One of the
competitive battlegrounds in financial services in 2014 will be for
Business FX ascendancy.
In the blue corner – we have the incumbent Big Four offerings. In the
red corner – we have up and coming standalone FX providers.
Waged across Spot FX, FX Options and FX Forwards products, the banks
pitch their superior size and security against the value for money and
personalised customer service propositions provided by FX providers
such as AMEX, OxForex and Western Union.
East & Partners Business Foreign Exchange report reveals that rising
demand for Business FX products correlates closely with increasing
volatility amongst the most influential FX pairs hedged by Australian
This has also been reflected in a wider dissemination of more
sophisticated FX risk management tools, particularly among smaller
Traditionally, engagement with FX Options and Forwards has been the
province of the big end of town.
There is growing momentum, however,
for small businesses to engage with FX derivatives for risk management
purposes to complement their existing reliance on Spot FX.
Global FX uncertainty derived from the tapering of US quantitative
easing, unpredictable commodity prices and decelerating Chinese
economic growth is reflected in an increase in the number of
businesses planning to hedge their FX exposure.
East & Partners’
interviews with thousands of importing and exporting firms for the
Australian Dollar Barometer shows that the number of businesses
planning to hedge their FX exposure has increased from 48.2 percent in
2010 to 76.6 percent in 2013. The average percentage of exposures to
be hedged jumped from 56 to 84 percent over this period.
In the search for a more cost effective and better suited FX risk
management solution Australian businesses are increasingly turning
away from their primary bank to engage a dedicated FX provider. Of all
financial products, FX is one which is most likely to be “banked away”
from the primary provider.
Up until now, that “promiscuity” has occurred largely in the Spot FX
product category. The interest in 2014 is whether the boutiques can
make inroads as providers of more sophisticated FX products.
Currently, the highest satisfaction ratings for Spot FX among the
Micro and SME segments are posted by smaller boutique players.
While the big banks continue to enjoy high satisfaction levels for
Options and Forward products, it will be interesting to see if the
traction boutique providers have in Spot FX will see them gain
momentum in Options and Forwards as smaller businesses increase their
Already, the Big Four’s satisfaction levels for FX Options are under
pressure, falling sharply in the last half of 2013.
It all points to an ongoing fight for FX wallet share over 2014, as FX
continues to be one of the most “banked away” and competitive products
in the banking suite.