For a company operating in the cutting-edge, ever-evolving and intensely competitive world of financial technology, Cornerstone FS uses a pretty archaic piece of communications equipment to close the majority of its transactions: The telephone.
Ok, it may not be as old-school as the telegram or the shipping routes that were previously the conduit of foreign transactions, but in a world of instant communication and lightning-fast fibre internet, why on earth does Cornerstone put itself at such a disadvantage?
The simple answer is, it doesn’t really.
At face value, Cornerstone does what thousands of others have done in the past: It moves clients’ money from one country to another.
Banks have done so for centuries. Wise has done it since the dawn of the 2010s.
Transactions: Cornerstone offers its customers a ‘quasi-bank account’, or a multi-currency IBAN allowing customers to both send and receive in multiple currencies
Yet, AIM-listed Cornerstone is a different beast from its multitude of competitors in the world of foreign exchange.
You have to be, if you stand any chance of thriving in such a highly competitive environment.
Cornerstone offers its customers what chief executive James Hickman calls a ‘quasi-bank account’, or a multi-currency IBAN allowing customers, both individuals and businesses, to both send and receive in multiple currencies.
This is something your typical bank doesn’t provide, as anyone working in cross-border business will attest.
This places Cornerstone closer in competition with newer fintech start-ups like Revolut or the above-mentioned Wise.
But even in this field, Hickman stresses that Cornerstone is different.
‘Our core client base is a mix between businesses and consumers or individuals,’ said Hickman.
‘For individuals, it tends to be higher transaction value type transfers, and typically they’re buying property, they’re making investments, things like that,’ he continued.
‘So this is not a remittance business, this is very much a much higher-transaction-value business, with businesses.’
Given Cornerstone’s higher-end client base, it needs to offer more than just a mobile app to process payments like some of its better-known competitors do.
Hence that’s why the group sees the majority of payments processed over the humble telephone.
‘Clients want to know that they’re obviously getting the best exchange rate they can be, and it’s a good time to do it for them.
‘But also that they know that the money is going to be received at the other end quickly, on time.
‘Perhaps it might be, from a legal perspective, they have to complete on a certain time date, it’s going to arrive safely,’ explained Hickman.
‘Our customers actively want to engage with us verbally. And that’s where we see our differentiator…70 per cent of our transactions are actually done over the telephone.’
It’s this bespoke knowledge of the currency markets that Cornerstone touts above its competitors.
Cornerstone also has an in-house-developed platform optimised for single or infrequent yet large international payments.
Which is all well and good, but where is the value proposition for the potential Cornerstone investor?
Not dissimilar to other payments companies around the world, Cornerstone earns its crust through the buy-sell spread of foreign exchange transactions it processes.
But as a relatively small fish in the FX pond (the market capitalisation is currently only £6million at 10.5p) Cornerstone is faced with a number of disadvantages.
The group needs to offer more attractive spreads than the big banks if it hopes to draw in and retain clients.
Cornerstone admits to having a hard time staying competitive in the ‘vanilla’ world of converting pounds to euros and sending them to Euro land.
‘That’s not our sort of bread and butter at all. We’ve spent a lot of time and effort in the last six to eight months improving and increasing our counterparty relationships,’ said Hickman.
‘If you’d have asked me probably a year, year and a half ago, we’d say we’re very sterling centric, very reliant on the strength of sterling.
‘That said, we’ve made a huge effort in diversifying our revenue streams across the globe in terms of currency pairings.’
This diversification has seen Cornerstone seek out lesser liquid markets that can offer better spreads and ultimately stronger revenue flows.
Under the group’s ‘innovation through partnerships’ strategy, Cornerstone has established a foothold in Asia and the United Arab Emirates, with further expansion in the pipeline.
Operating in ‘the more esoteric currency pairings’, as Hickman described it, attracts a higher margin than say that the intensely competitive main markets, while also helping Cornerstone to hedge its own risk against the cyclical nature of foreign exchange.
Meanwhile, a shift away from a while-label business model historically favoured by the group towards a direct-to-client model has significantly boosted margins (no less than a double-digit year-on-year improvement in the past financial year).
It seems to have paid off. In Cornerstone’s trading update on July 11, the group said it expects a maiden positive adjusted EBITDA result for the first half of the financial year, with total revenues of approximately £3.6million representing an 89 per cent year-on-year increase.
On the back of these strong figures, Cornerstone’s shares ripped higher, and are now more than 70 per cent up year to date.
The question is: Can Cornerstone capture more upside?
Given the multiple trillions of dollars that pass through the FX markets daily, there is certainly more opportunity for the group, as long as it keeps its phone bills down.
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