INTL FCStone 2013 Annual Report Download - page 10

In our physical business, we act as principal and
generally seek to run a matched book and hedge
all underlying price risks. We operate a commodity
nancing and facilitation business that provides
working capital to commercial commodity-related
companies against physical inventories, including
soft commodities, grain and feed ingredients, lumber,
meats, energy products and renewable fuels.
Our customers include a wide variety of commercial
entities globally, including banks, producers,
fabricators, reners, recyclers, traders and
manufacturing entities, scrap merchants, wholesale
jewelry merchants, producers of ethanol and
biodiesel products, soft commodities and grain
and feed merchandising entities and some of our
commercial risk-management customers.
Payments and Foreign Exchange
INTL FCStone provides international payment
solutions to banks, commercial businesses, charities,
non-governmental organizations (NGOs) and
government organizations. We do not deal with
individuals and do not deliver cash. We offer payment
services in more than 150 countries, more than any
organization in the world, with competitive and
transparent pricing. Through technology platforms
and a commitment to customer service, we are
able to provide simple, fast and secure execution,
ensuring electronic delivery of funds in any of these
countries in the shortest time possible.
We have built a global network of correspondent
banks, operate bank accounts in more than 120
countries and are able to receive and disburse
funds from these local accounts. We maintain
modest balances in certain of these countries to
efciently satisfy customer demand. We are also
able to aggregate customer demand to obtain better
execution costs locally.
The payments business started organically 10 years
ago as part of our foreign exchange activities, which
were focused on smaller, less liquid currencies in
the developing world. We recognized that we were
able to access foreign exchange rates that were
signicantly more competitive than those offered
by the large international banks for payments to
these countries. Our original customer focus was
on charities, NGOs and governmental aid agencies,
given their broad focus on difcult markets, but
over time we expanded the business to include
large multi-national corporations. We believe that
we are the dominant provider of payment services
to the charitable and NGO community. More recent
development of our proprietary technology, largely
completed in scal 2013, combined with becoming
a SWIFT (Society for Worldwide Interbank Financial
Telecommunication) member, has allowed us to
offer our services to large money center and global
banks looking for more competitive international
payments services. Our customers now include the
largest international banks in the world as well as a
large number of smaller regional and money center
banks.
The vast majority of our payments are now “no
touch” and executed electronically from the order
initiation by the customer through SWIFT messaging
to the local bank to the execution of nal payment
instructions. This has resulted in our transactional
costs being reduced substantially, allowing us to
compete for smaller payments that constitute a
much larger aggregated revenue opportunity for the
organization.
The total value of international payments made every
year is extremely large, with the size and method of
transfer varying signicantly. The key drivers of the
market segment that we serve are based on the level
of cross-border transactions in goods and services,
which continues to exhibit strong growth. While the
market is traditionally served by banks, there are
an increasing number of new entrants leveraging
technology to provide niche payment services. We
believe that we have developed a unique capability
that cannot easily be replicated, including the
use of proprietary technology that provides an
efcient and effective service to our customers, an
unparalleled network of banks around the world
that provide competitive exchange rates, dominant
market position in key markets, a global footprint
allowing us to position our marketing and trading
staff close to our key customers and markets, local
regulatory permissions in key markets, effective risk
management and robust compliance.
We believe that we have developed a proven
capability for the Company in a very large
marketplace that, with the technology assets we have
developed, is scalable and could handle signicantly
higher transaction volumes with minimal additional
xed costs. We are now a recognized franchise in
the international payments arena and believe we
can leverage this into a much bigger customer base.
In our foreign exchange business we provide foreign
exchange services to nancial institutions, multi-
national corporations and professional traders. We
do not deal with retail accounts. As a clearing FCM,
SD and market maker, we are able to provide our
customers with the full range of exchange-listed
9 2013 INTL FCStone Annual Report