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27 January, 2023
The Nine Key Lessons Learned Transforming A Failing New International Payments Business Into A €200m+ Per Year Success
FX4Cash, Deutsche Bank's international payments business, generates over €200m a year in annual revenues on extremely high margins. It's success is taken for granted today. However, the reality is, that at a crucial juncture in its development the business was just weeks away from being closed down and staff laid off, or redeployed, after the large initial investment in technology and people failed to generate any meaningful return.
As a Managing Director in Deutsche Bank's world leading Foreign Exchange business I had just completed the turnaround and divestiture of it's DBFX retail FX platform when the Global Foreign Exchange Executive Committee ('GFX ExCo'), that I would later become a member of, gave me what was described as a 'Fill or Kill' mission for FX4Cash. I was given a month to perform a deep dive on the failing business to determine if it was in any way salvageable. The working assumption was that at the end of that month I would wind down the business and lay off or redeploy the staff.
In this, and the following series of articles, I will detail what I learned and the nine key attributes that enabled the journey from failure to success:
- strategic thinking
- leadership skills
- adaptability
- financial acumen
- communication
- relevant industry experience
- integrity
- internal network
- passion
The subsequent posts in this series will cover each of these in detail. To give the context for those learnings I will provide a comprehensive introduction to the business below.
Background
At its inception, the original goal of the FX4Cash business was to create a market leading international payments business by combining the foreign exchange execution capabilities of Deutche Bank's market leading Global Foreign Exchange ('GFX') business with the Global Transaction Banking ('GTB') businesses position as one of the worlds leading payments providers to both corporations and banks. A competitive analysis performed by an external consultancy on behalf of the GFX ExCo, as part of the ExCo's annual business planning process, had highlighted the an opportunity to build a business to compete with Citibank's WorldLink international payments business. The opportunity was framed as a large revenue generator that could achieve vastly higher margins than Citibank.
Citibank's WorldLink was a large international payments business that generated significant revenue by enabling both other banks and corporations to make payments in a large number of different currencies. However, the WorldLink business had a headcount measured in the hundreds dedicated just to that business. The goal of the FX4Cash business was to use technology instead of people to generate similar revenues on vastly higher gross margins. We ultimately achieved over €200m in revenue with a dedicated headcount of just 25 on a like-for-like comparison.
The Initial Technology Investment Needs
The FX4Cash business was a joint venture between the GFX and GTB businesses. In essence, the business was set up as a 50/50 joint venture ('JV') where costs and revenues were shared equally. The majority of the costs were incurred within the GTB business. Fully loaded people costs were substantially lower in that business and so the majority of the FX4Cash team and dedicated software engineers were on GTB headcount. The bulk of the technology build that was reqiured was in the GTB technology domain. GFX already had sophisticated automated trading capabilities with API's that required minimal changes to meet FX4Cash's needs. This meant that the GFX business had to pay GTB to meet it's obligations of the JV in the build phase.
The very core of the initial FX4Cash strategy was to build the FX4Cash Engine, a proprietary technology to automate the processes that were performed manually in Citibank's WorldLink business. The goal was to automate the end-to-end FX execution and payment process so that FX4Cash could process payment files that included international payments at high speed, at scale and without the need to continually increase headcount. The role of the FX4Cash Engine was to orchestrate the processing of large payment files submitted by customers in any one of the more than twenty different payment locations that the GTB business operated globally. GTB had built an enviable global cash management footprint to support its extensive corporate franchise. The FX4Cash Engine enabled GTB's payment infrastructure to interface seamlessly with GFX's automated FX pricing and execution technology. The technology build requirement was substantial. It required a large team of software engineers composed of GTB development teams in the US and an offshore third party consultancy based in Latin America. The investment required to fund those teams was relatively large in the context of the annual technology budgets of both GTB and GFX.
GTB was going through a period of substantial change during the initial build phase. There were many competing demands for technology investment across GTB's extensive technology portfolio. Many of these demands were non-discretionary investments to remain compliant in a fast changing regulatory environment. The original Payment Services Directive ('PSD1) had bee in force since 2007. The planning for PSD2 was taking place and whilst it was a few years from being adopted, GTB, as the leading payment provider in Europe, was implementing changes to it's systems to meet the new standards. As a result of these challenges, GTB was unable to meet it's obligations to fund it's share of the build of the FX4Cash Engine. The sponsor of the business on the GFX side of the JV, who ran GFX's U.S. business, and to whom goes the biggest single credit for the success of the business, used his considerable skills in navigating the Deutsche Bank bureaucracy to make up the difference from within the business he led. This predated my involvement and without this organisational magic, the FX4Cash business would have been closed down long before I was on the scene.
The End Of The Runway For The Business Approaches
Despite FX4Cash being established as a 50/50 JV the GFX business was providing the vast majority of the funding required. It was the GFX ExCo that was actively seeking to pull the plug on FX4Cash. The ExCo wanted to make funds available to invest in more promising potential new business initiatives by no longer funding the failing FX4Cash business. I was tasked with dealing with the FX4Cash problem with the incentive of being able to lead one of the promising new initiatives. As it turned out, the unexpected success of FX4Cash later funded those new initiatives, which I would ultimately lead as a member of the GFX ExCo.
Deutsche Bank had the core capabilities in place to build a successful international payments business and yet initially it failed to the point FX4Cash was slated for closure. What went so wrong? The initial failure serves to demonstrate the criticality of having the right strategy and having the team organised in the right way, with the necessary objectives, incentives and performance metrics to execute that strategy.
On being handed the 'Fill or Kill' mandate I immediately immersed myself in trying to understand the business. The FX side was not an issue, having spent the bulk of my career in FX. Payments, however, were completely new to to me. So, I spent all my time trying to meet every member of the team and all the key stakeholders, either in person or virtually to close the gaps in my knowledge.
The Call That Saved The Business
As people who have worked with me know well, I am a proponent of data driven decision making. So, as well as talking to people, I studied the sales materials being used in customer pitches and the performance metrics, data and statistics that the team was publishing as a monthly report.
FX4Cash had a small sales team within the overall team. The failure of the business was in part due to the ineffectiveness of this team. Reading the sales powerpoint left me none the wiser as to what exactly the customers were being asked to sign up to. It was fifty pages or so of fairly dense content but it was difficult to discern any message. On sitting in on a pitch it became paifully obvious the sales team were talking for the whole meeting, trying to get through the slides, with no opportunity for the customers explain what problems that might need help with. I found it confusing and I suspected potential customers did too, hence the limited progress of the business.
When I then spent time digging into the monthly update the team provided, consisting of dozens of pages of densley packed tables of data, I once again struggled to determine what I needed to know to make a reasonable recommendation to the GFX ExCo on the future of the FX4Cash business. It was almost as if the deluge of data in the monthly update was a means to deflect attention from the actual performance fo the business. The data that the team was publishing left me more confused than before I started.
I shared this observation with the senior FX4Cash team member tasked with leading a team that generated the report on behalf of the business. That was the single most important conversation that prevented the closure of the business. I simply cannot state highly enough how that one conversation started the path to the success of the FX4Cash business.
FX4Cash was fortunate to have a talented team in one it's near shore offices that had been recruited and led by one of the stars of FX4Cash's eventual success. In what I was expecting to be a difficult conversation with the team leader, about how confusing I found the monthly report, I instead discovered that the team shared the same view. In fact, they had been instructed to produce reports from the data they managed which they themselves didn't believe was the right way to measure the business. Their objections had been overruled by other members of the globally distributed team, whom, by virtue of being located in one of the main hub branches, considered themselves first amongst equals.
The First Steps On The Path To Success
I have a preferred way of analysing and presenting data for the purposes of driving business decisions. I learned these management skills as a member of the leadership team of a fintech company, where having the right data to navigate the business was far more existential than I have experienced working in leading investment banks. So, I provided the leader of the near-shore team with templates of the reports that I needed and asked if it would be possible for the team to produce them for me.
Within days I had the initial versions of the reports that I had requested. With that data to hand it didn't take long for me to understand that whilst the business had a deeply flawed strategy, the wrong team structure, meaningless metrics and objectives and dysfunctional processes, it nonetheless had, except for a couple of individuals, a talented and hard working team and just as importantly, the tiny kernel of a potentially huge business. I will detail the key issues and the actions we took as a team to achieve the turnaround in the subsequent sections of the blog.
What Would It Take To Save The Business?
The problem I now faced was hugely challenging both personally and organisationally. In tasking me with dealing with the problem of the FX4Cash business the expectation was that I would quickly close the business, wind down the JV and either let staff go or redeploy them. That would then free up investment for more promising businesses in GFX. There was, therefore, an anticipation gaining momentum on the GFX ExCo that these new business opportunities would soon receive the green light to lauch.
However, the business intelligence delivered by the reports I had commissioned, coupled with the strength of the core team, had led me to believe that the FX4Cash opportunity continued to represent a greater long term return on investment than the new businesses opportunities being considered by the GFX ExCo. FX4Cash just needed a coherent strategy, better management, radically different team roles and responsibilities, a completely different approach to distribution and much better strategy execution.
I was asked to present my findings to the FX4Cash Steering Committee. In the lead up to that presentation I started to socialise my thinking with members of the GFX ExCo. The consistent feedback I received in those conversations was agreement on the scale of the opportunity given the data I was presenting but a belief that the business was beyond redemption.
So how could I present my case to save the business and turn it around?
Coming Up...
In the next post in this series I will detail the key challenges that I presented and the first of the changes that I implemented on the journey to achieve the ultimate success of FX4Cash.