Inefficient and opaque.

When a customer does a transaction with his/her bank in a product such as foreign exchange, the rate that the customer  transacts at will vary depending on how much they want to please the customer and how much profit they are looking to make out of the transaction. The bid/offer spread in the Wholesale/institutional markets will always be a few pips wide for G6 cross rates. So, the bank is aggregating all its customers’ orders and trading in the wholesale markets when required, and probably making a handsome profit in the process, as you would expect.

The same could be said for interest rate fixing. When a customer wishes to lock in his/her interest rates for a period, the bank just looks at the interest rate derivatives/swaps prices and makes a price to the customer.  The interest rate derivatives market is very efficient, transparent and liquid, but the retail customer doesn’t see this. He’s told he has early exit charges of X%.

These are just 2 examples of standardised products where the financial intermediary profits from his customer flow and has the ability to lean on efficient wholesale markets.

What if there were marketplaces where even the smallest retail customer could participate. Retail exchanges for the masses where customers can transact directly without the need for a financial intermediary.

With all of the technological advances of the last 20 years, I’m not sure if the pricing structure of mainstream retail financial products has improved.

Ralph Hazell CEO www.mycommodity.com