Businesses
increasingly manage their FX exposure with a dedicated FX provider or
competitor of their primary banker, results of the latest Asia
Business Foreign Exchange report by East & Partners shows.
The amount of ‘home banked’ Business FX products has rapidly declined
in the face of a growing number of competitive Business FX offerings
across Asia. Banks and FX providers are fighting fiercely for
dominance of Spot FX, Forward FX and FX Options business, proving to
be the most ‘banked away’ products by enterprises seeking personalised
customer service and greater value for money.
East & Partners Asia Business Foreign Exchange report details the most
important FX customer dynamics across Hong Kong, Malaysia, the
Philippines and Singapore. The report reveals important trends that
apply to how banks approach both existing and new FX customers. The
Asia Business FX Markets report measures primary and secondary market
share together with mind share and wallet share across the spectrum of
FX products for Asia’s lower corporate and SME segments (annual
turnover US$1 – 20 million). Surveying 250 enterprises in each market
with a natural industry sector distribution, the report delivers
detailed insight into FX product usage and importance.
Spot FX achieves the highest average level of product penetration in
Asia, with all businesses engaged in cross border payments utilising
the product for risk management and other purposes in some capacity.
Forward FX and FX Options represent 21.0 and 19.4 percent product
penetration respectively, highlighting a disparity between large and
small businesses uptake of specialised Business FX products. Singapore
represents just over a third of regional penetration in both Options
and Forwards products, followed by Hong Kong, the Philippines and
Malaysia.
Just what can banks can do to retain customers, improve wallet share
and capitalise on an increasingly competitive Business FX market,
compelled by expanding volumes and rapid technology innovation?
Average wallet share for FX Options across the region is a mere 58.3
percent, while Forward FX wallet share is even lower. The largest
providers of FX Options and Forward FX products are only banking half
of the business they are working so hard to secure and will find it
increasingly difficult to ward off concerted challenges by ambitious
new comers.
Global FX trading now averages almost US$5.5 trillion a day according
to the Bank for International Settlements (BIS). The Japanese Yen (JPY)
has recorded the largest increase in turnover in 2013 with more than
60 percent more activity than last year at the expense of lower Euro
(EUR) trading volumes. Chinese Renminbi (RMB) volumes are also growing
rapidly, particularly as restrictions on the currency are set to be
lifted much earlier than anticipated.
The RMB has now entered the top ten most traded currencies, rising
from a volume ranking outside of the top twenty as recently as three
years ago. Asia accounts for nearly 30 percent of GDP worldwide yet in
FX turnover terms is still eclipsed by the traditional financial
centres of London and New York. Asia represents less than 8 percent of
global FX turnover; however recent trends suggest this figure will
increase significantly. |
Singapore
and Hong Kong continue to vie for the mantle as the largest and most
important financial centre in Asia. Singapore accounts for close to
six percent of global FX trading volume compared to Hong Kong’s four
percent, latest figures from the BIS shows. Both markets are growing
quickly, with some suggesting Singapore’s rise to be the preeminent
Asian financial district is predominantly due to its appeal to
multinational banks. Others believe Hong Kong offers greater
sophistication and established infrastructure. London remains the
centre for FX turnover, representing over 40 percent of trading volume
ahead of the US, falling slightly below 20 percent this year.
Customer satisfaction is an important metric for banks attempting to
improve sagging wallet share. Smaller scale FX providers achieve the
highest satisfaction levels. Average customer satisfaction levels for
the Philippines and Malaysia are significantly lower than those of
Hong Kong and Singapore. This is an important metric in terms of
customer retention, however new customer acquisition is predominantly
determined by a banks ‘share of customer mind’.
Through direct interviews with the CFO’s and treasurers of thousands
of businesses engaged in Business FX, their response to the question
of “who they recall first as the number one FX provider” provides an
improved understanding of which bank or FX provider is positioning
themselves most prominently in the region. Higher Mind Share has a
direct relationship with new customer acquisition. The Asia Business
FX report reveals a handful of banks and FX providers who are placing
themselves at the forefront of Asian businesses minds, with resulting
market share and wallet share gains to follow.
The burgeoning Business FX market has attracted both local and
international attention, reflected by Australian banks such as ANZ
making a concerted drive into Asia. As the only Australian bank
represented in the survey, ANZ has clearly identified the move by
customers to disperse their Business FX wallet across multiple
providers, and instead provide a presence for them at home and abroad.
Senior Markets Analyst Martin Smith singles out the relatively high
wallet share and customer satisfaction ratings ANZ is achieving as a
benchmark for aspiring competitors to the major players.
“CBA, NAB and Westpac are deploying their own Asian expansion
strategies with varying degrees of success, but it can be stated that
ANZ is achieving the most success among Australia’s Big Four,
particularly in Business FX markets”
“A period of sustained FX volatility is expected to be reflected in a
stronger uptake of risk management instruments such as FX Options and
Forwards – not just for Corporates but also SME’s that have not moved
beyond Spot FX for their Business FX requirements.”
“This provides excellent opportunities to smaller competitors to gain
valuable market share, while also posing a difficult strategy dilemma
for Asia’s largest banks not intending to give up their hard fought
market share. The next round of East & Partner’s Asia Business Foreign
Exchange report will provide a leading indicator of which provider has
got a head start on its rivals as the battle for the hearts and minds
of Asia’s Business FX customers heats up.” |