If a company has to pay a supplier in China in US dollars, they want access to a cheap and frictionless digital process – whether the currency they buy comes from a peer or not is beside the point.
That is the view of Philippe Gelis, CEO of Kantox, who describes the term P2P as irrelevant.
“It has some resonance for retail business, but we stopped using it some years ago when we discovered that even the largest banks are not able to match more than 25% of their trades, which basically means that a successful P2P model only matches one trade in every four,” he says.
According to Gelis, the real buzz is around differentiated technology such as dynamic hedging solutions that fully automate the corporate FX workflow from exposure and data capture, to hedging policy execution, trading and post-trade analytics.
Others play down the significance of internal matching of trades.
James Hickman, chief commercial officer at FairFX, agrees that the customer’s priorities are making sure they can transact at a fair value, in a timely manner and securely.
“As long as any platform acts as settlement guarantor then risk can be mitigated,” he says. “Without this safety net, larger transactions will remain outside of these types of platforms.”
All CurrencyFair customers deposit funds before transacting, so there are always 100% funds available if a transaction is fully P2P, explains the firm’s CEO Paul Byrne.
“This is no different to a bank where a customer is not aware of the source of the matching funds in an FX transaction,” he adds.
Most P2P providers are focused on small transaction sizes – generally less than £500 – whilst only a handful cater for businesses and larger transactions, suggests Byrne.
“This is partly structural since P2P players targeting larger transaction sizes have higher compliance technology and staffing requirements,” he says.
The clients of P2P international currency payments platform Midpoint are generally not that interested in how their trades are executed, according to the firm’s CEO David Wong.
While the results of an internal client survey conducted by the firm found that speed of payment was considered more important than spreads, the most important factor for users of the service was the cost saving compared with conventional FX services.
The level of internal matching has no bearing on the service and rates that the client receives, he says, adding: “We use internal netting to help manage our own liquidity, ensuring speed of payment and delivery for clients whilst lowering our own costs.”
Erik Edin, business product manager at TransferWise, says it initially focused on the consumer space “because that is where the costs are highest and the problem of hiding fees in the exchange-rate mark-up is greatest”, and suggests most of the innovation in the P2P space begins in the retail market.
The company processes £2 billion in transaction volume per month, mostly for corporate customers.
TransferWise started out matching P2P transfers, but as its volumes have grown it has built out its own banking infrastructure. It recently announced it has its own settlement account with the Bank of England, giving it direct access to local clearing.
FairFX’s Hickman acknowledges that offering a true corporate P2P service requires enormous resources.
“It is extremely difficult to achieve perfect symmetry on demand, so there still needs to be a counterparty in the middle of each transaction so that trades can take place in a timely manner and at the best value for the customer,” he says.
It is not all doom and gloom, though.
CurrencyFair’s Byrne says his firm has seen an increase in the number of small businesses using its platform during the past 18 months and that CurrencyFair is profitable, while TransferWise has also announced profitable results and Midpoint’s volumes were up 40% in the last quarter.
Wong at Midpoint says there is still a clear distinction between providers of retail P2P FX services and those focused on the corporate market.
“Corporates will have different needs – such as mass-payout capabilities, integration with their existing ERP [enterprise resource planning] or accounting systems, telephone booking and live support – and there are also different requirements for on-boarding, KYC [know your customer] and AML [anti-money laundering] for corporate clients,” he says.
“There are also more fintech companies focused on the consumer FX and payments space.”