This week, our CEO, Daniel Webber, spent time with the new RationalFX CEO, Chris Humphrey. Many topics were covered – from technology to the growth of their dual-branded company.

What makes RationalFX unique within a competitive landscape

“We have a unique model in terms of the two brands that we operate, RationalFX and XendPay. The RationalFX side is your FX side – with corporate clients and high net worth individuals. The XendPay Side is more innovative, more online and more aimed at lower value payments. To clarify, when I say lower value payments, I wouldn’t put it in the same category as some of the remittance services, because the average transaction value on XendPay is still £1,200-£1,300.

“We have both of those brands operating with one operational service behind it, from compliance through to payments, finance, customer service, tech development and both brands are managed in a similar way. Yet, clearly both brands are aimed at two different markets. I think that’s relatively unique in our industry.”

In terms of geographies, many players in the space have pushed their brands out to Asia, North American and Australia. RationalFX has chosen not to focus on these markets but work on building out its presence in the European market, especially France and the SME segment there which is much less developed FX market than the UK for example.

“For a while now RationalFX has had a good presence in France, particularly, as we have been there for a number of years now. We’ve really built a successful operation just in that location and we are looking at other European nations as other potential opportunities. With our website being multi-language and our staff being multilingual that helps us facilitate that European offering, which has been a great addition to our business over the last few years.”

On expanding in France

“A good number of years back, before I even joined the company, we went into France with a very low-cost model. It’s not a market that you can turn around quickly – it’s a completely different market, different culture, different client base. It takes time to understand the differences between, say the UK clientele, and the French clientele or any other European clientele. It takes a period of time to penetrate. Once we learned what works well, in that regard, we adapted, we took it forward and progressed. Then it became successful, at which point we pushed a bit more.

“I do not think if we had entered the market aggressively that it would have materialised like that. The more likely scenario is that 18 months down the line, the costs would have been too high for the company and we would have closed it down. Taking our time with a low-cost investment model paid dividends, and this is the approach we are taking in other jurisdictions in Europe, and will be the way we would approach any new countries or territories.”

On how banks will respond to losing customers

Banks have been losing share to payment companies in the UK for a number of years, driven by lower-cost providers and new fintechs offering a variety of alternatives and product extensions. The other side of the coin though is that the banks are also key suppliers to the space as well with virtually every company needing them to operate effectively. 

As Chris explains: “Ultimately, the banks enable us to do what we do. We couldn’t operate without the bank or without the support of the bank. There’s a bit of a conflict here when we talk about them as competitors, because not only are they competitors on a client level, but they’re the operators of our business.

“If you think about the bank as a whole, where are they going to focus their energy and their resource? Is it going to be toward acquiring individual clients and all of the resources needed to acquire customers for relatively low margin, which it would have to in order to compete with companies like us? They can still take a good margin from us and still make healthy profits from businesses like us, while supporting the growth of our business.

“I don’t think banks want to go after your individual clients or your small businesses with such a low value product when they can support companies like ours and make as much money as if they went after the client individually. I don’t see them responding at that level, I see them, as they’ve done so far and as they continue to do in supporting those companies and helping to grow those companies.”

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On how risk in the business will change

Risk is central to the payments space and many companies make it a central component of their culture. Speaking to a bank such as Barclays (interviewed here), risk is everything. 

“In this business you have to get comfortable with risk – FX risk, settlement risk, banking risk, you’ve got a number of risk areas to this business and you’re never going to mitigate these risks. All you can do is minimise the risk that you’re comfortable with. As long as you’ve got good processes in place, processes that the business is comfortable with, contingency plans in place should they be necessary, then you can really only deal with those risks when they occur.”

On how RationalFX approaches risk within its company culture

“That’s all part of everyone’s role, it’s part of their induction process if they’re new staff and it’s part of their ongoing training and development that we run on a regular basis. We do try to strike a balance between managing risk and trying to achieve the commercial objectives of the business. This follows certain policies and processes we have in place, but it also comes down to being a bit entrepreneurial and having a collective consultative view.”

On the transition to a new CEO

The business has now executed over $10bn since inception, has a headcount of over 100 staff and offices in the UK, France and Spain. Chris joined the business as COO three years ago and the transition to CEO was made much easier given this initial tenure in the business, especially in a time of such rapid growth when headcount grew from around 30 staff to the 100 it is now..

“With that kind of element of growth does come change, new opportunities, new challenges. I was part of the culture, part of the business for two years so transitioning into the CEO was actually a somewhat seamless operation.

“Also, because Paresh [the previous CEO and co-founder] and I worked so closely, it wasn’t much of a differentiation between our two roles, a lot of key decisions were already taken between the two or three of us. I understand the culture of RationalFX – there hasn’t been a real need for me to make a big change culturally.

“Culture, for me as well, it takes a long time to create but it takes even longer to change, so for me to change culture when there’s not a need for change is not the right priority for me at this stage. If the business continues to grow at the rate we’ve grown previously, that will be another challenge.”

On how technology is changing the space…slowly

The last five years has seen an emergence of many new technologies in the space and large amounts of venture capital funding to back it. Technology is trying to solve many problems in the space and in some cases, not solving any problems at all.

“What’s typically happened over the last 18 months is that new technologies, new innovative ideas come into the space and immediately get a lot of transaction – everything sounds cool, everything sounds like it’s going to transform our industry. Realistically though, the truth of the matter is, nothing immediately transforms or changes the space. If we think back to when PSD2 was considered and the whole open banking element from that, everything was supposed to happen immediately after PSD2 and little has changed and few open banking products have emerged.

“Blockchain has a lot of capabilities long term. I do think that has got legs in which to have a big impact to our business, but it’s long term. It’s a number of years away. The regulators, the banks need to adopt it for it to be even considered to be something that will transform our business.

“We do believe longer term that blockchain has strong capabilities, when we think about development of our back-end systems and the processes of sending payments. We are in the process of developing capability, it’s all about taking small steps to make sure that it’s providing the right service for us and our clients. That’s a long-term plan with the right partner at this stage.

“I don’t actually think any of these cool things that we keep hearing about are going to have an immediate impact to the business. They are things we need to be aware of, we need to stay on top of, when we look at future proofing our systems, we need to bear them in mind and make sure we’re not just dismissing them, but also make sure we are not just jumping on the bandwagon. Very rarely has there been any instance that has almost transformed the business overnight. We are still doing the same things, almost, that what we were doing a number of years ago.

“Potentially you could argue maybe APIs and the development of a technology from a platform perspective has increased a lot, and it has. We use APIs and I know a lot of our competitors do too. That connection between platforms, whether it be payment providers, service providers like regtech providers, banks and companies like us – the API connection has made things to a degree, quicker and more automated – but again that’s something that’s not new, that’s just something that’s been adopted a lot over the last few years.”

On regtech, AI and everything in between

We’ve previously covered the importance of improving an onboarding journey and reducing acquisition costs. A seamless, automated, compliance process can be at the heart of that and technology has the best chance to reduce the current burden in this part of a payment company’s cost structure.

“I think there’s been a lot of improvement to regtech, the compliance side, onboarding clients, KYC around clients – there’s a very clear and obvious API connection that helps on board clients. But again, it has been done for a good few years. I think the speed and security of payments can be improved, and that’s where you hope the blockchain/Ripple technology can help with that. I think that’s further away, however, to really make a big transition in our business.

“The whole, AI, voice-activated process, again, it’s one of those things that sounds like a really cool concept and clearly there are some huge companies, such as Amazon, who have created smart home hubs that would be interested in that technology, for example, a voice activated remittance.

“Again, however, we are talking long term. There’s nothing obvious that’s not being looked at because it is such a growing and innovative industry. Every aspect is being considered, but in order for these technologies to go to market and make a big transformation in our industry it takes a lot longer than when people jump on a bandwagon and think it’s a really cool service – the actual transformation takes a lot longer. Even though change may be slow, overall we’re excited about the opportunities that technology can create in the sector.”