Challenging the Banks – KANTOX

Philipe Gelis, CEO and Marek Fodor Chairman at KANTOX – a peer to peer FX platform.

The financial market is changing – dramatically. The crisis has led to a financial regulation pushing risks out from the banks to the economy. Do not expect the financial risks disappear just because banks are restricted to take them on. We still have international trade, which creates foreign exchange risk for instance. Many companies, especially the SME, are looking for other ways to hedge that risk. Treasury Peer  interviews Philippe Gelis, CEO and Marek Fodor, Chairman at the peer to peer foreign exchange (FX) platform KANTOX.

KANTOX presents itself as a club created to trade foreign currencies corporate to corporate: no banks! KANTOX was started in 2011 and has [January 2013] 15 employees and close to 100 corporate clients.

Treasury Peer: Why is this a good time to roll out a FX platform which sidesteps banks?

KANTOX: We started Kantox for 2 main reasons; The first one is that the FX market is managed by a banking oligopoly which promotes opacity and overcharge SMEs. The FX market is known for being competitive but this is disingenuous. The interbank market is competitive, with almost no spread, and large corporates get access to really competitive rates. SMEs, however, usually with no access to live rates and without FX expert in-house, are overcharged. One of our clients coming from the non-profit industry sells USD 50 Million a year spot and used to pay 1.6% fees through his bank! You might think that he should have negotiated the fees but he was completely unaware of how much he was actually paying… I think that it is unfair that banks do not publicize the real fees they charge for FX, so, we built Kantox to bring transparency and fairness in the FX market. The second reason why we built Kantox is that we truly believe that derivatives are weapons of mass destruction and that a system in which counterparty risk is spread among the market participants is much more reliable than when it is concentrated among banks who are only interested in their own profits. Who really knows what the banks have on their balance sheet? Who really knows what “innovative” financial products banks are spreading over the market right now? Politicians have clearly lost the opportunity to re-shape the financial industry, innovation however, will do so in the next 20 years.

Treasury Peer: What clients needs do you fulfill?

KANTOX: We really want our solution to be simple, transparent and fair, so, we display our prices. In other words our clients know exactly what they pay and what we earn. In the same way, our clients know who the counterparties are and can freely decide with whom they wish to trade. It is the exact opposite of the FX market where you never know who the counterparty is at the other side of the trade. Don’t forget that in around 25% of the FX trades, banks match sell and buy orders from their book, so in a way they are doing something a little similar to Kantox but they do not communicate it to the client, that is just a way to maximize profits and maintain opacity.

Treasury Peer: In what market, currencies do you trade?

KANTOX: We are now offering more than 20 currencies and have clients all over Europe (UK, France, Switzerland, Spain, Belgium, Holland…) and in the US, mainly subsidiaries of European companies. We will be looking for more funding mid 2013 to accelerate growth and open offices in the US and Asia in 2014.

Treasury Peer: How does a typical client look like and how does he/she trade?

KANTOX: Right now, our clients are SMEs with revenues from 1 Million to 1 Billion and transactions in foreign currencies up to 100 Million USD. All of our clients come from the real economy, they export or import cosmetics, food and beverages, medicine, raw materials, apparels, etc., speculators and financial institutions are not permitted to trade on Kantox. Trading on Kantox is really simple, you just register on the platform and go through a Due Diligence and Anti Money laundering process and it takes just a few hours for the approval to be confirmed. Once registered, you can create requests to buy or sell foreign currencies, see the companies which match your requests then make an offer to them to close the trades. Once the trades are confirmed, Kantox manages the clearing process to secure clients funds.

Treasury Peer: What do you calculate your market potential to be and what are your expansion plans?

KANTOX: That is a very good and tough question. The BIS estimates that the FX market turnover is around 4 trillion per day and that 90-92% of that is concerned with speculation. So, the turnover relating to global trade and the real economy can be estimated to be 400 Billion per day and  includes companies, individuals, etc. The market is really huge so the market potential is almost impossible to estimate: there is no limit. The “Kantox” name is based on the name of Georg Ferdinand Ludwig Philip Cantor who is best known as the creator of the transfinite set theory, a theory of the mathematical infinite that revolutionized mathematics at the end of the nineteenth century. When we were looking for a company name, we knew that the FX market was almost infinite so we decided to make a phonetic association with Cantor’s name and created Kantox, the “x” refers to FX.