By Seth Phillips, founder and CEO of the intelligent hedging platform Bound
As Jeff Goldblum memorably said in Jurassic Park, “life finds a way”. Even in an environment dominated by T-Rex-sized incumbents, new species will always find a way to evolve and thrive.
The same can be said for business innovators.
Take financial services, one of the world’s oldest and most highly regulated sectors. With roots dating back thousands of years to Mesopotamian grain merchants, the sector’s huge size and complexity is matched only by the raft of regulations that govern it, and the power of the large institutions that control the infrastructure of the global financial system.
Yet even here, with so many institutional incumbents fiercely guarding their territory, it is possible for newcomers with game-changing ideas to break through and flourish.
Fintechs find their place
Fintechs such as the digital banks Monzo and Revolut have found their place – and voice – in consumer banking, winning praise, and huge numbers of users, with their seamless customer experience. It’s no accident that their fellow neobank N26 was named best bank in the world by Forbes last year.
If you have an issue with your conventional high street bank, the chances are you’ll endure a long wait to talk to someone in a call centre. Yet with digital banks, most customer service issues can be resolved quickly, and at the touch of an app.
Meanwhile Klarna has risen to become a giant player in the world of buy now, pay later lending. The Swedish payments firm is currently valued at $46 billion.
In the consumer foreign exchange (FX) space, the newly-listed Wise (formerly Transferwise) has revolutionised international money transfers by charging a flat, low fee for each transfer, rather than an opaque exchange rate mark-up.
And finally Stripe, the brainchild of two Irish wunderkind brothers, has streamlined the processing of payments so that transactions can be integrated effortlessly into a customer’s online experience.
Crying out for competition
Yet while these winds of change have blown through most of the financial services landscape, the commercial FX sector has thus far proved stubbornly resistant to innovation and the benefits that new ideas and technology can bring.
Despite regulation that is supposed to protect the interests of customers, commercial FX is crying out for more transparency and competition. Instead it is too often opaque, a closed shop in which rival FX brokerages promise to conjure up ultra-low fees and supposedly razor-thin commissions, but respond to customer queries about what they’re actually doing with all the candour of a Magic Circle magician.
It is an area ripe for disruption that has remained largely undigitised – until now.
Bound (www.bound.co) was created to give businesses the best of commercial FX – hedging that protects their bottom line from exchange rate fluctuations – in a way that is consistent, easy to use and fully transparent. We want to shine a light on the currency hedging process while removing the layers of complexity that too often obscure it.
The merry-go-round of trust
Where FX hedging remains an analogue experience, with sales still conducted largely at the end of a phone, there will always be a lack of visibility of actual market rates and thus the potential for shady practice. Once a broker has established a rapport with a client and conducted a few trades there is nothing to prevent them, almost imperceptibly, edging up their commission rate.
It is a merry-go-round of trust where increasing customer comfort provides more opportunity for the unscrupulous to profit gouge as the client’s level of scrutiny falls. Once clients realise their FX trades are costing them more than they should, they often move to a rival broker, where things might start well, but before long the familiar cycle begins again.
We want to break that cycle, offering a platform with clear and fixed pricing where the commission rate will always stay the same for every transaction. And, inspired by our fellow fintechs, we will bring commercial FX into the 21st century; where customer experience is paramount, clients can trade in seconds and are guaranteed a rapid and effective response around the clock.
Taking a leaf from Tesla
Moving forward, we will democratise the hedging process, attracting small firms that previously never considered having it in their toolbox, dissuaded by the complex language and Byzantine nature of the process.
In the current environment of uneven economic growth and rising interest rates, exchange rate volatility is a risk to any business that trades across borders.
For small businesses in particular, successful hedging of currency risk can make the difference between making a profit – or even a loss – on a deal. That’s why this is a market with huge growth potential, but which has been left out in the cold for too long.
Just as Tesla has reinvented cars, but is initially selling to customers who know how to drive, we’ve started by targeting firms who’ve grown frustrated with conventional brokers and want a more transparent alternative.
In time Tesla will market self-driving cars to people who neither have, nor need, a driving licence. In the same way, our intelligent platform will eventually enable thousands of businesses who know little about hedging – other than that it protects them from currency risk – to embed its benefits into their processes, transparently and autonomously.
And, following the theory of disruption, by shaking up the commercial FX sector we will force the incumbents to accelerate their own innovations, raising the bar for all.
Life finds a way — and so will we.
