Easing the FX Burden: Why Treasurers are Turning to Fintech
TMI Awards 2018 Best Risk Management Solution
Treasurers and CFOs are the company commanders of foreign exchange, currency hedging, and international payments. Kantox, a leading fintech company, is helping businesses to overcome complex FX challenges with an innovative automated micro-hedging solution called Dynamic Hedging – a worthy winner of TMI’s 2018 Technology Innovation Award for the Best Risk Management Solution.
Manual processes, FX volatility, and lack of visibility over FX exposures are among the major challenges faced by corporate treasurers when managing their multi-currency flows. And for some companies, the difference between profit, loss, and even bankruptcy, can come down to how well they manage their FX exposures. This is precisely why the judges were looking for a Risk Management Solution that was scalable, automated and effective – leveraging the latest technology to help solve the myriad FX challenges faced by many treasurers.
As Philippe Gelis, CEO, Kantox, explains: “With fierce competition across many industries and profit margins continuing to be squeezed, Kantox believes that, with the right technology, FX can be approached as a tool to be leveraged, rather than a burden to be managed. To this end, we launched our Dynamic Hedging solution in 2016. We then expanded the functionality significantly in 2018, with the introduction of Dynamic Hedging Analytics (DH Analytics), a live, data-rich dashboard.”
The dashboard provides real-time insights into a company’s hedged and unhedged exposures, allowing users to see high-level information at a glance, or to drill down into the detail. DH Analytics also allows treasurers to streamline their reporting process and gain better visibility for cash management purposes. And by switching from Excel to a live platform, data is visually represented, removing the need for manual analysis.
This new functionality only elevates the existing Dynamic Hedging solution. As the name suggests, the solution allows treasurers to dynamically hedge their FX risk by hedging their exposure in real-time. With fast and flexible implementation (only taking circa 2-3 weeks), companies can easily hedge hundreds of thousands of micro-transactions a year in multiple currency pairs.
Kantox employs straight-through processing (STP) and leverages automation technology to minimise the manual workload. The treasurer defines their FX risk policy and a tailored rules-based hedging solution is applied.
“The beauty of a STP hedging solution is that it doesn’t cost more time or money to hedge each microtransaction than to hedge in bulk. It’s about replacing people with machines that manage the FX workflow and execute trades 24 hours a day, six days a week,” says Gelis. “And with easily-defined FX rules and transparent reporting at their fingertips, companies can fully control their currency management, reduce administrative loads, and free up the treasury team to focus on other value-added tasks,” he notes.
Gelis and the TMI judges are by no means alone in seeing the benefits of this solution.
Alex Wakeford, Finance Director, Secret Escapes, comments: “The finance profession is evolving pretty quickly in parallel with the emergence of new automated solutions like Kantox’s Dynamic Hedging. Dynamic Hedging offers an advanced software solution which enables us to efficiently monitor FX risk, manage our exposure, and execute hedges automatically. This has created greater efficiencies within the finance department.”
Passing the test
Moreover, when markets become volatile, and particularly when important geopolitical or economic events occur, having an automated hedging solution that can react in real time makes all the difference. “I recall that on the day of the Brexit referendum result, clients that were already using an automated hedging solution arrived at their offices with their risk fully under control, since their hedges were executed during the night. Meanwhile, others were panicking, trying to estimate their FX exposure and hedge in bulk as soon as possible – all as the market continued to fall. One of them confessed to me that they lost close to EUR 2m.”
Addressing the Award win, Gelis comments: “Dynamic Hedging takes an innovative approach to solving the multiple FX issues faced by treasurers and CFOs, using software automation. This Award provides independent validation of our fast and flexible software, which provides businesses with an FX solution that is affordable – regardless of their size.”