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10 February, 2023
The Nine Key Lessons Learned Transforming A Failing New International Payments Business Into A €200m+ Per Year Success - Part 2
In the first part of this series I started to describe the background to Deutsche Bank's international payments business, FX4Cash, and the circumstances in which I came to lead it. In this post, I will detail how we prevented the business from being closed down and some of the steps we took to turn the business around and deliver success.
Pitching To Save The Business
As described in the previous post in this series, to save the FX4Cash business I needed to present to the FX4Cash Steering Committee and, in particular, I needed to give the committee members that represented the GFX ExCo the business case they needed to take back to the GFX ExCo to justify reversing the decision to close of the business.
The initial part of the presentation was a high-level account of what had gone wrong. This was squarely aimed at the GFX ExCo members who came from a trading background. One lesson I learned early in my career in FX Derivative trading and sales businesses is that losing money on a trade is a bad thing but knowing why you lost money and demonstrating that you have learned from the experience is a fundamental step in the development of risk management skills. So, my goal was to demonstrate that we now knew what the problem was and, more importantly, we knew how to correct course to achieve the original ambitions for the business.
The rest of the presentation plotted that course. The core of the presentation was a ninety-day plan to turn the business around by executing on:
- Business strategy transformation
- Distribution strategy overhaul
- Implementation of extensive sales governance processes
- The role out of sales training to sales teams newly empowered to sell FX4Cash
- Complete reorganisation of team roles and responsibilities
- Fixing product management
- Empowering operations to be leadership peers
A Stay Of Execution
The presentation earned the team a temporary stay of execution. We were given six months to both execute the ninety-day plan and then to show tangible and material business progress. With only six months to prove the business' potential we immediately started the implementation of the ninety-day plan. This plan ripped up the existing strategy, set the business on a completely new path. In the following sections I will detail the key elements of the plan.
Business Strategy Transformation
The purpose of the FX4Cash business was to generate high margin revenue through the fully automated end-to-end process of making international payments. Under the original strategy, the primary focus of the business was centred around a feature called 'Autoconvert' that was sold to banks. It was based on a somewhat controversial practice whereby payments being made in one currency but for payment in an account denominated in a different currency would be converted into the account currency for onward payment. In the majority of cases this did not cause any issues to the account holder as they needed the money in the account currency. Typically, the FX conversion was performed by the bank with whom the account holder held the account. However, because the FX4Cash Autoconvert process performed the FX conversion, the account holders bank missed out on revenue generated in the FX conversion. These banks therefore were often hostile to the practice. It is worth pointing out that the practice was ultimately prohibited by the Payment Services Directive Two ('PSD2') EU regulations that were adopted in 2015. That though was not the reason why it was critical for FX4Cash to pivot it's strategy away from the focus on the Autoconvert feature. There were three key reasons why the strategy had to change.
The first reason driving the need for change was identified from the new business metric reports I implemented to be able to understand the business. These new reports revealed that the net revenues generated by Autoconvert were much lower than the original FX4Cash monthly report was leading people to believe. There was a percentage of Autoconvert related payments where the ultimate account holder actually wanted the original payment currency. However, an FX conversion had been initiated by Autoconvert resulting in the wrong currency being paid. A manual operational process would be initiated by the account holders bank, whereby they would return the converted currency and request FX4Cash operations to pay the original payment currency. Since this was a manual operations process, FX4Cash operations would only receive the request from the other bank days after the original FX conversion. Reconverting the payment back to the original currency occurred at the prevailing exchange rates. Those rates were vastly different to the rates at which the original FX conversion was executed due to normal market volatility. This reconvert process almost always resulted in FX losses to the FX4Cash business. The end account holders, quite rationally, were happy to accept the converted currency when exchange rates had moved in their favour as it was profitable for them to get their own bank to do the reconvert into the original currency. These losses to the FX4Cash business were wiping out the majority of the gains from all the other Autoconvert related payments. The FX4Cash business' sponsors were unaware of this as the original monthly business update did not attribute the reconvert losses to the Autoconvert product. The original reports obfuscated where the FX4Cash business was both succeeding and failing and were unfit for the purpose of enabling the business to be managed effectively.
The second reason why the strategy had to change is that when you properly attributed the reconvert losses to Autoconvert and determined the net revenue attributable to that product, it was clear that even if you captured a dominant share of the total addressable market, it would always be relatively trivial in revenue terms. It was never going to scale to a big business. As a business strategy it simply didn't stand up to the most basic scrutiny.
The third reason the strategy had to change was again discovered as a result of the new business metrics that I had commissioned. We performed a Pareto analysis of the small number of corporate customers that were signed up to FX4Cash and identified the segment of those customers that represented eighty percent of the corporate revenue. We then plotted the trajectory of the revenues from that top performing segment of corporate customers. There was a high degree of correlation in the trajectories of the growth in revenues for each of the customers in this top segment. The data suggested that once a corporate customer started to use FX4Cash the volume of payments that they would allocate to FX4Cash increased over time. It was clear to see that adding a relatively modest number of similar customers would generate meaningful revenue. It wasn't lost on anyone who looked at the data that adding large numbers of similar customers would be a highly successful business.
The strategy transformation, therefore, was to cease actively marketing the Autoconvert product and instead to focus the business on corporate customers. From the new way of analysing the data, these customers were clearly identified as the big opportunity for success. The data was always there but nobody had known how or where to look for the information the data contained.
There was significant push back to this strategy transformation from a number of members of the FX4Cash team, not least, from those who had championed the Autoconvert product. The reason they gave for opposing the strategy was based on their belief that the senior management of GTB Corporate Cash Management sales teams would not be supportive. There had previously been a competing initiative similar to FX4Cash championed by the GTB Corporate Cash Management business that had been cancelled in favour of FX4Cash. It was claimed by some members of the FX4Cash team that due to the cancelling of the competing initiative FX4Cash would face resistance from key senior management that had championed the competiting initiative. What wasn't in doubt is that we would need the help and support of these senior sales managers to achieve success for FX4Cash with corporate customers.
However, the claims that senior sales management would stand in the way of success didn't prove accurate. On meeting with the GTB corporate distribution senior management, walking them through the new reports and what the reports pointed to in terms of opportunity, they were fully onboard and gave their support to the new strategy.
The key takeaway from the experience of transforming the strategy for FX4Cash is that data, if analysed in the right way, can unlock the knowledge required to identify opportunities and provide the evidence to support the bold decisions needed to realise those opportunities.
Coming Up...
In the next post in this series I describe the problems in how FX4Cash was being distributed, how that contributed to its initial failure and the steps we took to transform the distribution processes to enable success.