Had it not been for his brief stint with emecklai.com, a website related to all things forex, Rajesh Agrawal would have never ended up in the exotic world of foreign exchange markets when he moved out of Indore, his hometown. But that is exactly what happened and today, after spending a decade in currency trading, he feels that he is in a position to change the way money is transferred around the globe. India is the biggest market for remittances across the world. Agrawal knows this better than most people and has seen a business opportunity in this area that many have missed.
To explore a big gap in the way money is transferred between countries, he has started a company called RationalFX that allows users to transfer funds from one country to another at the lowest possible price.
The company started in 2005 with just two people, one computer, £4,000 in capital and no customers. And now after seven years, it has over 30,000 customers in 60 countries and 65 employees speaking 11 languages. It processes over $2 billion in payments in 55 currencies. All this was achieved without borrowing a single penny. RationalFX’ website Xendpay.com is one of the fastest growing online money transfer companies in the world. It supports five languages, 55 currencies and can be used to transfer money to almost any bank account in the world. Recently, Xendpay has started offering cash payout options for unbanked recipients of its customers in certain countries. An iPhone and iPad app is due to be released soon.
Agrawal wants to kill all the intermediary costs and make money transfer a smooth transaction. Typically, when money moves from one country to another, there are several entities involved in the chain, which includes sending agents, banks and receiving agents. These only increase the cost of transaction for the end user.
Most banks and other intermediaries are not transparent in dealing with their customers who want to transfer funds from one country to another. “RationalFX does not do that as its revenue is built into the exchange rate that is provided by the firm,” Agrawal says.
Foreign exchange markets don’t work like a stock market where the price is provided by a stock exchange. Foreign exchange markets are ‘over the counter’ (OTC), so there is no regulator and the transaction can happen between any two parties. This makes it very difficult to find out the actual market exchange rate. Hence, interbank rates are considered as a standard guideline. This is the rate at which banks buy and sell currencies to each other.
The Cost Crusher
If the interbank rate for the pound is Rs 80 and the customer goes to the bank to transfer £1,000 to India, he may end up getting something like Rs 76 per pound—losing out Rs 4 for every pound. So on £1,000 you receive Rs 4,000 (£50) less. On top of this, the banks may very well charge the customer a ‘wire transfer’ fees of about £25. So on a £1,000 transaction, the bank makes roughly £75.
Agrawal says customers using Xendpay, which belongs to RationalFx, will get an exchange rate of something like Rs 79—and there is no charge—giving Xendpay revenue of Re 1 for every pound. So, in this example, it will make Rs 1,000 (about £15 equivalent) as opposed to the bank’s £75. So the customer is better off by £60 if he uses the RationalFx system. RationalFx is regulated by the Financial Services Authority (FSA) and that gives customers immense confidence.
The company has managed to use technology very effectively. RationalFx has used technology to bring down the cost of transfer by creating a proprietary algorithm. “We have developed our own technology, so we have managed to automate most of the processes involved in transferring money internationally. We are directly integrated with the SWIFT (Society for Worldwide Interbank Financial Telecommunication) messaging system, enabling us to send money to almost any bank account in the world,” he says.
What Agrawal is doing with Xendpay is not rocket science. It is a simple service. He agrees that the concept is not difficult but doesn’t understand why the current systems are so inefficient. He has always wondered why when someone sends, say, £100, it ends up as something like £75 in the hands of the receiver. There is a huge loss in transit which goes to different intermediaries by way of commission or exchange rate differences.
What Agrawal has done is bring the big forex purchasing power of the corporate business to the retail customer, integrated it with the SWIFT network and plugged it all into the company’s cloud-based proprietary technology.
The Genesis of the Approach