BNP Paribas’ Acquisition of Kantox Examined
The acquisition by BNP Paribas of currency management automation software provider Kantox is a progressive move for both parties, say Antonio Rami, Founder & Chief Growth Officer, Kantox, and Jacques Levet, Chief Digital Officer, Global Markets, BNP Paribas. They talk to TMI about what the deal indicates for their respective clients, and what bank acquisitions of fintechs, in general, means for the corporate treasury community.
Fintechs tend to be run by free-thinking creatives within a structure that enables the speed and agility required to execute their ideas. Major banks tend to be less agile but offer the trust and financial muscle that every corporate client needs. Put the two together and it should make for a winning partnership. But simply hoovering up every fintech in sight is not how the most diligent banks operate, and few fintechs will want to sell out their ideas, and ideals, to the first bidder that comes along. The best partnerships are always founded on mutual respect and need.
So it is with BNP Paribas’ acquisition of Kantox and its API-driven end-to-end currency management solution. The relationship, which goes back to early 2019, has been a deliberate courtship of one by the other, culminating in this new deal which, subject to the usual regulatory approvals, is on schedule for completion by early next year.
The bank says it aims to leverage its integrated business model to “accelerate the development of technological innovations, to enhance the customer experience, and to provide best-in-class capabilities to its clients”. Through the Global Markets business of BNP Paribas’ Corporate and Institutional Banking (CIB) division, and the business centres of its Commercial, Personal and Banking Services (CPBS) division, Kantox’s offering will be fast-tracked towards BNP Paribas’ large corporate, SME and Mid-Cap clients across the globe.
Arriving at this stage has required the alignment of a combination of factors, explains Levet. “The timing was right in that we have had three years working together, during which time we have learnt to understand each other’s cultural and creative DNA and seen that there is a true fit, which I believe is a critical criterion of any deal.”
Another driver for the deal was the realisation by BNP Paribas that Kantox brings “real value” for treasury teams, continues Levet. The Kantox offering, he feels, is unique, believing there is no other solution that offers end-to-end automation of currency management. “If we’d wanted to build this from scratch, it would take us years, and I am not convinced we could do it as well as Kantox has,” he states. “So when you find a company that adds real value to corporate treasuries, that you know would be a real challenge to match on your own, and you have had the chance to work together to prove there is a good fit between the teams, then considering an acquisition becomes a no-brainer.”
For Rami, despite having other offers of investment or acquisition on the table, the alignment of the people and the understanding between organisations remains the primary reason for pushing ahead with the BNP Paribas deal. He says the bank fully understands that although it is one of the largest players in the FX market, Kantox adds new value for its corporate clients.
This, for example, gives it deeper insight into the treasurer’s pre-trade, trade and post-trade activities, and facilitates within clients the leveraging of currencies and the gaining of competitive advantage. “The understanding by a major FX bank that its corporate clients see added value as more important than simply cutting prices is a big eye-opener,” declares Rami. “And now, with BNP Paribas, a greater number of treasurers can feel even more comfortable when onboarding with Kantox to benefit from those advantages.”
Of course, the acquisition of a fintech by a bank means greater scope for rapid development on all fronts, and a number of ideas are already being floated as to how the technology will improve the overall offering and its reach. The established connectivity between Kantox and client ERPs and TMSs in particular lends itself to the greater automation of FX trades, which in turn will lead to further product development, says Rami.
Although no details are available yet, one broad aim is to democratise the unique notion of end-to-end automation within FX hedging, comments Levet. This, he believes, will help treasurers reduce the time they spend on currency hedging, freeing them up for more strategic activities. “Every pain point eliminated, or time-consuming process automated, helps treasurers manage their operations more efficiently. And with Kantox driving automation of currency management, it opens up other services in treasury, especially around liquidity management workflows.”
Ultimately, banks want to create value for themselves, but first they must create value for their clients, says Levet. “The way to create value for clients is to identify the best solution, wherever it comes from, for each specific challenge. That sometimes means packaging both external and internal products or services to address our clients’ unique needs.” Increasingly, where the right solution is not available in-house, it is giving rise to co-creation with the client, and new partnerships with fintechs, which, if suitably value-adding for clients, are more frequently leading to acquisition.
Banks buying or making minority investments in fintechs is not a new trend. But it is one that is clearly gathering pace, and for good reason. The cycle of innovation in large organisations, including banks, often requires the innovation structure to be set aside from the rest of the business, explains Levet. By doing so, it creates a space where creative minds are unfettered by often sluggish corporate thinking.
Of course, fintechs already exist outside of the constraints of that mode of thought, and as such can easily push boundaries. However, with that freedom comes the risk of uncertainty, no matter how good the idea. “It’s why partnership with a bank is the perfect counterbalance, presenting mutual benefits,” enthuses Levet. “They bring the agility and innovation; we bring security and trust, but also the access to, and understanding of clients, which fintechs often lack.”
When an arrangement is properly executed, Levet believes both bank and fintech will know that it’s “a perfect match”. For him, proper execution means aligning culture and ambition, as already stated, but it also means preserving the fintech’s most positive characteristics, such as its creative talent and agility. After all, he asserts, “these are also the reasons why the bank is buying the fintech in the first place”.
Many large banks have established innovation centres through which they will continue to pursue technological advantage. But by constantly casting an eye across the fintech community for “smart, value-adding solutions” and bringing them to the attention of clients, Levet says banks avoid trying to reinvent the wheel or over-reaching themselves by attempting to build everything in-house. Such is the trend for partnership and acquisition today that he is drawn to say: “those days are over”.
The views of BNP Paribas on how the bank/fintech relationship should play out are, Rami notes, “quite rare”. Nonetheless, they afford the Kantox team the belief that all will be able to continue in their free and agile ways. “Many banks are product-centric. They develop and then push their products. Our view has always been client-centric; we are driven by what the client needs. As a partner, and now as acquirer, it was vital that BNP Paribas shared this viewpoint.”
Rami cites the product-centric view as the reason some banks fail to question why, instead of embracing sales in more currencies, client companies want to avoid it. He feels these banks seek only to offer more sophisticated structured products; they will not tackle the underlying FX issues of their clients’ businesses.
Of course, he knows that banks have a wide range of client needs on which they must deliver and, as an agile fintech, that Kantox is able to maintain a “laser-focus” on leveraging currencies. But from experience, he believes “BNP Paribas is different”, both in its approach to clients, and in its openness to change. It’s why he is confident Kantox will continue to pursue its client-centric approach under the bank’s ownership.
“A decade or so ago, the view of fintechs by banks was quite negative. Now there is much more dialogue,” continues Rami. “As we see more examples of banks and fintechs working well together, there will be more exploration.” However, he cautions that just as it would be a mistake for a fintech to let itself be acquired by a bank with which it did not have “a good fit”, banks cannot passively wait for the right fintech solutions to emerge; they must actively pursue the best technologies.
Levet too is adamant that banks accept the shift in the way they deliver on client needs. “There will be more acquisitions of fintechs by banks. But there will also be more internal innovation, and more co-creation with clients, because there are still client pain points to address. We need to make sure we deliver the value they actually need, not what we as an industry imagine is needed.”
To this end, BNP Paribas’ own Treasury Board has up to 50 corporate treasurers around the world with which it meets, discusses and reconvenes regularly to tackle the most pressing issues within cash management, trade and, more recently, FX. “This systematic approach enables us to develop with clients, to make sure we are addressing real needs.”
Direct access to this client community has alerted Levet to the active pursuit, by an increasing number, of the transformation of treasury risk management into a competitive advantage. “They understand that managing risk more effectively enables the whole company to thrive,” he notes. “The fully automated currency management of Kantox enables businesses to mitigate risk on additional currencies they would not usually hedge for lack of time or resources, and that can turn into a competitive edge.” It’s a compelling story to able to tell key stakeholders, especially investors.
Kantox itself is moving into the next phase of development. “When our competition is Excel, it’s not surprising companies using it want to deal with the fewest currencies possible,” comments Rami. “But with Kantox, they can begin leveraging currencies as a competitive advantage.” Knowing that BNP Paribas respects the Kantox approach while offering trust, financial strength and global reach, he is bold enough to conclude that “it’s our time to make history”.