(30 November 2020 – New Zealand) Incumbent New Zealand Bank majors and non-bank providers are scrambling to stay ahead in a distinctive market where importers and exporters display behaviour unlike anything witnessed by their international counterparts.
New Zealand FX customer profiles are changing rapidly and East & Partners proprietary analysis, based on direct interviews with CFOs and corporate treasurers, delves deeper into these fascinating emerging behavioural FX customer trends.
Although the outright number of NZ Business FX providers continues to expand, particularly non-bank new entrants, their aggregate relationship share continues to only inch forward without realising significant scale or scope as a result of intense competition on price and service. This is most clearly seen beyond the SME segment in the middle market where non-bank providers have failed to make material in-roads with the exception of American Express and Western Union Business Solutions (WUIBS).
Usage of Forwards is almost universal among internationally trading Kiwi enterprises either frequently or infrequently. This is surprisingly evident among small businesses also, with a high proportion of Microbusinesses utilising currency risk management products on an infrequent basis. Their behaviour is unlike enterprises in Australia, Asia, Europe and North America where the majority of small businesses are ‘Spot only’ and broadly characterised by both a low current usage and projected demand for Forwards regardless of underling currency volatility, export market growth or receivables volumes. Uptake of FX Options is even lower.
Over two thirds of NZ firms experienced a currency loss in the last six month (66 percent), highest among Microbusinesses and SMEs. Given higher usage of risk products it is not surprising to see this figure is significantly lower than Australian and Asian importers and exporters. Average currency losses varied significantly by business size, ranging from NZ$6,000 for Microbusinesses to as high as NZ$39,000 for Lower Corporates to register a market wide average of NZ$14,500. This figure is surprisingly high given the high level of Forwards usage in the NZ market. Is low Options uptake a key contributor? Or is uptake by small businesses simply not increasing fast enough?
What is holding back importers and exporters from incorporating appropriate FX risk management solutions? Annual uptake of Forwards and Options is edging slowly higher. Market wide, one in two importers and exporters have never used FX Options. Forward FX usage is roughly double that of FX Options with only five percent of NZ enterprises reporting they have never used Forwards.
How can NZ BFX providers prevent customers growing impulse to multibank for FX? Customer retention continues to present as the most pressing concern for both incumbent FX providers and new entrants. Existing banks are suffering sharp declines in the average percentage share of customer Spot FX volumes they retain, while non-bank FX providers are disadvantaged by an inhibitive cost of sale for new customers who allocate only a small portion of their overall turnover to secondary providers.
Average Spot FX wallet share is falling by over five percent per annum, sliding from 30 percent to 27 percent in the Lower Corporate segment since H2 2018 alone. Small businesses who previously banked in a holistic way and avoided ‘multibanking’ for FX due to administrative burdens and a lack of resources to co-ordinate multiple accounts are now spreading their FX wallet across three to four providers on average.
East & Partners research addresses key bank client queries such as are banks achieving stronger customer retention compared to non-bank challengers? Who is the fastest growing New Zealand Spot FX provider and conversely, who is experiencing the most customer churn? Which international banks are making their presence felt? Who is the largest NZ non-bank FX provider?
Contact East & Partners now for research access to tap into valuable ‘voice of the customer’ insights to help navigate uncertain market dynamics in the post-COVID environment in 2021 and beyond.
Source: East & Partners New Zealand Business FX Program – October 2020 (N: 433)
About the research:
This is the thirteenth round of reporting in the biannual demand-side analysis of the New Zealand (NZ) Business Foreign Exchange (FX) market. Designed to assess competitive performance in this high growth but highly competitive market, the analysis delivers performance measures across key industry benchmarks. The biannual program provides a detailed monitor of relationship share, wallet share, customer satisfaction and mind share customer experiences for Spot FX together with penetration analyses for FX Options and Forward FX risk markets. The program forms part of East’s long running Global Business FX programs.
About East & Partners:
East & Partners is a leading specialist business banking market research and analysis firm. The firm’s core expertise is in the provision of analysis and advisory services tailored for the commercial, business and institutional banking markets across Asia Pacific, Australasia, Europe and North America
For more information or further interview based insights from East & Partners on the New Zealand Business FX Program, please contact:
Martin Smith
Head of Markets Analysis
East & Partners
t: +61 2 9004 7848
e: martin.s@eastandpartners.com.au