Episode Transcript
[00:00:00] Speaker A: The markets, we just can't get enough of them.
[00:00:03] Speaker B: Markets are the drivers of your wealth and investment strategy.
[00:00:07] Speaker A: Welcome to Magic Markets with your co hosts, the finance coast and Mohamed Nallah.
[00:00:13] Speaker B: Together we have more than 25 years of combined experience in the markets.
[00:00:18] Speaker A: You already know about the crypto arbitrage offerings at Future Forex. If you don't, refer back to episode 170 for full details on how to avoid your annual offshore investment allowances going to waste while generating returns which have consistently outperformed the market. In this show, Harry Scherzer is back on magic markets to discuss their fintech forex offering that is currently disrupting the mainstream banks. With a full suite of forex services for individuals and companies alike, future Forex makes international money transfers simple and cost effective. Future Forex SA Pty Limited is an authorized FSP number 51884. Welcome to episode 173 of Magic Markets. It's great to have you here with me, the Finance Ghost, and Mohammed Nallah, as always. And this week's guest, who, if you've been listening lately, is a voice you'll recognize from just a couple of weeks ago. And that is Harry Scherzer, co founder and CEO of Future Forex. Harry, thank you so much for coming back on the show. And with a completely different topic today we're going to be putting the forex in future forex as opposed to talking about crypto arbitrage. It is quite nice to hear that you've had a great response to that show, and I would encourage anyone listening to this to go back and check it out. We had a really good chat through crypto arbitrage and how it all works, and today we're going to do something different.
[00:01:31] Speaker C: Yeah, thanks for having me on again, Ghost. Great to chat to you and Mo again. And, you know, we continuously find that your listener base are extremely educated people who are very interested in what we're doing. So the amount of downloads you guys are getting and in turn, the amount of traction we're getting is always fantastic. So it's great to be on again.
[00:01:51] Speaker B: Yeah, Harry, it's always great to have you. And again, you know, my previous life when I worked at one of South Africa's investment banks was very heavily centered on the forex part of the equation. In your business, future Forex, we've generally discussed the future part, which was the crypto part of the business. And so I'm very encouraged to be talking about the forex part of the business, because this was something that kind of came about later on in the evolution of your business, and maybe we can get into some of the weeds around that, you know, in terms of how future forex speaks to the forex part of it. How have you migrated from? I guess not migrated, but rather evolved from the crypto perspective into the more broader forex market? Let's touch on some of the points there, and I've got a long list of questions, because again, I come from this forex world. It's very interesting. It might also be something that's a lot more familiar to some of our listeners out there. I know whenever you look at financial indicators in South Africa, you have to look at the dollar rand, you've got to look at the euro. Random forex is a very important part of a lot of south african investors portfolios. Whether that's tangentially, whether that's in terms of diversifying their exposure. Let's maybe start off with the first question, which is to say, how do we land on the forex part of future forex? How did your business evolve from being a crypto arbitrage business at its inception to where you are today?
[00:03:05] Speaker C: So, Mo, what effectively happens in the crypto arbitrage process is in order to perform the arbitrage, we have to send rands to dollars. That's part of the process. And we naturally became experts at it. We got very strong relationships with the banks doing it. And when in the space, we realized that we were actually better at doing this than the banks, we were better than the banks, we were better than anyone else. And we thought, hold on, if we're doing this so well, why are we limiting it to an investment opportunity rather than doing this for individuals, for businesses looking to send money abroad? Because as I'm sure you'll know more than anyone, Mo, the banks have their issues when they're dealing with forex, for clients, and clients aren't particularly delighted with dealing with banks. And we kind of thought, hold on, this is wrong. This is not a customer centric industry at present. At present, it's a bottom line industry. How much can we make from forex? Is what the banks kind of see it as we thought. We need to reshape this. We need to be saying, let's be customer centric here. Let's put the customer first, not only in terms of pricing, but in terms of service as well.
[00:04:12] Speaker A: So speaking of how people make money from forex, and if there's one thing banks certainly know how to do, it's make money. So let's start with how that actually really works. And people would have heard this concept of the bid offer spread, if you'd like to see it at your widest, just visit the currency desk at your friendly local airport and you'll see those two boards that say we buy and we sell, and you'll notice that those two numbers are very different. And you'll remind yourself why you should have taken a short left and maybe gone to Durban instead. So I think, Harry, let's start there. What is the bid offer spread on forex? And why do businesses and investors alike need to actually understand this stuff?
[00:04:47] Speaker C: Yeah, ghost. So I think your listener base is very well versed and educated in finance in general. So they might have a better idea than the general public on what the spread is. But you'd be amazed how little of South Africa actually even knows that a spread is taken on a transaction. It's quite remarkable. So a lot of what we're doing is just educating on how banks make money and what the spread effectively is, is, let's say the rand dollar rate currently is 19 to one. If we went onto Google, let's say it showed 19 to one, or onto trading view, it showed 19 to one. The bank will never give you 19 to one when you send money abroad, let's say you're sending a million rand abroad, they're not going to give you 19 to one. They're going to give you maybe 19.38 to one, as an example. So what they're really taking is 2%, because $0.38 on 19 rand is 2%. That 2% on a million rand comes to 20,000 rand. Now, they're not going to invoice you 20,000 rand. They're not going to do anything like that, because if they did, you'd run away and look for other options. What they're going to tell you is that the processing fee, very transparently, they're going to say the processing fee is 500 rand or is 1000 rand to do this transaction. And you're going to say, that sounds reasonable on a million rand, but really, you're not being charged 1000 rand, you're being charged 21,000 rand to do this transaction. And this is our first issue with the banks, is that they are so untransparent, because, of course, from a business point of view, that's how you increase your bottom line. You don't transparently tell people how much you're charging, you simply give them a rate. And for 95% of people, they never question whether that rate is fair. And even those that do, they don't realize the rand value that you're losing out on through that spread.
[00:06:28] Speaker B: I think that touches on a very key point, because I was actually speaking to a friend of mine who was looking at a cross border transaction, ironically, would be buying rands, selling dollars, which is usually the other way around. I mean, normally when you're speaking to people in South Africa, it's buying dollars, selling rands. And when he said to me what his merchant bank was offering him, I mean, you're talking of a 50 cent spread on either side of where the spot price is. I mean, that's effectively as wide as it is. And because he's effectively on both sides of the trade, it meant like effectively a one rand spread between the bid and the offer, which is exceptionally wide. So I think it's so important that you contextualize that for the listeners, because you've got to look at it and you've got to say, well, actually it's costing me 20,000. If I go with someone who's offering me a much narrower spread than that, well, then that 20,000 is probably more like 5000. There's always going to be a spread, yes, but it's just about how efficient that spread actually is. And this is, I guess my main gripe, and probably would be the gripe of anyone who's executed transactions in the forex space, is that the banks in South Africa and many other markets, Canada as well, are the incumbents. It's oligopolistic. So they can charge whatever they want. They can charge that because most people traditionally go through the banks, they don't go through third parties like future forex. And so the banks continue to make a lot of money in the space. The question linked to this that I want to ask you is that, is it the same rate for all types of customers? Because we know how banks graduate, what they offer you on, for example, your deposits and so forth. Does that still apply in the forex space? I think it does, but you know, how wide, if you could quantify that for us, how wide is that? Who's getting $0.50 on the spread? Who's getting $0.10 on the spread? I've seen all variations thereof, but perhaps it's very important to educate our listeners about that as well.
[00:08:08] Speaker C: Yeah, mo so let me start off with your first question around. Is there a universal spread that we give everyone, or that a bank gives everyone? No, that's just not commercially viable. The way that it works is depending on your volumes, depending on the frequency of trades, we will give a spread based on that, what we can, however, say is that our spread is, number one, transparent. Number two, consistent. It doesn't change every time you do a deal. And number three, far lower than the banks. Who's getting a 50 cent spread? In my view, no one should be. Although there are people like your mate that are. Because this is what the banks do, you know, they kind of.
They have no issue making spreads that wide. Ours are far, far narrower than that. Typically, it's around a 50% saving versus using the banks. So we're twice as narrow, typically, compared to the banks.
[00:08:57] Speaker A: So I think let's move on to what sort of customers and clients actually taking advantage of that. Harry, are you working with bigger businesses, with SME's? Is it individuals who are looking to actually just invest offshore? People going on holiday?
How wide is it? Or how narrow?
[00:09:13] Speaker C: Starting with the business side, we work with mainly SME's. Once you hit sort of 100 million rand plus in forex, the banks actually start taking notice of you and treating you well. And so we find that's not always the case. By the way, we've got clients above 100 mil who were treated terribly by their banks. But in general, that's when they start caring about you, giving you competitive rates, giving you a team to work with. And so under 100 million rand a year, from sort of five to 100 million rand a year, is our sweet spot. That's where we add the most value, because that's where businesses are being well under serviced and overcharged. And we can improve on both factions. We can absolutely assist on the server side, because we have the tech to be able to do things automatically. But the people, if you need them, you have your dedicated account manager, and that at that price bracket, you just don't have that same level of support and ability via the banks. For individuals we work with, anyone, there's no upper bound. But the lower bound. You mentioned going on holiday, that would probably be just about below where we like to operate. We typically like to operate in the 100,000 rand plus mark per transaction. So if you have an offshore investment, if you emigrating abroad, any other reason you need to send money abroad, that's typically where future forex will fit in. If you're going on holiday and taking 50,000 rand, you're welcome to use us. However, it won't be particularly difficult to use the banks because they won't do much KYC on where that money came from. Price wise, it's negligible whether you get a spread of 3% that the bank charges you, or less than that, that we charge you on 50,000 rand, it's relatively negligible.
[00:10:53] Speaker B: I find that so interesting, Harry, because 50,000 rand, that's just north of two and a half, $1,000. So I think pretty soon you might start picking up some of the holiday flow as well, just simply because of where the rand trades versus the US dollar, for example. I say that tongue in cheek. It leads on to my next question, which is how seasonal is forex trade?
I would assume it's seasonal when you're looking at holidaymakers. Yes, maybe you're coming up from northern hemisphere summers and so forth. But if you're targeting businesses, if you're targeting investment flow, that seasonality is important because is that tied to quarter ends? Is that tied to, for example, financial year ends? I remember back when I was at the bank, we had a particular client that basically repatriated profits, had big dividend payments over certain time periods.
[00:11:40] Speaker C: And.
[00:11:40] Speaker B: And so that informed the seasonality on specific currency pairs. What does it look like in terms of what you've seen in the market when it comes to when those flows are timed?
[00:11:49] Speaker C: So it really is client by client mo. Some clients have at year end, some clients have monthly, some clients have end of calendar year. We've seen a whole array of when people will send money. But one thing that comes through over and over again consistently is the sensitivity to the rand dollar. So we think that people will send on a given day because they need to send on that day, but that's not the case. Businesses love to wait to catch a bit of a spike or a bit of a drop, depending on which direction they want. And so you'll find that when there's a big movement in the rand, tons of deals go through. And when the rand is somewhat stable, businesses sit and wait. Now, as future forex, we're, of course, a cat to FSP. And so we're able to advise clients on when is a good time to trade. And so we have account managers who have full insight and are experts on when's a good time to perform the transaction. And for businesses that aren't really wanting to look into this or aren't sure, but are wanting to catch these spikes or are wanted to take out, let's say forward exchange cover in order to ensure that they don't miss out at a later stage, we can absolutely assist with all of that.
[00:13:00] Speaker A: So, Harry, I'm curious in terms of where you see most of the activity. So you obviously work with south african businesses and individuals from kind of all walks of life, really. What sort of industries do you see a fair amount of activity from which currency pairs? I think it's quite nice because it really lifts the lid on south african trade flows, which is obviously such an important component of actually our rand. Obviously what happens with the Fed is probably drives it even more. At the end of the day, South Africa is a pretty strong exporter. We do import a lot as well. So where do you see most of this activity happening?
[00:13:33] Speaker C: So ghost. The flows typically come from the USD, otherwise euro, but USD takes probably 80% of flows and typically it's importers we far more balanced. Well, we're quite an imbalanced book rather. We have far more importers using us than exporters. And that was surprising that we got way more importers being interested in using us than exporters. We thought, why is this? And what it comes down to is that the amount of work required to send money out the country is more than the amount of work to bring money into the country. So it actually makes perfect sense. Our value almost doubles in assisting importers versus exporters, because there's more to be done and we take that off clients hands entirely. So while we add value to exporters, people bringing money into the country, importers are the ones who are the most benefited by using us.
[00:14:23] Speaker B: Yeah, Harry, I think there's another dimension to that as well, and that's just the structure of the south african economy. I see this on a macro level. It's just so much more import activity into South Africa rather than export activity. And you see that in shipping as well. Containers arrive full into South Africa, they leave half empty. So that might also be playing into that dynamic. You raised an important, important point though, and that is the value of the admin around this, the execution. So I want to, I want to have effectively a double barrel question here. And the first one is, you know, in terms of execution, we know that's part of your value add, you sort out whatever approvals are required, paperwork and so forth. But the second part of my question is related around the types of instruments or trades that you're able to put on, because generally most people out there will go into a spot transaction at best, maybe a forward transaction to a specific date. How wide is your current offering? You know, are you offering forward cover there? Are you offering hedging? Do you offer any optionality? What is your current tool set look like?
[00:15:21] Speaker C: Mo, I'm not averse to double barreled questions from you. I'm used to them by now in terms of what we have as a tool set. We have the whole array. We've got spot transactions, we've got forward transactions. Those forward transactions can be fully optional. In other words, you can decide to trade. Let's say today is the 30 April. You can decide to trade between the 1 June and the 1 July whenever you choose. That's an optional forward. We can say you must trade on the 1 July. Obviously, the pricing will vary based on what you choose, but there's a whole array of ways that you can structure forward cover, depending on your requirements and what your clients require. And then mo on your second part of your question around why using future forex and not the banks? From an admin point of view, what it effectively comes down to is, well, let's paint the picture. If you want to send money, let's make it as an individual. If you want to send money via the banks, for a lot of banks, you're going to have to walk into a branch. You're going to have to, with a pen and paper, fill in a bunch of details that you don't know the answers to. For example, a BoP code, which you're not an expert in. You don't know which BOP code is correct. You're going to have to do tides and tides of paperwork filling in your name four times, despite the fact that you've already filled it in. You have to fill it in again and again and again. And that's basically ridiculous in this day and age. We're in 2024. I mean, this is the technology that was available in the mid 19 hundreds, but a lot of banks haven't gone any better than that. And those that have might have an online platform, but even then, it's so unfriendly and so difficult to do the right thing and know what there is to be done, never mind the time spent. If you do know exactly what you're doing to fill in the same details over and over again. Our online forex platform is state of the art, it's brand new and it effectively encompasses all that you'd expect of a fintech. We do all the same things, but we do it in a digital manner. So there's no pens and papers, nothing like that. Once you've made a transaction, the next time you want to do a transaction, it will remember your previous choices. It will show you what's popular and you'll have an account manager on hand if anything is confusing to you or anything else you need where you can call them, WhatsApp them, email them, whatever your preferred option is effectively, it's just a new angle to forex where it's client first. Because the banks, as you said earlier, are oligopolies. They are effectively one big monopoly between them. And what happens is you have a situation where people don't have a choice. They can use bank a or bank b, but ultimately you get the same per service and it doesn't really matter which one you use. Now, future Forex is around, which is basically disrupting entirely and saying, stop using bank a and bank b for forex. They both use this. Let's use. Let's. Let's work, walk you through this properly and ensure that future forex does all the paperwork and all the admin wherever possible. So it's as easy and seamless as possible. Yeah.
[00:18:18] Speaker A: Mo does love a good double barreled question. There's a whole bit of a spread in that question sometimes. But I did laugh at the bob code. So I recently, you know, I do this namibian radio show, like a segment once a week. So I had to invoice Namibia, which is still common monetary area. I mean, you wouldn't think it's difficult. So I got this call from the bank, like, oh, we need to, like, release this payment. You need to fill in this form. I went embarrassed who my bank is. But, you know, Shane, the guy was really helpful, but, you know, I needed to do the Bop codes and everything else. And I said, tim, geez, I haven't done this before. You know, where do I find this? And then he's like, oh, don't worry, I have a reference guide. And then, I kid you not, he sent me a reference guide on a different banks marketing stationery. So, as I say, I won't. I mean, Shane, the guy did help me, but I mean, what on earth? Even sending basically a competitor's Bop guide because you don't have your own one, be like, oh, no, here we go, just find this one.
[00:19:06] Speaker C: No.
[00:19:06] Speaker A: And it was absolutely the twilight zone. So, yeah, I think in general, Harry, there's clearly room for disruption in this space. And much like the great service that I think our listeners have had from you on the crypto arbitrage, I can imagine that carries over very easily into the forex side. So perhaps time to bring the show to a close and just direct people to how to contact you if they are interested in chatting to you about their forex needs, business, personal, if it's big enough or otherwise. How do people get hold of you guys for this?
[00:19:33] Speaker C: Yeah, you can visit our website, futureforex co. Za there's a get in touch button, and you're welcome to send us a request there, and one of our experts will be in touch to understand your exact needs and how we can assist you.
[00:19:47] Speaker A: Fantastic. Harry, thank you so much for your time this week. It really is so lovely to have you on the show. We always learn something cool, and in this case, I think bringing a proper offering to the listener base, which always makes me happy. Harry, thank you. And mo, you and I will do this again next week and it'll be back to normal programming. Talking about offshore stocks, indeed, offshore stocks.
[00:20:05] Speaker B: And for people that want to invest offshore, maybe they can actually contact future forex to get their currency out there before they actually invest in some of the stocks that we're talking about. Harry, it's been fantastic to our listeners. We hope you've enjoyed this. Hit us up on social media. It's uhammadnallah and ajicmarketspod. That's one word. All on X. Or go and find us on LinkedIn. Pop us a note on there. We hope you've enjoyed this. Reach out to Harry and the team at Future Forex. And until next week, same time, same place. Thanks and cheers.
[00:20:32] Speaker C: Thanks, guys. Always great to chat to you.
[00:20:33] Speaker A: Ciao. This podcast is for informational purposes only and is not financial or investment advice. Please speak to your personal financial advisor.
