The Brexit is still making waves. What do you think will be the consequences for customers in consumer finance or do you already observe changes at the moment?
A few things on Brexit. Firstly, I didn’t see it coming… What we could see before the Brexit in foreign exchange is that people doing larger transactions, meaning more than 10,000 pounds, started to exhibit a different behavior than people doing smaller transactions. People making large transactions put a lot of thought into it, they try to pick the perfect moment. For example, an Irish expat living in Australia who has saved up money which he wants to bring back to Ireland will think about when to make the transaction, as he does not have to do it today or tomorrow. We saw larger Sterling to Euro transaction nearly disappear as people were waiting for the British to vote remain and for the pound to grow stronger again against the Euro. But that’s not what happened as we all know. When Britain voted leave we saw more transactions in the first six hours after the results came out than in a normal week. Since then, there have been a few impacts for us. Whatever amount of Sterling gets transacted now, with it being 20% weaker than it was, the revenue we get from that is a lot lower.
In terms of customer behavior, there are a few things as well. Since Brexit, people were still waiting and try to pick their moment. September was quieter than normal for the larger transactions and when the hard Brexit language came up around October, the rate dropped a bit more and actually drew people back in the market. They were waiting for things to improve but instead they went the other way. So they decided they had to get their transactions done anyway.
A lot of our business consists of British people transferring money into Euro for buying property in other EU countries. For many of them acquiring a house abroad is not viable anymore as it has gotten much more expensive. Another part comes from British pensioners living in e.g. France or Spain, who live off their pension which now converts into less Euros for them. It is affecting peoples' lives.
What do you learn from you customers regarding their financial needs?
There are two types of customers: the ones transferring smaller amounts and want to do this quick and simple for a fairly good price. The other type is people with a broader time horizon who are very rate sensitive. We allow them to put the order on our site with a specific rate and customers going the other way can match these orders off. This enables a customers experiences banks are not able to offer.
Do you think there’s any strategy banks can follow to retain customers who clearly get a better experience with alternative services?
Banks are doing all the things you would expect them to do. They cannot do much, they cannot cut the prices as their cost base is very different from ours, for example.
- They try to explore possibilities how to be more like the startups themselves by setting up some innovation labs
- They try to move closer to the startups by doing incubators and similar things
- They started more venture arms and invested in startups. This way they can make revenue off their customers who haven’t moved yet while having a stake in the success the startups have
- We already talked to some banks about offering our service through their channels. Direct cooperation and partnership can oviously be a way for them, too
Given the increasing fragmentation of the market, how could a bank in 20 years look like?
You can only think about possibilities because looking twenty years ahead, we are completely lacking context. It will perhaps be in a way that no-one has actually thought of, with artificial intelligence, a blockchain-like decentralized system and all many more things playing into it?
Banks are full of smart people, they have the money and they will have to be extremely negligent to disappear. And I think a lot of the consumer finance disruption scene right now isn’t really disruption. It’s companies that know how to build a good user interface and acquire customers quickly, in many cases underpriced whilst doing that, so with business models that don’t work in the long run. We will have to see how many of them will actually stay in the market. There is some real disruption mixed in with the noise but there’s a lot of buzz around it.
Most banks will catch up eventually but of course also change in the process.
CurrencyFair has announced that they closed an €8 Million Euro funding round last week and rebuilt their management team by hiring experienced executives from the industry in order to be able to scale further.