The foreign exchange market has seen significant disruption over the past decade. Paresh Davdra, founder of RationalFX and Xendpay, has been instrumental in leading in this change.
How did people make an international payment 13 years ago? At this time, most people were using their high street bank or a retail branch to send money overseas. It’s likely they would have paid a high price for making an international payment, being stung on the foreign transaction fees. In addition, the process was complex and time-consuming.
This was the world that Paresh Davdra, along with co-founder Rajesh Agrawal, decided needed a shake-up. Just 24 at the time, they had been working at a leading currency specialist and recognised the limitations of the system as it stood. With a small personal loan the pair founded RationalFX and so began the transformation of the foreign exchange market.
A simple solution
“The company we had been working for helped the industry send money abroad for people with overseas properties. We felt there was a big market to offer this service online. We were the first business to offer an online solution for exchanging currency when buying a property abroad. Most of all, it was straightforward: we offered a much simpler way to register online and complete all the regulatory checks. We didn’t have a great deal of money at the time but there were few barriers to entry. For example, I remember writing a £35 cheque to HMRC and using my credit card to buy a laptop just to get us off the ground.”
Starting young meant Paresh didn’t have the same ‘should I, shouldn’t I’ of many entrepreneurs. He admits it didn’t even feel like much of a risk: “After I graduated I was working in the currency brokerage firm and wanted to buy a house. Although my father was willing to support me by paying the deposit, with my low income, we were refused a mortgage by pretty much everyone. At 24, I had nothing to lose. It really didn’t feel that risky.”
And while he hadn’t always had entrepreneurship in mind, from a very young age, he knew he wanted to do his own thing: “I was always financially focused! I know I should say that I came into this to change things, but I also really wanted to make money — like any 16-year old.”
Not that there weren’t sacrifices along the way. The pair didn’t pay themselves for the first 18 months and had around £50,000 of debt but they both believed in the concept and kept each other going through tough patches. “The roles were clear from the beginning. He was a few years older than me and we became like family with him taking the older brother role. There has always been a natural respect there as a result. The relationship took shape over the years. Rajesh was the innovator, thinking of new ideas, the strategic brains. I was doing the running, getting sales and driving new business.”
The pair initially worked out of a little office in Brighton, but the business grew quickly. People recognised they were getting fleeced by the banks and could save a lot of money with a currency specialist. They moved to central London and expanded their team and their reach. Notably, they started to offer services to business clients in 2007. “The market was extremely large and there were always new businesses opening up who needed FX,” says Paresh.
The breadth of the business helped it during some tricky patches, notably the recession of 2008. At that point, the business clients kept revenues ticking over. Shortly after, the group became FCA regulated, which meant it could passport into Europe and it soon built a presence in France, Spain and Germany. Today, around half of its revenues come from Europe.
Other new business brands formed, including Xendpay in 2012, which became part of the Rational Group. This allowed expats to send small, regular payments to their families back home. The group also devised an innovative fee structure, which allowed some flexibility in payments made by its clients. This has grown quite substantially, says Paresh.
Looking to the future, the Rational Group is focused on big payment rails such as Blockchain. It is also looking to building up its infrastructure. RationalFX currently has other businesses and institutions using its payments infrastructure to make money transfers across the world and it plans to further develop this part of the business.
The business has spawned many rivals, a testament to how disruptive the idea has been. However, it does not plan to go down the route of some of its rivals in offering an increasingly broad range of services — wealth management, bank accounts and so on. Neither does it plan to offer cryptocurrencies, which, for Paresh, feels like a bandwagon: “We have been quite clear on our markets. Lots of our rivals have gone to crypto but that is because they don’t have sufficient scale in their existing markets.”
This isn’t a problem for RationalFX, which now has over 100 people in its main HQ in London. All its growth has been organic, there has been no outside funding and the business is still 100% owned by Paresh and Rajesh. In 2018 the group had revenues of £10.7 million and has now processed over $10 billion in payments for more than 180,000 registered clients.
The pair recently took a step back from the day-to-day running of the business, having put a capable management team in place. Agrawal has been busy, working alongside Sadiq Khan as London’s Deputy Mayor for Business, which encourages support for entrepreneurs in the capital. Paresh has taken a quieter route: “I’ve been doing a bit of travelling, visiting a few countries that I couldn’t see while I was running the business. I also have a few things in the pipeline, entrepreneurial projects.” He wants to move back into earlier stage business, which, he says, is much more fun than running a large business. “It’s setting things up that’s exciting. The best bit is the building.”
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on www.smithandwilliamson.com prior to the launch of Evelyn Partners.