SaaS Interviews with CEOs, Startups, Founders
FinTech Helps Hotel Bed Owners in US Hedge FX Risk Selling to Travelers in Other Countries
29 Dec 2022
Chapter 1: What is the main topic discussed in this episode?
The easiest way to do that is to go to getlatka.com and use our filtering tool. It's like a big Excel sheet for all of these podcast interviews. Check it out right now at getlatka.com. Guys, call my next banker. He's raised 19 million bucks hoping to help folks mitigate hedging rates.
Chapter 2: How does Grain help hotel bed owners hedge FX risk?
For example, if you're selling a hotel bed in California to a Mexican travel agent who needs to sell it to Mexican residents in pesos, he'll help you hedge that risk. This risk can be significant with the euro changing, for example, the past two weeks, 8% against the dollar. It's a massive market.
His hope is to get this product live in the next six months and process, call it a billion dollars of... hedging volume next year, of which he'll make 20 to 30 bips on.
Chapter 3: What are the implications of currency fluctuations for businesses?
So call it 2 to 3 million bucks in revenue. Already has a team in place of 20 people looking to scale now with this new money. Hey, folks. My guest today is Aaron Nauman.
As a former head of Barclays, a CMA FX trading platform and the co-founder of Israel's largest FX hedging non-bank, Aaron brings over 20 years of FX and risk management exposure to his current company, which is an embedded cross-currency solution called GrainFinance.co. Aaron, you ready to take us to the top? Yes. All right, doubling this down for our non-finance people.
What does that mean in a simple sentence?
Hedging for SMEs?
Chapter 4: How does hedging work for small to medium enterprises?
What you do. Why people pay you.
I'm not sure. We'll find out in the future. But basically, I have over 20 years of experience providing hedging solutions to a lot of companies, small, big, private individuals, high net worth. So I think we acquired some experience and that's what maybe I'm paid for.
So Aaron, sorry, you got to dumb that down, right? So hedging risk right now, right? So there's two currencies. People want to do business together.
Chapter 5: What is the pricing model for hedging services?
Explain to us specifically what hedging risk is. Why do people hedge that risk on currency?
In a very simple manner, when you have an importer, for example, that is buying some type of an inventory. For example, an importer from the US that is buying, for example, inventory, which is wine, okay, from Euro. So he's a dollar base. He's selling his wines in dollars, but he's paying for his wines in Euro. So the exposure between the Euro and the dollar is affecting him.
so if he's buying it in euro for example and you know he is actually purchasing it the euro is going you know uh increasing versus the dollar then he can lose a lot of money basically by paying more so what we're doing here is we're providing him with a hedge that he can fix his euro dollar rate at the uh let's say the inception of his uh of his order and that's that that way he knows how much he paid in dollars okay for something that he will be receiving two months time
And then he knows what will be the price for his end clients in the US that will pay for these wines. And then the actual profit will be the amount he paid for the specific wine.
Chapter 6: How does Grain's technology integrate into the travel industry?
And basically the price that he sold the wine at, at dollars as well. So it's dollar versus dollar and not dollar versus euro.
How big of a risk can this be? If I'm a wine owner today, I run a liquor shop in California, and I spent a million dollars to buy wine from Europe today, but I'm not going to get it until four months from now. How much could that value increase or decrease after I've already put up the million USD?
Yeah, you know, lately it's actually, it's very volatile. So we can say that over the past even two weeks, the euro increased versus the dollar by 8%. So for example, a million dollar inventory, you could have lost $80,000 or 80,000 euros just by waiting, you know, for two weeks to pay for the actual wines.
So that's a lot of money for how much you would have sold those wines, you know, in the U.S., But I'm not sure that his profit margin is 8% or 10%.
Chapter 7: What challenges does the guest face in scaling the business?
So he can even end up losing in his business.
So that's your sales pitch, right? So you're selling to me now, the guy that runs the wine shop in California. You're saying, Nathan, careful, there's an $80,000 risk here. Pay me X to get rid of that risk, right? How do you work your pricing?
Basically, I'm a liquidity provider. So I have liquidities from a lot of banks, a lot of non-banks, and that's my business. So I can buy the hedge very cheaply. So for four months' time, I can buy the Eurodollar hedge or the Eurodollar Ford, as we call it in our business, at a very good price.
Chapter 8: What are the future goals for Grain in the next year?
And that price I'm transferring, passing to... obviously, to the wine buyer, okay? And I'm just making a small margin on that.
What margin do you reverse engineer for?
Basically, 20, 30 basis points, you know, above my cost of hedging, which is actually very, very competitive. I mean, if you would try to do that, for example, versus, I mean, with his local bank, he would probably end up paying by 4%, 5% for the specific million dollars of euro-dollar hedging.
Yep. So 4% to a bank, 0.2% to 0.3% for you. So what does that mean for me as the guy buying the wine from Europe? What am I going to pay you to hedge this risk?
So you're just going to pay me, okay, a million dollars in four months' time, and I will deliver you the euro so you can pay your supplier in Europe, okay? Oh, I see. That's the business we're doing.
Got it. So you're not making money then from me. You're making money on the other side.
I'm making money from the spread. So let's say I bought the hedge. Okay. If your dollar now is 104, okay, that's my cost. So I will sell it to you at 104.20.
Give me that. 104, what? $1.40, 140, 104%?
A euro dollar is 104 now. So for one euro, okay, it's $1.04. Okay. So for a million euro of an order, okay, you have to pay me $1,040,000. That's my cost. So for me to earn slightly on, because that's my cost, okay, so I will quote you 1.042, which is this 20 basis point that I was mentioning earlier. I see.
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