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The Math, The Mission, The Movement: Welcome to Finofo

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Today marks a significant milestone for Finofo. We are stepping out into the world to reveal what we've been passionately working on. But you may be wondering, what exactly is Finofo? Why are we working in this space? Allow me to share our story, so you can understand our mission and hopefully join us on this exciting journey.

Finofo is building at the intersection of finance, mathematics, and technology. We focus on the financial operations of businesses – something that might sound complex, but it affects every company around the world. At the core of financial operations lie Accounts Payables (AP), Accounts Receivables (AR), and Treasury Management. These components act as the financial heartbeat of any business, large or small.

  • Accounts Payable (AP) refers to the money a business owes to its suppliers. It's a company's obligation that needs careful management to maintain positive relationships with suppliers and control cash flow.
  • Accounts Receivable (AR) represents the funds due to a company by its customers. This includes invoicing, collecting payments, and offering terms that align with the company's financial objectives.
  • Treasury Management is the strategic oversight of cash, investments, and other financial assets. It's about ensuring liquidity, managing risk, and optimizing financial operations to support the business goals.

Understanding Currency Risk

One of the essential aspects of Treasury Management is managing currency risk, also known as exchange rate risk. This risk occurs when changes in foreign exchange rates affect the value of cash flows, particularly in cross-border transactions or when dealing with foreign currencies.

To understand this concept, consider the following highly simplified example. A coffee mug wholesaler buys mugs from his supplier for US$1 per unit and resells them in the UK for £1. At the beginning of last year, the GBPUSD exchange rate lied at around 1.40 US dollars per 1 British pound, which meant that the wholesaler was generating a gross profit of 40 cents per mug sold. However, in the latter half of 2022, the exchange rate plunged to almost parity between the two currencies, so 1 British pound was now almost equal to 1 USD. This event would have completely wiped out the gross profit margin of this mug wholesaler and would have plunged this business line into heavy loss territory, when other costs are considered.

Currency risk is not merely a theoretical concern; it has real, tangible effects on a business' bottom line. Understanding and managing this risk is crucial in today's interconnected global economy, where even minor fluctuations in exchange rates can lead to substantial impacts on finances, affecting planning, budgeting, and overall financial stability of a business.

Why we are building in this space

Highly Complex for Financial Decision Makers

Managing currency risk is a multifaceted task that requires specialized talent in finance, with expertise in the niche aspects of treasury management. From consolidating data dispersed across various systems to accessing market data about currency pairs, the process is complex. Large corporations may afford specialized talent like capital markets experts and treasury gurus to tackle these challenges. In contrast, most regular businesses are left grappling with these complexities with a team consisting mainly of trained accountants and corporate finance specialists. This makes the task seem almost insurmountable for many.

A Gap in the Market

What struck us was a glaring gap in the market: there is no accessible tool specifically designed to simplify the process of currency risk management. Currency risk is a pervasive issue that can affect a company's bottom line, and yet, many businesses are left to fend for themselves, often without the requisite knowledge or expertise.

Existing Solutions are Inadequate

The current industry landscape is fraught with challenges. From perverse incentives that tend to exacerbate problems rather than solve them to the lack of transparency and support, the traditional models favor confusion over clarity. We observed that this approach not only led to sub-optimal decisions by financial decision-makers but also had far-reaching consequences. It didn’t merely affect individual businesses; it rippled through the entire economic landscape, influencing employees, shareholders, and eventually, customers.

Use of technology

Drawing from our personal experiences with these challenges, we recognize that technology holds the key to solving them. Businesses have made significant strides in the past decade, particularly in adopting cloud-based software, ensuring that financial data is digitized. This advancement allows for the consolidation and analysis of data at a single point, employing Nobel Prize-winning financial mathematics models for precise risk quantification and subsequent risk management. At Finofo, we firmly believe that every business, regardless of size or financial acumen, should have access to the tools and insights required for informed decision-making. Our mission is to change the existing paradigm and dismantle the barriers that have kept essential financial technology out of reach for many, making these advanced solutions accessible to all.

How Will Finofo Solve the Problem?

Finofo's digital platform uniquely blends mathematics, technology, and financial engineering to dissect the multifaceted challenge of currency risk. With the application of advanced algorithms, it probes the specific intricacies of currency fluctuations for individual businesses. If such fluctuations are identified as a concern, the platform then delves into accurately quantifying the value of this risk. This precise understanding paves the way for our platform to formulate tools and strategies that are unique to each company's financial landscape. Our guiding principle sets us apart from the norm: We're not interested in merely selling financial instruments. Instead, we leverage our unique technology to help businesses understand if, when, and how much they need them.

Recognizing the complexity of this challenge, we've planned our product release in three interconnected phases, each addressing significant needs of business finance teams.

Launching Finofo: The First Phase

Today, we proudly roll out the first phase of our product. This release will enable finance teams to send or receive money in over 40 currencies across 180 countries, access global bank accounts, convert between currencies, and manage both domestic and international invoices from one platform. It's a foundational step to facilitate global operations. Stay tuned for the next phases, which will include innovative financial planning and hedging features.

What’s Next? Join Us on Our Journey

We've embarked on an ambitious journey to revolutionize the delivery model of FX solutions through our integrated platform. This is only the beginning, and we have much more to build. If you share our passion for this space and want to contribute to our mission, we'd love to hear from you.

Prateek Sodhi