Multinational companies transacting in multiple currencies have more to manage than the average SMB. Owners of ecommerce, travel, and digital advertising companies not only have to run a profitable business, but also develop strategies to limit forex risk to secure profits.
But figuring out when to sell Pounds or when to exchange Euros for Dollars is only half the battle. Relying on a bank or employee to execute complex strategies leaves a margin of error that can lead to hard earned profits disappearing.
One fintech upstart looking to limit the risk involved with managing FX positions is the London-based Kantox.
Most FX startups preach transparency and lower fees than when solving the FX problem, giving a side-by-side comparison with banks and showing the price difference. Kantox went in a different direction by building a technologically-advanced platform to proactively help solve a SMB’s needs
“In fintech, and specifically FX, companies’ strategies were marketing driven: educating the market that FX isn’t transparent and then presenting a more competitive solution,” said co-founder and CEO Philippe Gelis. “But at some point we need something more, mainly advancing technology.”
Kantox’s technology solutions range in complexity from simple processing of FX orders to complex APIs and payment hubs. An SMB can connect its Treasury Management System to the Kantox platform, allowing for simultaneous payments in multiple currencies to destinations all over the world.
One of Kantox’s newest products is its Dynamic Hedging solution. The software allows companies dealing in multiple currencies to automate their FX exposure. Clients input currency exposure strategies, and the software automatically executes the game plan.
Trying to tackle forex exposure tactics à la Transferwise or WorldRemit would only offset price. But for SMBs, lower costs are a good thing, but not everything. Moving $500 to your wife’s account in Estonia is a lot different than paying 11 vendors in four different currencies by midnight or you’re out of business.
“Our view was that in the long run, trying to be more competitive with transparent forex companies is just a race to the bottom,” explained Gelis. “We focused on how to bring more than savings to a business. This is why we’re gaining traction; clients appreciate value over price.”
Even though Kantox isn’t using the same model as low fee forex companies doesn’t mean transparency isn’t important. Kantox displays the mid market rate to clients, and is open about what it charges: five basis points on the FX rate and a per trade fee that depends on the size of the client. At the end of the month, SMBs using the software get an invoice with a monthly summary of fees.
Kantox is still small when it comes to FX. $4 billion has moved through the platform since its inception in June of 2011, and Dynamic Hedging has seen over $100 million in transfers since its launch. That’s a great start, but not close to becoming “mainstream”.
The tools that Kantox’s software provides allow managers to focus on running their businesses, not executing FX payments. SMBs still have to come up with hedging strategies to protect their profits, but can spend significantly less time on payments.