January 2014

And the Business FX Winner is...
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 businesses.

This has also been reflected in a wider dissemination of more sophisticated FX risk management tools, particularly among smaller businesses.

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 engagement.

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.
Foreign Exchange Hedging Plans
% of Total
(N: 874)
(N: 877)
(N: 860)
(N: 863)
Plan to Hedge FX Exposures 48.2 63.1 75.9 76.6

Average % of Exposure Hedged

56.0 73.3 81.7 84.0
Don't plan to Hedge FX Exposures 51.8 36.9 24.1 23.4
TOTAL 100.0 100.0 100.0 100.0

Source: East & Partners Australian Dollar Barometer

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