Another Friday Feedback has come and gone.
On February 8th, 2019 our own Andrew Maff sat down with David Nicholls, Director of Enterprise Development and eCommerce of OFX, to talk about what OFX does and how it can help you with money transferring and currency exchange.
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David Nicholls: ... probably one of the world's longest standing currency companies, so we help businesses of all sizes move money around the world faster and at lower cost than they can do with their banks. We have kind of a number of different products that support various different SMEs and for our online seller clients, or our kind of global merchants, we have a global currency account that gives them the equivalent of a local bank account in the U.S., Canada, U.K., Europe, Australia, Hong Kong, to enable them to collect their overseas revenue in the currency they're selling it internationally and then move that back to either their kind of home currency at a much better exchange rate than they would get from a market place or a [inaudible 00:00:53] or a bank, or just use those funds that they've collected internationally to pay their taxes, or supplies, and kind of net out the requirement of moving money across borders unnecessarily.
Andrew Maff: Beautiful. Fantastic. [crosstalk 00:01:09] Really good way to put that together. All right, let's touch on what you first mentioned, so in the past couple weeks, I know a lots changed, I saw a big player left the U.S. and I know there's a lot of things going on, so is it something in the industry that's changing, is it, what do you think it is?
David Nicholls: No, I don't think it's necessarily something in the industry that's changing, there's a lot of companies that have grown very quickly in the payment space over the last 10 years and they have a lot of private equity money, I guess, that's gone in and it was well publicized that there was potentially an acquisition event that happened in that instance which they may have made it difficult for them to keep their U.S. operations running.
And you know, we know those folks really well, they're a great business and I'm sure that they did everything that they could not to have had to close down. But I don't think it's a big C change in the industry at all, and as far as we're concerned we're a public company down in Australia, we're really focused on the U.S. market. It's unfortunate they had to do that, but it's a benefit for us, because we're here for the long term and we're focused on the U.S. market.
Hopefully, we can help people that haven't got a home anymore.
Andrew Maff: Nice. What is it, what are your thoughts on the way 2019 is gonna kind of shape out with the way that certain business owners should be kind of utilizing all the, I mean, you have a ton different products so what is the best kind of approach for the new year?
David Nicholls: Yeah, I think the payment industry is pretty interesting as far as it's gone with an eCommerce sector particularly, I know there's a number of different I suppose, payment processing solutions that have popped up, particularly in the cross border space, where you can collect money, obviously overseas and then bring it back just at a better rate whenever you generate those revenues.
But what we see is as this international and cross border trade becomes more established, we've got customers that are looking for a little bit more than just a vanilla payment process with a [inaudible 00:03:16] that currency flows and making sure that they're mitigating some of that currency volatility risk by potentially buying currency in advance when they're anticipating how much they might be selling and protecting themselves against the volatility which is really increasing and is gonna likely to continue to increase in the currency markets in 2019.
Andrew Maff: Okay. I always get this question and I know it's always a stupid to ask you guys, but it's basically when's the right time for me to pull my money back into whichever country I'm in, which is always like you don't know, because that's not how the economy works, but do you guys find that there's a good time for where a business is in it's current life for them to actually do something like that, or is it really just that much of almost a gamble?
David Nicholls: No, you can never predict where the currency markets are gonna go. And like I say, this it to your spot on the dot, but where I see the trend going is the eCommerce business is getting more sophisticated and they should be getting more sophisticated with the way that they manage this. And so what that means is understanding what is affecting the currency markets and doing things like, with us you can forward buy your currency, so if you know that your cross border flows or you've got a good idea that your cross border flows are gonna be say, you're gonna be collection 200,000 pounds in the U.K. over the course of the year, bringing that back to the U.S.
What you should be looking to do is forward buying say, $50,000 of that, $75,000 of that, $100,000 of that, so you've got a fixed price for bringing that money back and you can budget to it. And then you're not gonna be affected adversely if the currency market moves against you for the entirety of those kind of annual overseas revenues, and I call that process doing more kind of price cost averaging, so then over the long run, you're getting an average better exchange rate, rather than just being either doing really well if the currency market moves in your favor, or what we see more often is doing really badly because you haven't planned for the currency markets moving adversely. And then just getting caught out when you need to bring that money back.
Andrew Maff: I like that, and it sounds like if you do something like that, it's a little bit more project-able. Am I right?
David Nicholls: Yep. Yeah, exactly. Businesses are in the business of protecting margins and budgeting, and shouldn't really be in the business of speculating on currency markets and honestly businesses don't speculate on currency markets on purpose, it's just they do it by proxy because they probably aren't aware that there's ways they can protect the downside by just thinking through things in a bit more detail.
Andrew Maff: Nice. I know one of the things we've had similar conversations with a lot of eCommerce sellers is about the fact of actually keeping the money overseas from whichever country you're in and considering when you're working with a third party vendor whether you have a 3PL out there, you have your manufacturers out there or anything like that, and sometimes when they send you an invoice, it's sent in our case, let's say we're in the U.S. so it's sent in U.S. dollars, and they include the conversion that they have to deal with and they may or may not mark it up a little bit, but if you ask them for an invoice in, let's say, a euro and you actually have a company set together like OFX, where you can actually pay them that way, you can actually save money by not having to deal with that conversion rate. Is that something you guys see a lot of?
David Nicholls: Yeah, exactly, and again, something that I would urge customers to do, it's a very unique U.S. problem actually for U.S. businesses is that when they've got oversea suppliers is that they often just have to pay them in U.S. dollars. And you can find in a lot of cases, not all the cases, but that invoice is padded to mitigate for the fact that the company at the other end is wearing the currency risk, because someone's wearing currency risk.
And so, we always urge our customers is to get the invoice in U.S. dollars and also get it in euros and you can work out what conversion they're gonna be applying to that invoice. And then if it makes more sense to pad in euros then we can figure out whether that's gonna be saving you money and then pay the invoice in euros, it doesn't really make any difference in terms of a payment process or any complication.
It just helps you potentially save money on that padding that could have been added. You've just got to kind of get into the nitty gritty, check those things and use a specialist that can kind of help you dig through that in a bit more detail and give you some assurances that you are making the right decision, because there could be other instances where your suppliers maybe messed up the exchange rate or has got a really good dollar to euro rate that they've hedged and they're passing on some saving to you. But you've just got to kind of check that and make sure you're doing your budgeting properly and saving wherever you can.
Andrew Maff: What kind of approach with all of the different solutions and products that you guys offer do you see a majority of the eCommerce sellers using?
David Nicholls: By far the most popular product is the global currency account, because it gives you the ability to collect those revenues, and I'd call it like an enterprise treasury solution for small businesses. Every business, regardless of their size, wants to get to the point where they can net their foreign currency flows by collecting, storing their international foreign currencies and [inaudible 00:08:33] those.
That's the most popular product and then second to that is budgeting for your payables. And then using forward contracts potentially to hedge some of that exposure, and like I say, get some price cost averaging and just some sensible, very simple budgeting processes in place to mitigate the risk of the volatility and the currency markets.
Andrew Maff: Who do you see as essentially the, I want to say the ideal customer to work with you, obviously I know you guys offer a very wide range of a lot of things so it's kind of up in the air on that, but on an eCommerce side, where do you see, like okay, that's usually a good fit for you guys?
David Nicholls: Yeah, I think that it's people that are selling cross border of any size. We're happy to speak to people that are just thinking about going international, and they just want to get some better understanding of what is involved in doing that and how to manage that currency exposure.
And then we've got customers all the way up to merchants that might have $50 to $100 million overseas revenue business that needs a much more advanced techniques, much more advanced processing, so we can help everyone at every different end of the scale.
All of our customers get the same level of service as well. They all get an account manager, they get someone that they can pick the phone up to 24, seven, 365 to bounce ideas off of and just help them kind of navigate that payments world with a bit more detail.
The perfect person just to sort of summarize, anyone that's thinking about going international or is already selling international and wants to expand.
Andrew Maff: Beautiful. Your space, it's a very interesting space, I see people come in it all the time, but there's really on a handful of you that are very successful at this whole global financing for any kind of business, and what is it, that really either A, keeps you guys kind of sitting nice at the top or is very, is what really differentiates you from all of the competition that, especially lately that's starting to come into your space.
David Nicholls: Like I say, we've been around since 1998, so we've got a very deep regulatory footprint all over the world. You can't just get payment licenses to do cross border payments easily. It takes a long time, a big investment, it's a huge barrier to entry, and the other thing that differentiates us is that out of the whole industry, we've probably got the deepest payment network and what I would mean by that is the ability to send and receive local payments, not going through Swyft to speed things up and make sure the receiving fees at the other end are a lot lower, and we pride ourselves on the fact, because the amount of time we've been around, we've got relationships with 18 of the world's largest banks.
A lot of the new players that you see coming into the market now, they will kind of aggregate their platforms through intermediaries through tier two banks, through kind of less stable networks, and you can pretty much name any of the top 20 biggest global banks and I can almost guarantee that they're our partners and those are the people that support our networks and you just can't really build that anymore. And certainly the regulatory and licensing footprint is really hard to come by.
Andrew Maff: Wow. Well done.
David Nicholls: Yeah. The other thing that I say differentiates us quite a bit is without wanting to advertise stuff too much but we've been very meticulous over the course of our existence to build in scalable processes into what we do. When we started our business, Fintech wasn't really a thing, but we were probably the first company that did peer to peer payments and all of our payments are manually reconciled and that sounds like a standard thing to do, but we make probably a million, million and a half payments a year. We moved $24 billion through our bank accounts, and we've got around 20 to 30 operational staff that do that.
If you look at some of the other companies, they're running into triple digits with the people that need to support those processes and what it means, is that we can consistently keep our costs low, and we pass those on to our customers. Say, we don't need to give people honeymoon rates to come onboard and then margins suddenly increase. We make sure that we keep our cost base low, and we can pass that value on consistently to our customers. I'd say that's another point of differentiation in our kind of 20 plus years experience of doing that is a big differentiator.
Andrew Maff: Nice. I love to keep these nice and short and sweet, and you've obviously given us a ton of information already, obviously very much appreciative. Would you mind giving us some closing remarks where people can find stuff about OFX all that fun stuff.
David Nicholls: Yeah, sure, I mean, if you just go on our website ofx.com, we've got sections on there for online sellers, we're building out our knowledge hub at the moment, trying to provide as much free information as possible about just expanding your business internationally. And we're here to kind of bounce ideas off of, talk about the industry, and just anyone that wants to learn about payments should get in touch and have a chat with us. I say to lots of our customers also that are out there building businesses is that we started way back on a beach in Australia, we're fortunate enough to have gone through that journey we're now a public company, but we've learned a lot along the way, and like many of those lessons are as applicable to a small eCommerce business today as it is for a financial institutional like we are now that is still predominately an eCommerce business as well. We've got an online platform too.
Andrew Maff: Perfect. David, much appreciated.
David Nicholls: Cool.
Andrew Maff: Thanks so much.
David Nicholls: All right, yeah nice to chat. Thanks.
Andrew Maff: Yeah, good talking to you, thank you. Enjoy your weekend. Have a good one.
David Nicholls: All right, see you, bye.
Andrew Maff: Bye.