Navigating Currency Risks in Fintech: Expert Advice from Alistair Cotton

The fintech industry has been rapidly growing in recent years, with more and more companies looking to provide financial services to their customers. However, managing currencies in a rapidly-changing global environment can be a challenging task.In a recent interview with Agustin Mackinlay on the CurrencyCast podcast, Alistair Cotton, co-founder of Integrated Finance and host of The Finterview podcast, shared his insights on the challenges that fintech companies face in currency management. We delve into the key takeaways from the interview and explore the challenges faced by fintech companies in currency management, the fintech sectors that Alistair is most interested in, the need for traceability and transparency in foreign exchange operations, and the role of API connectivity in fintech.What to expect in this episode:

What are the challenges faced by Fintech companies in Currency Management?

According to Alistair, one of the main challenges is the technological aspect of everything. The rise of APIs and the unbundling of the banking stack can present itself as a challenge, as fintech companies need to work with multiple firms to piece together the services they want to offer. This requires picking the right service and re-bundling them together into what they need to offer their customers.Another challenge is increasing globalisation. With the existence of global retail platforms like Amazon, fintech companies need to deal with a much larger number of currencies than before. While this presents an opportunity to access more markets, it also brings the requirement to deal with multiple currencies. Fintech companies must find ways to manage these currencies effectively to avoid potential financial losses.To add to this, interest rates are also increasing in volatility. Fintechs must have the infrastructure behind them to protect themselves.

Which Fintech sectors do Integrated Finance focus on?

Integrated Finance services lots of different types of fintechs, but by no means the entire market (yet?). Fintech is a very catch-all term and covers lots of use cases. Integrated Finance services neo banks and cross-border payments providers, business-to-business lenders, similar to his company, and investment companies as well. With this broad range of companies, Integrated Finance can provide financial services to different fintech sectors, giving them the infrastructure they need to best serve their customers.

Why are traceability and transparency in Foreign Exchange Operations so critical?

In today's fintech landscape, traceability and transparency are becoming increasingly important for businesses, especially when it comes to foreign exchange (FX) operations. Service providers can no longer rely on hidden fees and favourable rates to make huge margins, businesses are looking into full visibility and control over their FX costs.With the rise of API-based FX rate feeders, commercial teams can now use the spot rate, three-month forward rate, six-month forward rate, and more to price their products accurately. This means that transparency and accuracy in pricing are no longer optional but necessary for businesses to manage their FX risks.Fintech companies, such as TransferWise, are leading the way in terms of transparent pricing. By giving businesses clear pricing, they enable them to make better, more informed decisions about managing their FX risk. This is especially true when it comes to forward markets, where interest rate differentials matter also.

What is Kantox’s view on traceability?

At Kantox, traceability is defined as the fact that each element of an FX operation, from entry to position to a conditional order and then payment and operation, has its unique reference number. This provides enormous help for currency managers, ensuring that each operation can be traced and accounted for.Find out about these topics and more by listening to this insightful episode by an expert in the world of embedded finance - Alistair Cotton!