January 2014

Asia Business Foreign Exchange Dominance Up for Grabs
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.”
Product Penetration – August 2013
% of Total
  Spot FX FX Options Forward FX
Hong Kong 24.9 26.5 28.2
Malaysia 24.8 18.4 18.0
Philippines 25.1 24.3 23.5
Singapore 25.3 30.9 30.3
TOTAL 100.0 100.0 100.0

Source: East & Partners Asia Business Foreign Exchange Program - August 2013

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