Rajesh Agrawal: How a car loan put me on the road to success

In 2001, Rajesh Agrawal was a 23-year-old finance and IT graduate working for a small Indian currency advisory firm. When one of his British clients offered him a job, "I was very excited I'd never left India before". His new employer was a foreign exchange (forex) broker who wanted him to develop its IT systems. "In India, currency exchange is heavily regulated, and you don't have the transaction firms you have here, so it was interesting to see the other side of the business."

Yet after only a few years Agrawal felt restless: "I was doing lots of good work but it was all for someone else." In 2005, he and co-worker Paresh Davdra left to set up their own transaction company, RationalFX.

Their plan was to focus on small- to medium-sized businesses, which "have traditionally been ignored by banks and other transactions firms". They also wanted to use the internet to "make currency exchange more transparent". Back then, "you had the interbank rate, which the banks used to exchange currencies, and then lots of different exchange rates offered by different brokers until you got right down to the bureau de change in an airport, which could be 15% more than the interbank rate".

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The situation was complicated further by the business model of many brokers. "People had to phone up for quotes, so you were relying on what you were told." Agrawal wanted to use the internet to show the interbank rate alongside the rate RationalFX was offering. "That way people could see exactly what they were getting."

The pair approached the banks for a loan, but "it was a bureaucratic process and we wanted to start immediately". Frustrated by the delay, Agrawal decided to tell the bank he wanted £20,000 to buy a new car they lent him the money straight away.

Next, they negotiated a deal with Barclays that gave them access to competitive exchange rates. Then they started calling small businesses to tell them about the service. "Eight times out of ten they would tell you to go away." The pair used trade associations and professional bodies to target clients. Gradually, they started picking up business. "We kept margins really low. That meant we were giving customers a great deal and they would tell more people about us."

By the end of 2006, RationalFX was processing £27m worth of transactions per year. With currency volumes up, they were able to renegotiate their deals with the banks. "We now have multiple counter-parties who are competitive in different currencies." Getting better rates meant they could push up their margins yet still offer good deals to customers.

Profits took a hit in 2009, when new regulations forced RationalFX to keep back a minimum level of capital. But even this cloud came with a silver lining; the rules were part of an EU drive to standardise money-transfer services across the continent. That opened new markets. "Before the regulation, only banks could handle currency exchange in France. After the rule change we were the first British currency exchange firm to go over there and compete with French banks."

As the firm spread across Europe sales boomed. In the last financial year it handled £475m of foreign-currency transactions. The pair now plan to fund a new venture, Xendpay, to let customers send money cheaply between different countries.