‘Smarter’ Money Movement Helps B2B Firms Hedge FX Risk, Improve Cash Flow

For midmarket B2B firms, intelligent decision-making about how, and when, to move money is more challenging than ever.

Patrick Gauthier, CEO of B2B FinTech Convera, told Karen Webster that as companies navigate supply chain pressures, inflation and rising interest rates — not to mention a pandemic and geopolitical tensions — currency volatility has become a fact of everyday life.

One need only look at the “big” currency pairings — the euro/pound, say, or the euro/dollar — through the past several years to see fluctuations of several percentage points. Swings like that, he said, “can represent a systemic risk to a business” that’s already operating on thin margins.

A consumer electronics manufacturer, for example, might have many of its manufacturing operations outsourced in Southeast Asia. These firms need to anticipate future demand, and also have to reserve time and capacity with those outsourced suppliers weeks or months in advance.

“And if you’re in consumer electronics,” Gauthier said, “you don’t necessarily operate with generous margins, so you want to have predictability on costs.” Especially on products that might not be received until several months have passed.

Abstracting Away the Complexity

The pain points are especially acute for smaller firms, the $5 million enterprises doing business internationally that don’t have the resources or back-office staff to conduct sophisticated cross-border trade. Convera’s platforms and solutions, Gauthier said, offer both B2B payments services and hedging, a model that he said “provides CFOs and treasurers a ‘line of sight’ into the cash flows of those transactions” while simplifying exchange rates and compliance.

The demand for abstracting away these cross-border complexities — injecting some predictability into the mix — is apparent in Convera’s announcement Wednesday that it logged a record year of  growth in 2022. The company said it saw double digit percentage-point gains, year on year, to more than $500 million in gross revenues. Asked by Webster why 2022 was such a banner year, Gauthier remarked that “the overall conditions were positive. We help companies in the face of volatility, and there definitely was a lot of it.”

He offered up an example from last year, when Russia invaded Ukraine. Convera, he said, was able to help its client firms “unwind” their exposure to sanctioned entities and to the ruble, and even payments themselves, in order to remain in compliance with sanctions.

Expansion Plans

The company also provided an update on its global expansion efforts on Wednesday. Convera, as has been noted in previous PYMNTS coverage, was formed in the wake of a spinoff of the former Western Union Business Solutions. The company said Wednesday that the transition of the U.K. business from Western Union to Convera was finalized last month.

In terms of operations, he said that Convera received its operating license in the U.K. at the end of last year and has set its sights on obtaining the licenses (and where Convera has been working with regulatory authorities in Luxembourg) to passport its services to operate throughout mainland Europe.

Given the uniqueness of its model, he said that Convera has had to obtain a payments license and MiFID (Markets in Financial Instruments Directive) licenses covering those activities, and noted those efforts are largely complete.

“In every jurisdiction we’ve needed to get two licenses,” he said, “in every jurisdiction — a payments license, and a MiFID license for the hedging part of the business. There are not many businesses that combine payments and hedging in the ways we do.”

That combination, he said, is a competitive advantage, as Convera’s focus is on serving the CFO and treasury operations of small-to-medium companies with anywhere from $1 million to as much as $10 billion in sales.

These firms span a broad range of verticals, but they have a few commonalities: There’s at least some global component to what they do. Perhaps they sell abroad, or perhaps they buy from suppliers in other countries. Currency hedging, through forward contracts, remains a vital part of protecting firms’ balance sheets from volatile interest rates.

Convera’s hedging offerings — which, among other things, lock in rates up to two years ahead of actual payments — can help its enterprise clients get the same risk control that’s typically enjoyed only by large enterprises served by large banks. He noted to Webster that Convera partners with those same banks as counterparties in hedging the actual transactions, giving them the channels to expand those services into the midmarket.

“It’s a win-win for everybody,” he said. At present, Convera supports payments capabilities in  140 currencies across more than 200 countries and territories, and over dozens global banking partners.

Looking Ahead

With the U.K. acquisition behind Convera, the goal is to be IPO-ready in three years.

“That doesn’t mean I’ll want to do an IPO in three years,” he told Webster. The ambition, he said, is instead to have the operating standards in place that one would expect of a publicly traded company, touching on everything from governance to execution (Convera is profitable, he added).

That journey toward IPO-readiness, he said, will be aided by the appointment of Kevin R. Johnson as a board observer and investor. As he told Webster, Johnson has decades of experience growing multiple businesses at scale across the globe, spanning software operations at Microsoft, in hardware at Juniper and then consumer staples at Starbucks.

“He has nuanced thinking,” said Gauthier, “about how to transform a business, to grow it and how to do that globally.”

Looking ahead, with Convera’s roots in Western Union’s business operations, but operating now as a standalone B2B payments firm, Gauthier told Webster:

“We’re a financial services company, but we’re committed to modernizing the delivery of our services by leveraging technology … cross-border transactions can be complex and risky, but we bring peace of mind to the CFOs and the treasurers.”