Business FX ‘a Buyer’s Market’ for Australian Corporates
The search for an ‘innovative and easier to use’ foreign exchange (FX) platform increasingly motivates Australian businesses’ use of multiple providers, according to research from East & Partners (E&P).
The firm reports that three quarters of all Australian business owners nominate intuitive FX platform technology as a key driver for ‘multibanking’ their business FX wallet. It also finds that nine out of 10 Australian chief financial officers (CFOs) and treasurers actively pursue better value for money and a lower cost of execution.
“The number of businesses shopping around for lower FX execution costs is not surprising given the highly competitive nature of spot FX, options and forwards markets,” said Martin Smith, E&P’s head of markets analysis.
“The prevalence of technology underpinning this trend does, however, result in business owners firmly calling the shots in FX, providing extra ammunition for challenger brands to advance further while also guiding the incumbent [Australian Big Four] banks’ strategic response.”
The findings are part of E&P’s business foreign exchange (BFX) programme, now in its eighth year. The report last month interviewed 2,376 enterprises within the Micro, small to medium enterprise (SME) and lower corporate business segments and provides industry wide rankings of banks, brokers and FX providers.
Nearly two in three (62.2%) of businesses deal with their bank or FX provider for US dollar (USD) transactions, still very much the dominant driver of currency management needs ahead of the New Zealand dollar (NZD), traded by 21.7% of enterprises.
Renminbi (RMB) engagement continues to increase, now traded by 14.7% of Australian businesses and forecasted to expand quickly following the new bilateral local currency swap agreement between the Reserve Bank of Australia (RBA) and People’s Bank of China (PBoC). The initiative seeks to generate greater investment and trade between Australia and China and further develop financial cooperation between the two countries.
On average, micro businesses allocate only 29.8% of spot FX volumes to their primary FX provider. This figure falls to 23.1% for the lower corporate segment, indicating larger enterprises are both better equipped and more comfortable switching providers than small businesses, be it responding to operational requirements or supporting new export sales.
Aggregate ‘Big Four’ spot FX market share fell to 62.0% of total primary relationships as rivals to Australia’s main banks including BOQ, OzForex and Western Union ramp up their competitive propositions. ANZ consolidated its position as the number one spot FX provider to the lower corporate segment ahead of Western Union and NAB, however Western Union continues to secure the largest share of primary spot FX relationships with micro businesses and SMEs.
Despite becoming a foundation bank to Australasia’s first RMB hub in Sydney, Westpac experienced considerable customer churn in spot FX over the last year to now be surpassed by CBA as the fourth largest provider of spot FX market wide.
“The majors continue to face difficulty cross selling business FX products into existing transaction banking, trade finance and lending relationships” said Smith.
“Only 10.6% of businesses switch providers in response to an introductory offer, supporting the notion of a shift in precedence towards more adept digital offerings that better integrate trade and transaction banking tasks, provide improved functionality or are simply easier to use.”