-border payments. Simple questions, like why do exchange rates move so much? It changes day to day. I do pretend … well, I shouldn’t say “I”, I have a strong team that supports me. We do economic forecasts for our bank, FI clients. We let them know there’s X percentage chance there will be a recession. We let them know which way the interest rate might go. And I’m very proud to say there are 96 financial institutions that provide their forecast to Bloomberg on a quarterly basis. And my team has been consistently in top five in terms of accuracy. So we’re a small team based out of Washington dc, but we’re very, very good at letting our fi ed clients know when the road is going to turn, especially when it comes to economy and interest rates. By the way, interest rate is not coming down anytime soon.
Cheryl Brown
All of us waiting to buy a car …
John Min
I know, we’re waiting for the mortgage. I know there’s so many people waiting for the mortgage rates to come down, but I think it’s kind of stuck at the current ranges until the inflation comes a little bit more. But what the tariff in the picture, it’s going to be a while before we see the yield curve. Just settle down a little bit.
Cheryl Brown
That’s a great segue to my next question, which we’re here to talk about foreign exchange services and many financial institutions be, they may feel like this is unfamiliar territory for them. They don’t offer this to their business customers. They usually send them, I guess down the street to Wells Fargo or wherever. But you’re saying they may be missing something by doing that.
John Min
Missing a lot. From the customer service point of view, they’re missing a lot because the world has become so much more globalized. There are so many imports and exports, but more importantly, the whole e-commerce just explode. People are buying stuff from different websites, e-commerce sites. So there’s a lot of cross-border commercial activities, which means behind the scene there’s a lot of financial transactions or the cross-border payments. So there’s a need for it. And if you’re small to midsize FI and you don’t see that much cross-border payers, that’s because your customers are walking with their feet. They’re going to these bigger financial institutions that can provide that service. Now, there’s a spillover effect. It’s not that they don’t like the local FIs they have gotten to know, they trust it’s in the community. It’s that they’re buying things from let’s say French wine from supplier, the vineyard in France, and they want to get paid in euros.
And if your FI is not providing competitive rates or service delivery, whatever it might be, then they’re forced to go to larger banks and then open up a bank account to do the transactions. Now your deposit is at a risk. So it’s like a selection bias. You don’t know what you don’t know. You don’t see what you don’t see, right? Because if you don’t see those cross-border payments, well then you may say, well, there’s no need for it in our market. But reality could be those customers are walking with their feet with their deposit to larger financial institutions.
Cheryl Brown
And the truth of the matter is, is that it’s no longer just large companies that need foreign exchange, right? It dribbles down all the way into maybe some of the smallest, maybe sole proprietorships.
John Min
You would be surprised. I mean, right now, the small to midsized businesses that tapped into international supply chain. So every community I know has companies that import parts, materials, the wholesalers, they import chocolates from Switzerland, they sell a retail, and even the individuals are getting involved. If you go to some of these e-commerce website, those goods are coming from overseas, and some of them want to get paid in local currencies. So yes, the need for cross-border payments, it’s roughly about 20% of our GDP. That’s about our imports. So it’s a significant part of commercial activities in every community that I can think of.
Cheryl Brown
So we’ve kind of established the need for financial institutions to do this. What’s been keeping them from doing it before now? Why don’t they already offer it?
John Min
Because foreign exchange is foreign to them. They never got into it. Back in the 1970s, we lived in a world that was dominated by U.S. dollars. Everyone wanted to get paid in dollars. Everyone sent dollars. So you didn’t have to worry about Spanish peseta, Polish złoty, or Italian lira. Why deal with all that? Just send dollars and dollars. But now you fast forward 30, 35 years, you got folks overseas, they want to get paid in their local currencies because if you send dollars to them, you’re causing a lot of headache for them because they receive dollars and they have to convert it to local currency, and then they have no idea what the conversion is going to be. And some of these banks overseas, when they receive in dollars, when they convert it, they make extra fee charges. So the suppliers overseas or the beneficiaries overseas, they’re increasingly saying, pay us in our currency, especially like euro, Japanese yen, Swiss franc. These are major currencies and it’s no longer a dollar-dominated global economy, and this trend will continue. So we all need to embrace the fact that reality is other countries use other currencies.
Cheryl Brown
And you mentioned tariffs before. We all read the news, and we know that tariffs are a hot topic right now. Are tariffs going to affect that use of foreign exchange? Will it increase it, decrease it, have no effect?
John Min
We have not seen it. Well, I’ll take it back. The last three months has been the record months for us because everyone is front loading. So they’ve been doubling up on their imports inventories to build all that. So there’s been actually more need for cross-border payments. Another pattern that we’re seeing is that the high tariff, 145% is imposed on goods from China. So a lot of companies are now looking for suppliers in other markets.
Now in China, they accept dollars, but now they’re looking for suppliers in Vietnam, Malaysia, India, as an alternative to circumvent the tariff. But then these countries want to get paid in Vietnamese dong Indian rupee. Now these are more exotic currencies. So a lot of smaller FIs may provide cross-border payment services for major currencies, but these are exotic currencies. And to provide exotic currencies, you have to go to bigger banks like HSBC, Wells Fargo, because they have a broader coverage.
So that’s another … it’s not opportunity, I guess it’s an opportunity for bigger banks to attract more customers and deposits because they offer those type of currencies. So it’s really important to have a broad range. And the tariff is forcing importers businesses in the United States to look for these type of currencies they never dealt with. And obviously that requires additional services. And if you’re a small fintech and you’re not providing the services, not only are you missing out, but you’re putting your deposit base at risk.
Cheryl Brown
So you mentioned before that if you don’t think that you have a foreign exchange happening among your customer base, then it’s probably because they’re getting it elsewhere. How can smaller and community and regional-sized banks and credit unions, how can they find that information? What should they be looking for among their customer data to let them know that they need to offer this service?
John Min
So we have identified, I call it super cluster communities in all of the United States. And some of the common theme, the pattern that we see is that if you have a larger university in your footprint, guarantee, there’s a significant amount of cross-border payments. If you have a military in your footprint, military bases I should say, then you have a lot of cross-border payments. If you have a lot of international businesses like Charlottesville, Charlotte, somewhere in South Carolina with all the German auto parts suppliers, Tennessee near Toyota plant with all the suppliers, there’s a massive amount of cross-border payments. And if you live in a Zip code with about 15 to 20% of the population is foreign born, then there’s a tremendous amount of cross-border payments. So there are some markers that you can use.
And in fact, at my university, I utilize my students, the TAs. So we look at the Zip code, the footprint, and we can pretty much figure out what’s the hot area, what’s not. And you’ll be surprised we found a super cluster or the super opportunity for cross-border payments in Huntsville, Alabama. That’s because of NASA, by the way. And there’s a lot of scientists from all over the world there. And then North Carolina research triangle, massive amount of cross-border payments. And then a place in Tennessee, because apparently there’s a lot of Japanese restaurants because there’s Toyota Honda plant, and whenever there’s a plant, there’s a lot of secondary suppliers from overseas. They put the plant next to it for the just-in-time supply management. And that creates a lot of payments. And of course, right down the street from us is the World Bank IMF. So I’m at the middle of one of the super cluster areas.
But oh, here’s another rule of thumb. If you have a wine importer in your footprint, yes, there’s a cross- border payments. They import containers of wine every month, and they’re like $30-$40,000 worth of cross border payments they have to make on a regular basis.
Cheryl Brown
Well, and I would think that because community and regional banks, they’re so good, one of their things that they’re so good at is knowing their community.
John Min
Yes.
Cheryl Brown
I just think about where I live. I’m in Richardson, Texas. You would not think that … I’m just the first suburb north of Dallas. You would not think of Richardson, Texas, as being a hub for Asian cuisine. But we have a little China area of town where we have Asian cuisine from every part of Asia that you can imagine. All home-owned by people, and you know that they’re importing the food.
John Min
That, I bet there’s a surge of Indian rupee wire transfers.
Cheryl Brown
Oh, yes, we do. Yeah.
John Min
No, no. I do know for a fact, we just did analysis, Dallas area, Houston—mega mega centers for cross-border payments.
Cheryl Brown
So if you just look around your community, you might see, Hey, I know that family that owns that restaurant. They’re one of my customers, but they’re not using me for their foreign exchange.
John Min
No. And the reason they’re not using it is because they want to get competitive pricing on exchange rates. They want the wires to go out and get to the beneficiary, reasonable time. And a lot of times when you’re a small FI and you’re using a corresponding bank, the corresponding bank has absolutely no incentive to provide competitive pricing when it comes to conversion or the delivery. So it takes two, three, four days for the wire to settle, get to the beneficiary. Along the way, if you have other corresponding banks involved, everyone takes a piece of cut. So when you send the money out, the actual amount of money that’s received may be different than what you thought. So if you are not happy with the service, especially on the domestic side… Now we’re getting used to real-time payments. You get frustrated. It’s like, why is it taking us so long? It should be next day or the same day. So then they start looking around, and obviously that’s when they go directly to these larger banks and open up a bank account. Yeah, that’s when your deposit is at risk.
Cheryl Brown
Then you told me a story, a personal story, your own story about how this affected your own relationship with your regional bank. Can you tell us that story?
John Min
Yeah. My school has a credit union. It’s called Apple, Apple Credit Union. It is phenomenal. I know everyone there. I mean, I’ve been using that for the past 20 some odd years. Great service. It’s almost like a family. You go in, you spend 20 minutes talking to everyone. It is in a great service when it comes to car loans, home equity loans and all that. Except I do consulting overseas and I advise companies in London, as well. And I had to send money and receive money. And when I had to send money to London, I had to fill out a form. And then I submitted the form and they could not tell me how much it was going to cost until it got debited from my account. And they could not tell me when the wire will get there. They said anywhere from three to four, five days, literally, I can imagine someone walking into a wire room logging onto one of the big bank services platform and punching it in.
So then I said, this is unacceptable. Oh, the point happened was when I received funds from overseas, I got charged for receiving international fund that was $45. And I said, no, this is unacceptable. So I went down the street, opened a bank account at Truist, not that because I need another bank account, but I needed for my international aspect of doing business. And then of course, that was seven, eight years ago, and now all my money deposit is for Truist. And then I use my Apple credit account to just receive the payroll direct deposit twice a month. And once I receive it, I transfer it to Truist and then I send the wire in and out 24/7 using their platform. So that’s exactly the case where forget about making money on the cross-border payments. I mean, that’s an added benefit. The real benefit is defending and growing your deposit base.
Cheryl Brown
Yeah, creating those sticky relationships that will keep you down the road. So I can imagine that one of, we talked about it a little bit before, one of the reasons that smaller banks and credit unions aren’t already doing this is because they maybe don’t understand it, but it doesn’t have to be that hard, right?
John Min
No.
Cheryl Brown
With somebody like Monex and just a little plug here for Q2 and our Innovation Studio, using a fintech like Monex to kind of take the guesswork out of that and take the complexity out of it, there’s no reason that smaller banks and credit unions can’t get on board and start offering this, right?
John Min
No. It’s just like a flipping a switch because we’re integrated to Q2 through API. So if you need to make cross-border payments, you are just accessing our services through Q2 real time. And all our international wires are settled within a day or the same day. And our conversion is very competitive and reasonable by wire fees. Not $50, $60, $70. It’s very reasonable. And you also will have access to what’s known as, we call it Domino’s Pizza Tracker. We can tell you exactly where your international transfer is along the route. So you’re getting a first in class service all through your Q2 platform.
Cheryl Brown
We’ve been talking this week for a lot about small businesses, and on this podcast we talk a lot about small businesses and their need to really do their financial dealings on the go quickly, little headache. So this is just one of the ways that as a financial institution, you can become more of a partner for your small business customers.
John Min
Not only that, there’s a financial benefit to the FIs because we convert dollars to foreign currency. So there’s a convergent fee that’s about 1% to 2%. Now, some of the bigger banks will 3%, 4%, 5%. So even at 2%, you’re providing a great competitive conversion rate, but at the same time, we’re willing to share that revenue with our FI client or the customer that will be our customer.
So this becomes not only added value service, but it could generate recurring revenue that’s fee-based. It’s not interest rate-based. So it’s a nice way to diversify your revenue source. And these are payments. So the wine importers will buy one or two containers every month. And as we get to the holiday season, three, four containers, each container is worth about $30, $40, $50,000 with the notional value at 2%, it’s about $800, $900 worth of revenue potential based on the revenue split arrangement. We put in a contract with the FIs, you can make $200, $300. So really the revenue potential is not in the international wire fee. That’s what the banks have focused on, but it’s really in the exchange rates. Now, if you’re giving all this to larger banks to do it, you don’t have the capability to do it. And these banks, I suspect they’re not going to share any of that revenue. So all that hidden revenue is staying with the larger financial institutions. So you can bring it in-house and you can monetize it as well.
Cheryl Brown
And you said, how many countries, how many currencies does Monex support?
John Min
We cover 142 currencies. Any currency that the State Department says is not regulated, that we recover. And it’s turning out to be a tremendous advantage for us in the marketplace because again, businesses are diversifying their supply chain. So they’re dealing with brand new country or the currency. It’s like, I need Indian rupee, I need Colombian peso, Brazilian reais, Vietnamese dong, and Malaysia ringgits. It’s like, wow. It’s like going to world buffet now. It used to be back in the day, just China, China, maybe Japan, maybe Europe, it was just boring. But now we got so many different currencies.
Cheryl Brown
We’re truly a global economy.
John Min
Yes, and the tariff is accelerating that because companies are diversifying away from China.
Cheryl Brown
So FIs, if you’re looking for a way to serve businesses of any size, to make those relationships stronger, this is a way that you can do that. Something that maybe you’re not thinking about offering. Consider this.
John Min
And it’s very easy to do. It’s very easy to do. It is just plug and play through the Q2 core processing.
Cheryl Brown
And for those that are Q2 clients, I’ll put a link to our Innovation Studio in the show notes and contact us and we can get you connected with Monex. So thank you so much. I appreciate your insights. This has been … I knew nothing. Debbie Smart—I always talk about Debbie Smart—Debbie Smart met you at Nacha
John Min
Yes. We had a great time. She actually came to our session because we had a partner bank on the stage with us. And our job is to educate at Nacha because there are so many opportunities for small to mid-size FIs to capitalize on it and take advantage of it and provide better service.
Cheryl Brown
And she said, you’ve got to talk to John on the podcast. I knew nothing about foreign exchange. So thank you. You’ve given me just a little bit of information—enough to be dangerous probably. But thank you so much. We appreciate your time.
John Min
Thank you so much.
Cheryl Brown
And that’s it for another episode of The Purposeful Banker. A reminder to all of our listeners to share your feedback on our podcast content, you can go to q2.com/podsurvey, take a short, 10-question, brief little survey, and let us know what you think. There’s a link in the show notes for that. You can subscribe to the show wherever you listen to podcasts, including YouTube, Apple, and Spotify. And you can see our archive of podcasts at hub.q2.com/podcasts. Until next time, this is Cheryl Brown and you’ve been listening to The Purposeful Banker.
