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Dynamic FX hedging at heart of BNP Paribas-Kantox partnership

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By:
Paul Golden
Published on:

Corporates' increasing need to use treasury resources more efficiently has persuaded BNP Paribas to partner with fintech Kantox to offer a new dynamic hedging solution to clients.

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Dawn of a new partnership between BNP Paribas and Kantox


BNP Paribas has unveiled a strategic partnership with Kantox, an FX-focused fintech, that will enable EMEA-based treasurers to automate and streamline FX workflows. It is designed to complement the range of products already available on BNP Paribas’ digital banking platform, Centric.

Dynamic hedging addresses customer demand for greater efficiency in FX processes – a demand that is usually driven by a need to use treasury resources more effectively, explains Xavier Gallant, co-head of corporate rates, FX and local markets sales EMEA at BNP Paribas.

Xavier Gallant 160x186

Xavier Gallant,
BNP Paribas

“One of the key features for customers is that it provides full automation of treasury processes from identification of currency exposures to execution and reporting of transactions,” he says. “Automating low-value-added functions such as day-to-day hedging enables the treasury team to focus on more strategic issues.” These could include selling bonds or carrying out acquisitions, for example.

The solution also improves the control framework around the execution of FX, so that rather than involving multiple treasury dealers with different approaches to hedging, a customer can ensure compliance with best practice because the rules are set for all currencies and exposures.

Gallant says the two parties have been in discussions for the last 18 months. “We started by contacting selected clients to ascertain their appetite for dynamic hedging,” he adds. “We have to recognize that every client has different constraints and treasury systems, so implementation is a bespoke process.”

BNP Paribas decided to partner with Kantox rather than using a white label solution because it could get access to a service that was already being used by more than 100 customers across 12 countries.


We have a significant development facility within the bank and have invested heavily in digital growth. But the reality is that Kantox has developed a very successful business model and the solution was live and tested 
 - Xavier Gallant, BNP Paribas

“We considered building a product in-house,” says Gallant. “We have a significant development facility within the bank and have invested heavily in digital growth. But the reality is that Kantox has developed a very successful business model and the solution was live and tested.”

This is the first partnership of its type for BNP Paribas in corporate FX, but Gallant is confident that bank-fintech partnerships will become more common in this market.

According to Kantox, micro-hedging solutions have already proved that the impact of transactional FX risk on a company’s P&L can be reduced to almost zero. Its view is that 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.

Changing attitudes

When discussing partnerships with banks, Philippe Gelis, CEO and co-founder of Kantox, has observed that fintechs are always trying to find the right balance between disclosing enough to make their technology appealing, while not saying too much. 

However, he also believes that banks’ attitudes toward fintech companies have changed significantly over the last five years. They have realized that they cannot keep up with the pace of innovation and therefore need to strike the right balance between investing in and replacing their older legacy systems.

Philippe Gelis Kantox 160x186

Philippe Gelis,
Kantox

“We are seeing more of a trend toward banks partnering with or investing in and acquiring fintech companies,” adds Gelis.

He says there are several reasons why his company has focused on developing partnerships rather than simply providing a white label solution.

First, a white label approach means the provider is simply one of many technology suppliers to a bank. “We have built unique technology for FX workflow automation and we want to highlight that, something that is possible only through co-branding," says Gelis.

"Secondly, our partnerships consist of plugging our software into clients’ enterprise resource planning systems through our API or FTP connection and then connecting to banks’ FX liquidity. By nature we will face the client when deploying our software, so a white label approach makes little sense.”

In August, Kantox announced that it was supplying its dynamic hedging solution to Silicon Valley Bank. “We appointed a head of bank partnerships last year to help us really focus on commercial partnerships and that effort is now paying off,” says Gelis.