Recently, Euromoney Magazine published its annual FX Survey 2012. Whether or not you like the survey and trust its findings, at least there is entertainment value in the media coverage that discusses the results. A very entertaining article in the Wall Street Journal provided insights into the great lengths that several participants went to drum up support for their institutions. But there are statements from some of the protagonists that make me smile. Here are two examples:
“Instant results are difficult to achieve in foreign exchange.” (…) Coming in, you need to invest for three to five years before you see results on the scale that the top handful of banks have been [having].”
It’s a matter of perspective but I disagree. There might be some businesses that require multi-year investments before delivering results but FX is not one of them. I can think of a few wineries in Napa Valley where new crop has to mature for years before delivering world class product. Virgin America, on the other hand, launched an entire airline in three years. They achieved this by leveraging a variety of third party service providers to assemble their final product in record time. Likewise, launching your FX business need not require multiple years of investment to deliver a world-class FX product to the market. It can be as simple as setting up a network connection to Integral. You can be up and running in weeks. More complex deployments on FX Grid® might require several weeks or a few months but nothing in the neighborhood of three to five years. That’s just wrong. If you’re in the middle of such a project, consider cutting your losses and give us a call now.
Do-it-yourself is not a valid strategy, even if you had all the time in the world
There is one scenario where such a time frame might be realistic and that is if you decided to build your IT infrastructure from scratch. But who does that still today? It’s like Virgin America designing its own plane to start its new airline. That idea had had its time when aviation was young. Howard Hughes did it in the 1930s. The industry was emerging and innovation in airplane design was a competitive advantage. Hughes proved it by imagining the Lockheed Constellation and putting it into service to much success. (As the first pressurized airliner in widespread use, the Constellation helped to usher in affordable and comfortable air travel.)
However, that business model doesn’t work anymore; whether you’re talking about the airline industry or FX. Outsource and rent what you can when you can is the name of the game in the 21st Century business world. The differentiator has shifted towards superior service and marketing, especially in maturing markets.
Virgin America doesn’t own its planes. On the contrary, they make every attempt to keep fixed costs down. Where they splurge is by creating ‘The Virgin America Experience’, “designed to be like no other” (as per www.VirginAmerica.com). They are doing that with planes from the Airbus A-320 family. Of these, nearly 5,000 are in use today and another 3,000 are ordered. In airline circles, that’s as much a commodity as it gets. Still, you know instantly whether or not you’re flying Virgin America when you set foot in one of their planes. So don’t waste time and efforts to build your proprietary FX system, focus your team on creating the ‘Your-brand-name-here Experience’.
Solving the fixed costs conundrum
“Fixed costs are going to go higher and you need to have revenue momentum to support it.”
I disagree again. Cloud-based services that our customers subscribe to, combined with the pay-as-you-go business model, bear very little weight in terms of fixed costs. There is no hardware or software to buy, no capital investment required. I also don’t see how these fixed costs are going to go higher in that shared infrastructure scenario. On the contrary, if you trade more and make more money, the little you have in fixed costs will decline even more. That’s the beauty of accessing a shared IT infrastructure like FX Grid. If you need more hardware, you rent it for as long as that makes business sense. However; if you need to support your proprietary single-bank system with all the hardware and software and specialized staff then yes, fixed costs are high and most likely will be going to get higher.
No sour grapes
I don’t want to take away from the hard work that the ‘flow monsters’ have put in and the success they have enjoyed over the last decade. Both are well documented and well deserved. What I am talking about is that things have changed. There is a clear alternative to building your own. Firms like Integral have paved the way and the 200+ institutions on our system today are proof that the model is valid. In fact, I am sure some of them are smiling when they read these comments from single-bank systems about how time-consuming and expensive getting into the FX business seems to be.