The EU maintains it wants to keep Greece in the Single Currency, although today’s front page headline of Germany’s most influential magazine, Der Spiegel, read “Acropolis, Adieu! Why Greece must leave the Euro” indicating Germany is coming to terms with a possible departure (by their own admission, they can’t force Greece to remain within the member state). Opinion polls suggest the majority of Greeks want the same thing – yet they continue to vote for anti-bailout parties.

The fact is Greece is broke; a report last week by Bank of America Merrill Lynch claimed the country would run out of money by early July should creditors decide to withhold their next aid payment. Even if the next bailout is granted, any elected Greek government would need to propose new medium-term austerity measures and demonstrate savings of €11 billion next month!

So what if they do leave? A Greek departure is likely to cause worry amongst investors of withdrawal by other member states…..mocking a monetary union that by design was supposed to be irreversible. Bond yields will soar (Spain’s 10yr bond yield is already well above 6%) and the Euro is likely to come under further pressure. EURUSD moved below $1.30 last week for the first time since January and EURGBP hit a 4 year low, testing 0.8000.

These are very uncertain times for Greece and indeed the Eurozone as a whole.

The Socialist leader has promised to renegotiate the European Union Fiscal Compact and has promised to concentrate on growth rather than austerity…..quite where this growth will come from remains to be seen of course. Hollande’s stance could well cause tensions with Germany if not managed properly, leading to a crisis in confidence in the Eurozone’s two most powerful members. Bond yields could soar yet again and whatever strength the Euro still holds against it’s major trading counterparts could be diminished.

The Single Currency had previously rallied following comments from ECB President Mario Draghi, who stated the central bank had not considered lowering the headline rate and inflation was likely to remain above 2% throughout 2012.

Opinion remains divided over the outlook for the Euro, with many questioning why it has not fallen further given the uncertainty in the Eurozone. However, a growing number of analysts are predicting long-term Euro weakness as the member state struggles to cope with and address the crisis.

For the first time the customer could see a full break down of the fees they were paying – cost of flight, airport taxes, credit card fees and others.  They really drove innovation in a what was a cabal orientated and stagnant industry.

What do we have today?   Well, they now use this “innovation in transparency” to start playing “the shell game” with consumers and over-charge the un-suspecting.  The cheap airlines, understandably, will phrase this in other ways (or at least their PR machine will).

Examples I have come across (names withheld to protect the “innocent” although you can see an old personal blog entry on the subject here):

- when booking a return flight, the return leg is more expensive than if booked separately

- when booking with children, the fare is more expensive than without children

- debit card fees are marked up 1000′s of percent (I believe 5-10% of one airline’s profits are card processing fee mark-ups)

So, why am I discussing this on a Foreign Exchange site?

Well, our industry has traditionally relied on opaqueness to hide margins from customers (e.g. in forward points, not having a central “pricing venue” for smaller transactions etc.).

The industry is now at a point where we  need to go through the “transparency phase” – which, I am proud to say, is a move we are championing (see here) and getting great feedback from customers.

What we must learn from the “shell game airlines” is not to become what we set out to change.

Now, Custodians are meant to be a conservative, safe and honest pair of hands to hold the assets of investment funds and the likes of you and me, so seeing behavior like this (relying on  opaqueness) does give cause for concern as this behavior is totally unnecessary.

There  is no reason (other than “it has always been done like this”) for a Custodian to rely on opaque FX pricing to make money.  The Custodian holds the assets and FX flows are generated by the assets (e.g. corporate actions on equities).  Therefore, the Custodian already has the flows captured so is guaranteed the revenue anyway!  It’s like having a pocket full of cookies and still raiding the cookie jar “because you can”.

So how do we fix the situation for both the Custodian and the client?

It is very simple – pricing, automation and transparency.

1. The Custodian and customer agree a clear pricing schedule

2. Automate trading of all FX flows in real time

3. Book each trade showing the customer rate and the mid-market reference rate

All three could be implemented using a platform like theCurrencyCloud.com – custom pricing for each customer / currency / trade size, automation of the FX trading, and all trades are booked with a mid market reference rate and the customer rate.

That way, the Custodian still gets the business (and can put their ethical hat back on again), the customer has a fully auditable FX trade history and the regulator can be certain that they will not be called in again – a win win all around!

This really should be a “no-brainer” for the Custodians, additionally they will save costs through automation and deliver better customer service.

Nigel Verdon, CEO and Founder, FX Capital Group

London, 11 May 2011

FX Capital Group, a technology-led deliverable currency broker committed to introducing clarity to the currency markets, is pleased to announce the launch of FX2.0 – a new style of brokerage for transactions from £1 to £1 million, which is 100% aligned with the customer.

Using sophisticated technology and the ‘power of platform’, FX2.0 removes opaqueness from the currency markets for transactions in the £1-£1 million range by:

• Delivering 100% transparent, consistent and fair currency pricing
• Empowering SMEs to understand their ‘true currency cost’
• Removing the marketing myths of ‘100% commission free’, ‘no payment fees’ and ‘better than bank pricing’

FX2.0 technology has created a new landscape for deliverable FX by empowering customers to make informed decisions when purchasing currency. Customers can now see their true currency costs in real-time or historically – whether trading with their existing bank, broker or with FX Capital Group.

The goal of FX2.0 is to re-establish trust in the SME/broker relationship.

Nigel Verdon, CEO and founder of FX Capital Group, says ‘FX Capital Group is delighted to evolve the currency brokerage market by being 100% transparent and consistent with customers. Many existing brokerages and banks claim to offer great things to their customers that are simply not true, for example “commission free” – so we invite all SMEs to take a closer look at these claims and realise they now have the opportunity to fully understand the true cost of their currency with FX2.0.’

For more information:
http://www.fxcapitalgroup.co.uk/takeacloserlook
Martina Doherty E: martina(at)md-comms(dot)com T: +44 (0)7951 057146

The team will be at the event and we invite you to come and “Take a Closer Look” and see what FX2.0 can do for you.

We are also pleased to announce that Nick and TheCurrencyCloud.com won the “demopit” competition for the best start-up demo and technology platform.

GeeknRolla is the annual conference to bring together Europe’s technology startups to network with investors and talk about how they create and build themselves. The watchwords are: Launch startups; give investors dealflow.

Well done to Nick and the team!

The 2011 TISEE Conference is hosted by New Europe Venture Equity, a Technology, Media and Telecom focused venture capital fund (the first VC fund based in Bulgaria) and Anthemis Group a specialized holding company focused on innovations in the financial services sector.

For real-time updates from the Summit, see the Summit Facebook page