FX investment drives change at Canada's Central 1

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Central 1 Credit Union is partnering with Agility Forex to provide a low-cost foreign exchange service for businesses and consumers.

C1 Ventures has taken a 28 percent stake in the Vancouver-based fintech Agility Forex as part of a deal to provide a low-cost foreign exchange service for businesses and consumers.

C1 is the venture capital arm of Central 1 Credit Union, a Vancouver-based cooperative that provides core banking and payment services and technology development for British Columbia and Ontario credit unions.

Canada’s credit unions have been losing out to the country’s banks in terms of business banking market share, and have struggled to keep up with the banks’ capacity for technological innovation. Central 1 wants to redress this imbalance in the credit unions’ ability to compete with the banks.

C1 Ventures
In the third quarter of 2017, Central 1 launched a national digital transformation and payments strategy to enable it to better serve its credit union members and clients. Central 1 also created a transformation office to build a client-centered, integrated organization.

The reason for these initiatives is due to the fact that individual credit unions are small players in Canada’s financial services industry, and have been outpaced by the banks’ scale and marketing strength and by their digital offerings.

As part of its national transformation and payments strategy, Central 1 formed C1 Ventures to identify, support and develop mutually beneficial relationships with fintechs.

“At C1 Ventures, we’d love to talk to companies who can help us drive continued innovation and growth in the credit union system,” said Mark Blucher, president and CEO of Central 1. “As part of our strategy, we’re looking at the capabilities we need as an organization, and some of those will be delivered through partnerships.”

C1 won’t necessarily take equity stakes in fintechs. “But, philosophically, I like an equity stake, as it gives continued development to fintechs and the industry,” he said. “We also like the opportunity to attract revenue from outside the credit union system, that ultimately benefits the (credit union) system. Our hope is that, through these partnerships with fintechs, we’ll be able to bring innovation that we hadn’t even considered yet — to benefit the entire Canadian credit union system and provide its members with a competitive edge.”

Central 1 has a policy of collaborating with fintechs to improve its services. For example, last year it partnered with Dutch-U.S. banking fintech Backbase to improve its MemberDirect digital banking service. Central 1 provides MemberDirect to its credit union members for access by their consumer and business users.

In June 2018, Central 1 launched a small business payroll system which is integrated with online banking to provide an alternative to using third-party payroll providers. Central 1 provides the integrated payroll service by linking MemberDirect to APIs from an undisclosed fintech.

Competition for cross-border transfers
Central 1 will offer Agility Forex’s foreign exchange service to its credit union members and their retail and corporate clients as well as to other Canadian credit unions.

Agility Forex’s digital platform offers next-day settlement of cross-border payments coupled with integrated automated ID verification and anti-money laundering procedures. It provides currency prices normally reserved for large corporations, competitive with bank FX rates.

“The Canadian foreign exchange transaction market is ripe for disruptive change, and we believe this partnership will take advantage of that opportunity,” said Blucher.

According to Central 1, Canadian banks currently capture up to 95 percent of the FX market share. In Europe, however, the FX market is much less concentrated, with firms specializing in FX conversions capturing a much larger share, which has resulted in a migration to lower-margin FX transactions.

“We have multiple price matrices, so we can be very flexible in the pricing we show our customers,” said Andrew McGuire, Agility Forex’s CEO. “Generally, we beat the banks by a substantial margin. Our platform prices, executes, and hedges transactions and risk 24 hours a day via API feeds with our liquidity partners. We have payment partners around the world that enable us to make local payments and avoid the high cost of cross-border transfers.”

McGuire said that Agility Forex shouldn't be compared to nonbank P2P remittance firms such as TransferWise, which are active in the Canadian market.

“It’s not so much (about competition) with TransferWise, as I think we're in different spaces,” he said. “We're more in the higher-value transaction space, with the average size of deals being C$30,000, so we don't really compete with the remittance sector. Also, as an execution-only platform, we don't really cross over with the really high-value Canadian players such as Cambridge Global Payments or EncoreFX, which offer more of the bespoke risk management solutions. Probably, our main competition in Canada would be the Canadian arm of Australia’s OFX.”

In terms of remittance corridors, Agility Forex has the world well covered, said McGuire. “But most of the demand we see is to the U.S., Mexico, the U.K., Europe and some Pacific Rim countries,” he said.

Blucher said Central 1 is currently working to make Agility Forex’s technology available to credit unions and clients through MemberDirect, and also through a ‘white label’ direct-access version for those not using MemberDirect. “In terms of timing for credit unions/clients to have access to the service, that’s still being finalized,” said Blucher.

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