As featured in My Planet Liverpool magazine Issue 26 (June 2018)
The Foreign Exchange (FX) merry-go-round of companies changing their FX brokers every year is coming to an end, and the cycle of change for a better price, fee structure, hedging idea or analysis promises is becoming moot – and companies such as Infinity International are ringing the changes.
Infinity International is a privately owned, UK based broker and one of the fastest growing FX companies in Europe, with a 60% year-on-year growth. They believe that it is a customer’s issues that should drive an FX policy, not the market.
Liverpool and northwest Senior Currency Consultant, Ian Ledgerton, explains that for too long the focus of our industry has been price, and thus the decision making process has been based upon where the FX market is going, a variable that we cannot control. Furthermore, this is not an element of policy that we can predict, despite the amount of evidence and chatter to the contrary.
With a direct effect upon the cost of goods, Infinity International are working with clients and developing tailored solutions that are wider than the apparent FX aspects of the business, but are bespoke and right for that particular business. Their solutions are developed alongside the clients’ commercial objectives and competitive landscape – variables that Infinity International can control – to reduce the impact that volatility has upon their client’s business, and the objective ultimately is to outperform their clients’ competition, not the market.
Possessing a background in the FX industry around the world, working for major multinational players, Ian outlined that there are a number of fundamental changes needed in the industry in order to move away from the notion of getting clients to base their hedging strategy upon the latest set of financial predictions. Anyone involved with commercial FX will know that exchange rates are vulnerable to interest rate movements around the world, but are fickle and also move at the whim of every major social, financial and political influence.
A current FX discussion is typically a client asking what will be the cost of the next payment in (eg) USD. This implies that the client is taking the time for each payment to compare market “spot rates” between brokers, in order to ensure that they get the best possible rate in the market. This is often over as small as 0.0005 in an exchange rate. Ian suggests that they take a break to have a cup of tea, come back in 20 minutes and the odds are 50:50 that the extra 20 “pips” will be available!
Most businesses will “hedge” their FX exposures. This is when a business knows it has a known FX exposure at a future date and rather than wait until that date to make the payment they will lock the exchange rates in today, hence having a known cost of goods.
Fewer businesses will hedge against forecast orders, in part because brokers introduce the FX market variable to the decision making process. The exchange rates can vary massively between the date of placing of the order with an overseas supplier and when the client needs to pay the supplier (just look what happened to the GBP after Brexit – falling 20%). If the margin in the product/service is less than the change in the exchange rates then all profits are negated. “The reasons why a potential client hedges are where the discussion begins”, explained Ian. Managing the budgeted rates and smoothing the volatility for payments in 12 months time will prove more effective than spending a day to get a better spot payment – and it is folly to chase a theoretical hedged rate based upon an inconstant factor, instead of looking at the longer term constants, such as sales, margins, reporting and cash flow.
Another industry issue is the relationship between a client and a FX dealer/CRM and the time spent managing varied issues such as FX exposures, budgeted rates and consolidated payment schedules, as the constraints of looking after too many clients means that any promised solution becomes a waste of energy and when there is no value the merry-go-round starts again or the customer returns home to their bank. “Our competitors brag about having over 60,000 commercial customers on one hand – but on the other hand they have only 10-15 dealers managing those accounts. Additionally, the banks have replicated the fall in bank branches with number of specialist FX consultants and they have moved the smaller clients onto an on-line platform with no interaction. The FX turnover threshold of clients being encouraged to move to a web-based service is rising to a level that makes all SME’s vulnerable.
Ian explained that part of the Infinity International success is working with 250/300 clients with a similar headcount, turning over the same FX. They have a strategy that enables dealers to have the time to understand, assess, and implement an FX plan for clients, and will challenge the understanding of how things work. It is also the delegation of managing the FX rates on behalf of the client, based upon an agreed plan to control moving rate averages for a targeted future period, rather than a market change.
The management of clients is not just about FX. Ian outlined a few examples where he has been introduced to a potential client because their FX management had become an issue. One such client was struggling with implications of FRS 102 regulations- and as a result was spending too much time managing volatility. Through a series of meeting and discussions, Infinity International have been able to help the client by adopting much of the reporting for the client, gaining approvals from their auditors, and adding real value to the client, with costs and time. Additionally, the same process has enabled Infinity to challenge the established FX beliefs of the client, which has allowed the company to identify a better way to negate the wild volatility in their overseas projects.
Working with clients to uncover problems and apply the FX tools of the trade is a fundamental change, but not a new concept. The same approach is used by treasurers and CFOs of the biggest companies across the globe, but now the skill, time and resource are available to SMEs, to ensure currency volatility does not wipe out a business.
Ian said, “Following an initial FX audit, if the customer has a sound payments platform, has the necessary hedging credit, easily complies with auditors and has a strong control on budgets and layering with an FX supplier that manages their business risks fully, then we will not waste their time replicating a working solution”.
The reason for Infinity International’s growth is that the strategy of broader problem solving for clients with tailored solutions works. The ultimate aim is that Infinity will not tell their clients when a rate or hedge is right, but that the client tells Infinity that the hedge has been effective. Ian sums up, “The reason Infinity International is growing is because when we win clients, they remain clients.”
FOR MORE INFORMATION PLEASE CONTACT:
Senior Business Development Manager
Infinity International Limited
T: 07887 640 009
Infinity International is registered by the FCA under the Payment Services Regulations 2009 for the provision of Payment Services.