In this episode of Fintechfun, host Chris Titley chats with Danny Pezeshki about the origins of Instantia, the challenges in the foreign exchange market, and the innovative technology they have developed to help clients manage FX volatility risk. Danny shares insights into the impact of options in the market, the launch of their platform, and their plans for expanding globally.
Danny Pezeshki discusses the importance of technology in revolutionising the way clients manage their FX portfolios and the visual tools Instantia has developed to provide clients with a better understanding of their positions. With a focus on transparency and risk management, Instantia aims to empower businesses to navigate the complexities of the foreign exchange market.
• Instantia helps businesses manage FX volatility risk through innovative technology solutions.
• Options play a significant role in securing profits for clients in import-export industries with tight margins.
• The platform developed by Instansia offers clients visibility into their FX portfolios and allows them to assess potential risks and protections.
• Expanding globally, Instansia has obtained licenses in Singapore and aims to establish a presence in the UK.
• Technology-driven tools are crucial in enhancing client understanding and decision-making in the foreign exchange market.
• Instantia Website
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Speaker D: So I'm joined by Danny Pezeski, COO and co-founder of Instantia. Danny, thanks so much for being part of this series.
Chris Titley: Hi, Chris. Yeah, thanks for having me. Excited to be here.
Speaker D: Danny, let's talk about Instantia, the origins of the business, obviously a very new business, but a little bit about yourself and how you came to that point to start this.
Chris Titley: Yeah, look, I finished university back in 2007, wanted to get into finance, didn't know anything about finance or what I really wanted to get into. But just after a few jobs, found myself in 2009 working for a company called Apex, which was a global payments and foreign exchange specialist. Absolutely loved it, loved the foreign exchange markets, the, you know, the fast-changing dynamic pace and, you know, markets moving around. And it was just something that was really exciting for me back then and still is now. And worked there till 2021 where we sold the company. So Apex sold in 2021 and at that point I you know, new job after about 13 years in the same company, wanted to stay in the industry and just thought, let's sort of look to see if I could do this for myself.
Speaker D: Excellent. And in regards to setting up your own business, was it along the lines of that you saw a gap in the market or some sort of deficiencies in particular areas of the foreign exchange market, or was it the fact that you thought there was a big enough pie to start with some complementary solutions?
Chris Titley: It's actually funny how it came about. At the start it was, you know, let's just start a little consulting firm and see how it goes and did that for a little bit. There's so many gaps in the market, right? And most of it and almost all of it is, can be or will be solved by technology. But when I was first starting out, did not have the resources, did not have the capital and it wasn't something that was originally a thought of mine to do until I was, you know, through my network introduced to a company called VNG, who is one of the, who is the first tech unicorn company in Vietnam.
Speaker C: Right.
Chris Titley: And yeah, through this introduction, I was able to then sort of really sit back and say, okay, where can we take this, right? And some of the first things that we looked at were, you know, what were the gaps in the market? In 20, around 2012, 2013, options really hit the market here in Australia. So, you know, what we do is we help businesses manage the FX volatility risk to their business. And a very sort of simple product is a forward exchange contract that allows you to lock in today's rate to use later on. Then options became really popular because it started giving clients that security of downside, but then the potential to perform if the market moved in their favor. So that really took off around 2012, 2013. And that's where we did see a lot of growth. But what never eventuated with that was the technology to support, you know, the clients through that journey. They are very sort of complex and sophisticated products and there's not much transparency around it. And over the years as a manager, I saw a lot of clients get unstuck through this. So yeah, sorry, long answer to your question.
Speaker D: No, no, it's been great. I mean, the use cases are, I suppose, far and wide in particular industries, but ones that come to mind for me are things like agriculture, mining, a lot of exports from Australia, and also a lot of companies that do businesses with offshore groups. Who is your target market and what are you looking to do in regards to getting your name out there?
Chris Titley: Yeah, I mean, look, you mentioned a couple of key industries, especially around the export side, the mining and agriculture, and From my experience, I mean, we deal with any industry that imports and exports, right? So, you know, some of the biggest are the agricultural mining industries. And one problem that they have, they have very tight margins because of the global competition that they come up against. So having very tight margins, every cent the Aussie dollar moves up or down could be in their favor or against them. So when they're securing their profits, you know, they need to then, they'll secure very, very small margins, but if they could get the upside, they're going to go for that. And that's how sort of options became very prevalent within the industry. But then what didn't come with that was that lack of technology.
Speaker D: And Danny, in regards to who you're targeting at those various organizations, I'd imagine there'd be CEOs— sorry, CFOs and all the treasury groups, etc.?
Chris Titley: Yeah, definitely. You know, we mainly deal with financial controllers, CFOs, and sometimes, you know, we'll then present to the board who'll then make a group decision where the CFO will ultimately run with that decision made. But Yeah, we work with, you know, from smaller end clients, which will be the business owners. You know, our target market is really anything. We don't discriminate on size. You know, we've worked a lot with clients doing smaller volumes around $2, $3, $4 million a year who over time become your larger clients doing $10, $20, $30 million a year in, you know, global imports or exports.
Speaker D: And Dadi, on the technology side of things, I mean, you mentioned that a couple of times in regards to the tech that's coming with it. How have you gone about building that tech and so far the feedback that you've got?
Chris Titley: Yeah, the thing about options is your clients are really relying on you to do the right thing by them. So as a dealer, you need to sit back and as you're getting clients into options, there's a lot of variables. So you have knockouts, knock-ins and leverage products. And the more you do this and the more you sort of go out over time is the higher risk you are adding to the client's portfolios. So you really need to stay on top of this. And as you're managing 50 to 100 clients at once, it can get very hard for the dealer to do themselves. Clients get given position statements sent to them daily, which are very sort of complicated to read. They literally just say, "Bought and sold calls and puts." That doesn't give them much explanation. So even though you explain an option to a client, they understand it. When you're sort of layering in over and over again over a whole portfolio, it becomes very hard to grasp.
Danny Pezeshki: Yeah.
Chris Titley: So that has been the biggest issue within the industry is sort of getting this out to clients and getting them to really understand it. So there's been nothing around this apart from a position statement or an Excel spreadsheet that gets sent to clients. So when we sort of came together to put Instantia, you know, to create the company, we really wanted to stand out and say, what is going to be our point of difference? We didn't want to just be another player in the market doing the same old thing. And having that, the technology company behind us, they gave us access to almost 60 developers full-time for 2 years.
Speaker D: Oh, wow.
Chris Titley: Yeah, which we had an initial plan which was to build a visual of the client's products, which we did, as well as to move the spot rate or a spot ladder up and down to see how the portfolio would perform at a future point in time. So clients could then say, okay, if today's rate is, you know, Aussie/US 66, what happens if it goes to 68 and how am I impacted? So being able to create this and then now taking it to market and putting it in front of clients, we've seen the reactions of clients has actually, to me, been the best part because they're seeing risks in their portfolio they didn't have where, you know, you pull the spot ladder down and say, if we went to 63 tomorrow, you have no protection. Or if you went up.
Speaker D: Yep.
Chris Titley: You're now leveraged up at a certain rate. So yeah, having the ability to create that for the clients has made a huge difference so far for us.
Speaker D: And I think in those what-if scenarios, you'll be seeing groups have a lot more control over their finances and obviously prone to shock markets and shock effects, which can happen in currency. And yeah, the Aussie dollar has been reasonably volatile, as you mentioned, recently. But when we saw the unprecedented events of what happened in 2020 on financial markets, there can be quite huge swings which can materially damage or the other way enhance one's balance sheet. How are you finding companies using the platform going, actually, if we did a put here and a call here, et cetera, this is the way that we will actually resoundingly sleep better at night?
Chris Titley: Yeah, yeah, definitely. I mean, 2020 was really interesting with everything that happened with COVID and the markets. I think we fell from, off the top of my head, 78 AUD/USD down to about 58. So you're talking 20 cents in a very short period of time. And a lot of clients that did have that cover were in good positions and they used it up, but then ultimately they're stuck now at lower rates at say 58 cents. And the Aussie was sort of creeping around that 58 and 60 mark and where a lot of clients were caught out, they started hedging at lower rates, you know, just due to the uncertainty.
Speaker D: Yes.
Chris Titley: So when the market did recover, I mean, the one thing that clients can do now to avoid that from happening is they could actually go onto the platform and play around with the spot rate and say, okay, if the market does go down tomorrow and does shoot below 60 again, how am I impacted? What are my positions?
Speaker D: Mm.
Chris Titley: The one thing about options, you wanna try to keep 'em low risk, medium risk at best. A lot of clients get enticed into going to these higher risk options that have certain parameters like a knockout. So what happens with a knockout? The market falls below a rate, you're knocked out of your protection.
Speaker E: Mm.
Chris Titley: Right? So there's no genuine hedge there. So what we saw back then during 2020 was a lot of clients were chasing this outperformance and chasing 80 as a higher rate. So when the market fell below and went down to, you know, 58, 59, they were knocked out of all their positions.
Speaker D: Yeah, right.
Chris Titley: And this is that visibility that they didn't have where, you know, the platform we've created through our RMI will allow a client to literally drag the spotlight down and say, if we were to go through the COVID crash again in 2020 and the market falls to 58, what is my genuine protection? How much is my business actually covered?
Speaker D: And Danny recently launched the business, and if we repeat this podcast in 12 months' time, where would you like to see the business?
Chris Titley: Well, we are looking at overseas markets. So we recently were granted our MAS license in Singapore, which is exciting.
Speaker D: Awesome.
Chris Titley: So we'll be launching in Singapore in September, and we've applied for our license in the UK as well. So in 12 months, if I was speaking to you, we'd be truly a global company set up with our offices here in Sydney as well as Singapore and London.
Speaker D: Awesome, awesome, Danny. Now, mate, part of the FinTech Fund series, I always try and have a chat to founders about what they do in their spare time. Obviously, being a startup founder, it's very hard to kind of switch off. Some people don't switch off, some people do. It's up to every individual and how they're going. But from your point of view, I'd be keen to to understand, maybe something about you that others don't know about?
Chris Titley: Well, while I started, we started Instantia, I didn't have any kids. Well, my wife was pregnant. Now I have 3 kids under 2 and a half, which—
Speaker D: Right.
Chris Titley: Yes, yes.
Speaker D: Some people call that peak hour traffic.
Chris Titley: Yeah, it has been very challenging. So I don't think I've switched off for almost 3 years straight now, which has been a challenge. But the one thing I have gotten into since then is golf.
Speaker D: Yeah, right.
Chris Titley: It is a very interesting game and one that does challenge myself, and I'm able to switch off while I'm playing. It's a good 4 hours to myself.
Speaker D: Yes.
Chris Titley: Sometimes 5, sometimes 6 or 7 if I get a few drinks in.
Speaker D: But the 19th hole.
Speaker E: Yeah.
Chris Titley: That's it. It's my favorite one. And it's probably the only sort of time I get to myself once a week. And it's something that I do.
Speaker D: Yeah. No, Danny, I'm curious about the golfing. What— where do you think you get challenged the most on the course? Is it the teeing off? Is it the choice of clubs? Or is it sort of the angles and what to do when you're putting?
Chris Titley: It's everything because you think it's an easy game and when you finish you go, "Oh, why don't I do this and that?" And then you actually do it and it's hard. And for me, the biggest challenge and what I love about golf is I'm playing myself and I'm just trying to continually better myself every time. I'm not playing against anybody else. I know what my best score is and that's what I'm going after every game. And it's— It's hard. If you could avoid it, avoid it. I'd rather 3 kids under 2 and a half's easier than golf.
Speaker D: Well, I was gonna say, once you finish the golf course, you're going back into what's pretty hard as well with the 3 kids or so, mate. Do you get into your TV shows yet, your kids' TV shows, or they're a bit young?
Chris Titley: Yeah, Miss Rachel's very popular. I'm not sure if you've heard that one. I think, yeah, Peppa Pig, Miss Rachel, it's Wiggles, it's everything. I've stopped watching.
Speaker D: There was Paw Patrol, there was Bluey, there was a whole lot of them back in the day. And I remember Bluey's obviously still very popular based from Brisbane. So as a Brisbaneite, very proud of that particular show. But Peppa Pig always delights our family as well.
Speaker C: Definitely.
Chris Titley: I think the one thing is you stop watching your own shows and you start watching the kids' shows.
Speaker D: Yeah, and you start recognizing the episodes as opposed to which Sopranos episode you recognize. It's now which Peppa Pig episode.
Chris Titley: You start singing along with the songs. That's when you know you're done.
Speaker D: That's it, Danny. Thanks so much for having a chat today and about the origins of the business behind the scenes and exactly why you started it, the progress that you've achieved thus far, and also the future outlook into becoming a global company. A big milestone achieved there with accreditation in Singapore, and looking forward to catching up. Thanks again for being part of the FinTech Fund episode.
Chris Titley: No worries, Chris. Thanks for having me.
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