Under the cover of Covid, Julian Wheatland and his team at Cornerstone FS have been able to get on with the work of creating a business ready for the public markets in relative anonymity.
The timing of the fintech’s IPO hasn’t yet been decided. However, the preparations are largely complete.
While Cornerstone has come a long way in a short space of time, the value exists not in what has been done thus far, but what lies ahead.
We first covered the company over a year ago when it was FXPress, a growing foreign exchange trading specialist with an almost infinitely scalable software-as-a-service (Saas) technology platform that was central to its buy-and-build strategy.
It has since acquired a firm called Avila House, which brought with it an e-money licence, while FXPress was then reversed into personal care group Cornerstone Brands and the business group renamed Cornerstone FS.
The latter transaction provided a 400-strong investor base and heralded the appointment as chief executive of Wheatland, whose background is a tech and whose last assignment was to clean up the remnants of Cambridge Analytica.
Established, scalable platform
The FXPress technology remains the foundation of the company’s acquisitive plans under the new CEO.
Set up 10 years ago by four foreign currency traders, FXPress processes GBP600mln-worth of transactions a year for around 650 customers at prices well below the cost of doing business with the high street banks. The product is also white labelled to 30 other firms.
While this represents a decent start, the cloud-based system it uses is probably operating at a fraction of its true capacity. Meanwhile, the marginal costs of adding new transactions to the platform are low.
Sensibly, Wheatland is looking to accelerate growth via acquisition and has a number of deals lined up, having spotted a valuation anomaly.
Here’s how it works. The stock market listing of Cornerstone will provide it with acquisition currency – its shares.
Using its highly-rated paper, the company will, in all likelihood, be able to provide a higher return for a forex business owner than a private buyer could or would.
“There’s an immediate arbitrage opportunity,” Wheatland explains.
“Our publicly-listed paper versus the multiple paid by private buyers, which creates value from an acquisition on day one. There are then economies of scale by adding acquisitions to the platform.”
The motivation for the sellers? Well, an important ‘push factor’ is the growing burden of regulation which is as costly these days as it is time-consuming.
Under the umbrella of Cornerstone, a regulated entity, all this is taken care of centrally, allowing forex businesses to continue doing what they were created to do.
That logic also extends to innovation too. “Developing this technology is expensive and difficult,” says Wheatland, pointing out the company has already made significant investment in a highly regarded, scalable platform, which is currently best-in-class.
But there’s another dimension. The same underlying technology that allows its customers trade forex can also be deployed in other parts of the financial ecosystem.
To understand the scale of the opportunity, it is worth getting to grips with how the landscape in financial services is changing.
Open banking paves the way
Leading the shake-up are the UK’s open banking initiatives, a series of reforms to how banks deal with your financial information called for by the Competition & Markets Authority.
The competition watchdog introduced the measures alongside a regulation snappily named the second payment services directive (PSD2).
The idea behind these changes is that they’ll bring more competition and innovation to financial services which, in turn, is hoped will lead to more and better products to help manage your money.
For example, you could connect your bank account to an app that would analyse your spending and recommend a new product like a credit card or savings account to save you money.
Without getting too far into the long grass with this, the reforms open up the electronic banking pipework to innovators such as Cornerstone.
What Wheatland and his team plan could represent a mini-revolution for the small- and mid-sized companies (referred to as SMEs), who currently have a dysfunctional relationship with their banks.
Take a small business that operates in three international jurisdictions that has to pay bills and payroll in all three.
Currently, this might require the finance department to use three separate local banks (and all the paperwork, dongles and security questions that requires), or a single bank account where costly international payments have to be fired out manually throughout the month.
Neither situation is optimal – and remember there are multiple variations of these two basic scenarios.
Easing a major accounting headache
So, Cornerstone, tuning in on the wailing and gnashing of teeth of finance directors and controllers across the nation, is developing a cheap and effective system that joins up and automates multiple payment, logging and reconciliation processes – and makes it pain-free.
It is doing this by essentially re-fettling the FXPress platform so it can communicate with the banks and accounting packages such as Sage, Xero and Intuit.
Of course, the acquisition strategy outlined above means there will be a ready base of new potential customers for its new SME-focused banking platform once it is launched next year.
“Nobody is looking at the space in the way we are,” says Wheatland.
“Our competition – Tide and Starling – are interested in consumers and are offering a version of their consumer product to SMEs. We are the only people creating a product directly for smaller companies.”
A look at Cornerstone’s board reveals a seasoned array of independent directors.
Sitting alongside FXPress founder Phil Barry is Glyn Barker, the former managing partner of professional services firm PwC and currently chairman of FTSE 100 builder Berkeley Group.
Facing them across the boardroom table are lawyer and company doctor, Gareth Edwards, and corporate-financier Elliott Mannis.
“It’s a heavyweight board for a company of our size,” says Wheatland.
“I think that’s because this is a great proposition and we mean business.”