This week: BAML, CFPB, Credit Suisse, Currencies Direct, Exchange4Free, Mastercard, Moneycorp, Revolut, TorFX, TransferWise, USD Banknotes
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Currencies Direct published their annual results this past week. As one of the best performing companies in their segment, I talked with their CEO Keith Hatton to discuss what has been driving this. We also take a look into TransferWise's "Mission Zero" and what it means to aim for such tight margins in the business.

Plus a personal highlight this week - bringing my 9 month son into the office to meet the team and see "daddy work". 

First to Currencies Direct...

Currencies Direct's solid performance

Currencies Direct is one of the few private equity owned players in the space. The company focuses on the higher-end consumer space (expats, overseas property purchases), corporates and marketplace sellers.

Whilst many of its peers in these segments have struggled for growth, in the four+ years under private equity ownership, Currencies Direct's growth and profit has been consistent. What's been underpinning this?

Speaking to CEO Keith Hatton this past week, he highlighted four key areas:

  1. Their core differentiator, in Keith's words, is their route to market. As opposed to relying on paid marketing and pay-per-click like many other groups do, Currencies Direct Group has built up a large number of partnerships across the media, financial, property and expat world. These partnerships are relatively sticky and also provide stability as they are gained one by one and lost one by one. 
  2. Currencies Direct (like Moneycorp) is a proven consolidator in the industry having made four acquisitions (Tor FX, Exchange4Free, Foremost Currency and Currencies UK).  This build and buy strategy is common under private equity ownership: buy a smaller company at a lower valuation multiple, remove some costs (i.e. find synergies) and the value of that smaller company rises in its new bigger home.  
  3. The group has invested in technology to deliver what Keith believes is one of the most modern technology stacks in the industry.
  4. The group's operations are not just in London but they also have a significant presence in the lower-cost (but talented) regions of Penzance in the south of England and Mumbai in India. 
Interestingly as well, in a period like last year, when the UK has seen slower growth for many players, the country grew by around 15% for Currencies Direct, while the rest of the world was flat for them. 

Currencies Direct have patient private equity owners. We would not be surprised to see more acquisitions added to the underlying organic growth over the next few years.
Who are Currencies Direct main competitors?

Working towards (nearly) free transfers

Back in January 2017, TransferWise started talking about "Mission Zero". According to the company, Mission Zero stands for the goal of bringing the cost of money transfers down to zero. In their quarterly updates for 2019, TransferWise repeatedly aims for:

"money without borders: instant, convenient, transparent, and eventually free

This stated goal has come under more pressure recently. After a period of sustained price reductions, TransferWise has seen its average cost of transfers rise during 2019, in part due to moving into higher cost corridors to service Asia and Latin America.

In addition, TransferWise has also tried to adapt its pricing model to closer reflect the different drivers of its cost, be it on a volume basis (e.g. liquidity) or transaction basis (ACH or processing fees).

In TransferWise's full annual report released this September, Mission Zero was stated as:

"....our mission to bring the cost of sending money around the world to near zero."

TransferWise has previously said it wants to be a profitable business. We read the goal of zero cost transfers to really be in line with the statement above. As TransferWise said back in early 2018,

"The price of money transfers should drop to zero, but it happens only as fast as the
costs move to zero."


With an industry leader pushing for such tight margins and focusing on volume, what impact will this strategy have on the rest of the sector? At what point might TransferWise's low-cost push start pulling margin from a higher-end focused player like Currencies Direct?


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Moneycorp's banknote business gets a boost

Direct access to US dollar banknotes from the Federal Reserve is unsurprisingly highly restricted and typically reserved for a small number of major banks worldwide. Kudos, therefore, to Moneycorp, who run a wholesale banknote business via their banking arm, and this past week achieved such access. Moneycorp Bank will become the first member of the Federal Reserve’s Foreign Bank International Cash Services (FBICS) program, due to go live in Q4 2019.

Previously, access to US dollar banknotes has been constrained. Only Bank of America Merrill Lynch and Credit Suisse were classed as tier one suppliers, meaning any other supplier would have to pay a margin to access the dollars.

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On our radar this week:
Curated by FXC Intelligence's Team
US CFPB to relax remittance rules
Plans to increasing number of banks and credit unions exempted from the rules
Bloomberg Law
Revolut pushes Open Banking
The fintech has launched a beta version connecting your bank accounts
Revolut Blog
South Africa goes crypto
The South African Central Bank is planning new crypto regulations
Coin Telegraph
PayPal & Mastercard's need for speed
Both companies expand instant transfers to Europe and Singapore

Missed the last few weeks?

What's driving cross-border card and e-wallet payments? (here)
How big tech will impact the sector (here)
Private equity's cross-border payment strategy (here)
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Have a wonderful week,

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