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What does it mean to be an 'independent' currency broker? Does it even matter?


The concept of an 'independent' broker is one we have coined ourselves. It is not a term in common parlance within the currency exchange sector, but, in the context of owner managed businesses you could argue that any FX firm not listed publicly is of course 'independent'.

So, what do we mean when we say 'independent'?

Essentially it boils down to the discretion we give our brokers.

In certain currency companies there is an imposed 'target margin' that brokers have to apply to a rate of exchange.

As sort of 'minimum' revenue, if you will.

This is perhaps understandable in organisations where overheads are a sizeable concern.

The minimum revenue on a transaction might be the 'breakeven' point, however, it is usually the case that 'the house' inflates that minimum revenue figure required so as to ensure operating profit.

Again, no harm in that, but, it does mean that a business like ours has the room to undercut, because of our structure.

We have the same access, capacity and systems as far far larger organisations, but, we address every matter on a case by case basis. We're independent in the sense that our stakeholders (whether that be shareholders, directors or partners) have no say over who we buy our currency from, the margin by which we have to markup our currency, or the style in which we engage with our clients. These are all things set by us and our brokers, as a team.

Consider this example:

An individual who owns a house in France and sends £2000 every three months to pay for up keep and expenses (cleaner, gardener etc. etc.).

For some 'payment institutions' the minimum revenue figure their brokers must achieve might be £20, others £50...

On a £2000 exchange the broker would need to apply a mark-up equivalent to a revenue of £20. If the broker does not achieve this minimum revenue figure then the difference is paid by the broker from the revenue generated on any and all other transactions conducted.

So there is a distinct and indelible incentive for the broker to take a certain margin...

£20 is equivalent to a mark-up or 'margin' of 1% on an exchange of £2000.

Consider then that a bank may well charge a currency company to send the funds to an account abroad. At Prime Cap we are charged £10 for every transfer.

This means that, if we worked by the same minimum £20 revenue target, with a £10 wire fee (which we always pass on to our client at 'cost') the customer is paying 1.5% minimum for the use of a currency companies' services. Not bad, but, that £20 or 1% margin is the minimum that broker is expected to make in revenue on a transaction.

There is nothing stopping that broker marking up their rate by many multiples of that 1%.

Fine, when a bank applies a mark-up of 3.5% before you've even gotten out of bed, the broker is still appealing, but, consider how many clients the broker needs in order to earn an attractive salary on the figure above.

£20 a transaction...that would require a lot of customers...

Hence, the broker either needs a lot of customers, or he must widen his margin on those he has, or he seeks larger volume transactions...

We're not saying that the sorts of target margins imposed by the larger 'factory firms' on their brokers are wrong...

..they're still far more competitive than a high street bank, but, what we are saying is that the broker has no control over whether that margin should or should not be applied, and this presents a 'value vacuum' that we comfortably and happily fill.

Typically, when Prime Cap is introduced to a client there are preliminary smaller payments to be made to and from a country. These can be ongoing, indefinitely; based on the example above, most firms would not entertain smaller value transactions. It would be considered a waste of time when larger transactions could bring in greater revenue with potentially less leg-work require.

Our approach is different. We take a longer term view.

On the one hand, hundreds of smaller payments over many years contribute for forming a stronger more diversified client portfolio for us...but also, we want to a make a good impression so that, should anything more complex come along, we have shown ourselves to be committed and credible, and the best place for such an exchange. Our approach is at odds with the more transactional approach of many brokers.

The company that turns away a smaller exchange where they have to be more competitive is the company that isn't differentiating themselves, at least in this market.

Incremental portfolio growth (compound interest, if you will), coupled with the expertise we have, and the fact that we a privately owned, means we will outlast many of the front office teams we come up against.

Essentially, we can afford to remain in the market by tailoring our price points...

...our profit is reinvested into tighter margins and contingency to offset any drop in activity.

Many middle-tier currency firms plough profit back into directors' dividends or unsustainable commission structures for their brokers.

Strangely, it is a little bit like how the UK has benefitted from being outside the EU single currency block. Supply and demand affect the value of the pound. When other countries couldn't devalue to make themselves and their products move competitive, the UK could, which meant it could keep afloat and competitive within global market. In a market that has certain fixed costs for participation, our independence means we are nimble and more adaptable.

We're not constantly chasing profit or return on investment to our share or stakeholders, and we are far more open to taking a much longer term view.

Our brokers will look at the longer term potential value in not just the transactions a client proposes, but also the value of their good favour in terms of word of mouth reach.

We need neither the colossal scale of online and app based providers who offer tiny margins; nor do we need to exclude all but the largest sized transactions.

We can afford to sell currency at a competitive price across a number of convenient and simple platforms, and at the same time offer personal insight and guidance to individuals and companies with varying needs.

It's a nice place to be.

#sales #margin #currency #independent #boutiquebroker #sendmoney #undercut

Prime Cap Payments Limited (T/A Prime Cap | Prime Cap Payments | Prime Cap Global Payments) is registered in England and Wales No: 10755730. Registered address: 27 Old Gloucester Street, London, WC1N 3AXPrime Cap is partnered with, and a programme manager of, Ebury Partners UK Limited who provide Prime Cap's FX and payment services.  Ebury Partners UK Limited is authorised and regulated by the Financial Conduct Authority as an Electronic Money Institution (Financial Services Register No. 900797) and is registered in England and Wales (registered no. 7088713). Registered office: 3rd floor, 100 Victoria Street, Cardinal Place, London, SW1E 5JL.  Ebury Partners UK Ltd is registered with the ICO with registration numnber ZA345828.