FX 2.0

Over 30 years ago, an ambitious and smart young man decided there was a fantastic market opportunity to provide convenient, (relatively) better value physical foreign exchange services to travelers. Bretton Woods had recently collapsed ushering in floating exchange rates and the age of global trans-continental travel was gaining momentum. Leaving a fledgling career in investment banking at the age of 24 to become an entrepreneur, Lloyd Dorfman opened his first Bureau de Change in Holborn and founded Travelex in 1976. In 2005, Apax Partners bought 63% valuing the firm at almost £1.7 billion. Since then they have continued to prosper and grow, buying Ruesch in 2007 and expanding their presence in the corporate FX services market. In their last published accounts (for 2007), Travelex posted an EBITDA of £107 million on revenues of £540 million. It’s a great story and I’m sure a case study on successful entrepreneurship in business schools around the world.

Despite their success – indeed inspired by their success – we think there is an exceptional opportunity to build a new breed of FX broker – a business that from it’s inception is built upon a foundation of 21st century technology. A business that not only embraces transparency but is predicated upon it. A business that leverages the cost advantages afforded by having a modern web-based infrastructure to profitably offer better value – both prices and service – to its customers. A business that recognizes the underlying similarity of retail and institutional business but is cognizant of the subtle but important differences in what these customers need. And that is why we are so pleased to be founding investors in FX Capital Group who we believe will bring a fresh approach to an enormous and growing market in foreign exchange payments. FX 2.0 if you like.

Using the same infrastructural backbone, FXCG will offer foreign exchange and international payments via two complimentary channels: FX Capital Group for corporates, trust and equity brokers and RabbitFX for individuals. They launched privately last fall and are now in public beta, trading by phone and email with most of the account opening process automated. Later this year, they will be rolling out a fully automated (account opening, trading) web-based platform supported by an expert and experienced sales/account management team. From the start, they offer a couple of compelling advantages:

• Excellent and – importantly – fully transparent pricing; typically their prices are up to 4% better than high street banks and up to 2% better than specialist FX brokers. When you trade, you see exactly where they have traded on the wholesale market and a detailed breakdown of the markup. And if you are a potential customer that wants to ‘kick the tires’ and see just how much you would have saved on your past FX purchases by trading with FXCG, if you know the rate, the date and better yet the approximate time you dealt in the past, FXCG will give you an audit report highlighting the difference between the price you traded at and what you would have got with them.
• They offer 40 currency pairs, more than any other broker, meaning for the vast majority of customers that you can do all your business in one place.
• Minimum trading size of just £100, facilitating trading for almost any need, without discriminating against modest size transactions.

As if this wasn’t enough, the company has a number of other exciting product and service offerings in the pipeline already and indeed the capital they have raised will allow them to accelerate their build out having refined and developed the business plan over the past 18 months. Of course, the traditional point of view might ask why not wait a few months until all the main platforms and services are ready to go live, but we support the founders in the belief that the best way to build a business that is relevant to your customers is to start doing business and build-in strong feedback loops with your early adopters to help guide development and investment priorities. Indeed this is par for the course for many technology startups, and is an approach we used to great effect (despite a lot of initial resistance) in Digital Markets at DrKW, where as it happens Nigel Verdon – the founder and CEO of FX Capital Group – worked with me as COO of that business.

Not only do we think the business opportunity is vast, and have first hand experience of the founders’ ability to deliver, we are also a customer. We are in the process of opening up our corporate account and personally I have been a guinea pig for Nigel and his team for over a year now. Previously I did my FX business with my bank and then exasperated by the ridiculous mark-ups and complete lack of commercial sense, I moved my business to HIFX. While the pricing was better (in a one-eyed-man-is-king kind of way), and the service was friendly and competent, it was still a pain in the ass to trade with them. Obviously, although admittedly I’ve almost certainly benefited from an enhanced personal touch from RabbitFX as an alpha customer, the experience has been excellent and refreshing. Let’s just say I no longer cringe when I need to make an FX payment. And it will only get easier. I can highly recommend them – if you are the early adopter type sign up now. If you like to wait for the initial bugs to get worked out of the OS, sign-up later this year when they launch their fully automated platform.

We talk a lot about the new technology ecosystem that allows startups across a variety of industries to build and run their companies more cheaply and efficiently – cloud computing, SaaS, mash-ups, widgets, etc. And indeed it is fantastic and transformational. But typically (although not always) this focus tends to ignore the non-tech / non-UI/UX, mundane aspects of running a business: finance, accounting, and – especially for European companies – foreign exchange! With this in mind, I would encourage the young vibrant startups and companies to have a look at FX Capital Group for managing your foreign exchange payments – not only are they the best value, I think you’ll find a company with a similar ethos and culture, open to suggestions, admitting when they could do better and working hard to make you happy. Further for any businesses that have foreign exchange at the heart of their value chain – travel related businesses are an obvious example – think about offering your customers an integrated one-stop shop for their FX needs via a white label implementation of FXCG’s platform.

Travelex succeeded because it was innovative, opportunistic and agile and they competed against on the one hand large and lethargic banks and on the other hand a fragmented sea of small, local private operators. We think FX Capital Group can build on this example and drive the next phase of innovation and growth in this enormous and important market. Hat tip to Lloyd for the inspiration!

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