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Banks battle to maintain dominance of UK’s business foreign exchange market

17 January 2016  |  2309 views  |  0 Source: East & Partner

As businesses across the UK seek to minimise the risks of currency fluctuations, the business foreign exchange market shows strong growth as well as fierce competition, according to new research from market analysts East & Partners.

The firm’s UK Business Foreign Exchange (BFX) report analyses FX market dynamics across three corporate segments: micro businesses; small- to medium enterprises (SMEs) with annual turnover of between £5 million and £20 million; and lower corporates with £20 million - £100 million turnover. It also reviews the respective BFX product categories of Spot FX, FX Options and Forward FX.

The research found that the UK’s biggest banks continue to control the market across all three products. However, non-bank providers such as Monex and Western Union are making inroads in a number of areas, particularly in their Spot FX and FX Options market share.

The Spot FX market shows that three banks continue to enjoy significant market share: Barclays (14.7 percent), HSBC (13.6 percent) and Lloyds (10.8 percent), however, banks are slowly but steadily ceding market share to non-bank competitors, with Western Union taking a 3 percent Spot FX market share to move ahead of Monex at 2.2 percent.

Similarly, the FX Options market is dominated by two major banks: Citi and Deutsche Bank have increased their market shares to 11.9 percent and 11.1 percent respectively. At the same time non-banks now account for 8.3 percent of the total market after increasing their share by more than a third during 2015. This suggests that non-banks are increasingly successful in attracting more sophisticated customers.

“While high street banks continue to perform strongly, there are clear examples of other FX providers gaining market share, particularly in the Micro and SME segments,” said Graham Buck, East & Partners Senior Analyst.

“Newer market entrants that differentiate their offerings by service quality or value for money can capitalise on any complacency from their more established competitors and gain ground across market, mind and wallet share,” he added.

Western Union continues to enjoy the best customer satisfaction ratings within the UK BFX market, maintaining this position from previous rounds, while Deutsche Bank and UBS follow. Bank of China stands out as having significantly improved its customer satisfaction score for UK BFX, while Barclays’ score has deteriorated significantly over the past year.

Further, small to medium sized businesses are increasingly understanding foreign exchange risks, and engaging with hedging products to minimise its impact on profit margins. Between December 2014 and December 2015, an additional 14.68 percent of Micro businesses and 12.77 percent of SMEs said they “regularly or occasionally” used FX Options.

“In the current climate of uncertainty, currency volatility and diminishing profit margins, more and more small businesses across the UK are putting in placing hedging strategies to ensure they aren’t bitten by heavy fluctuations on the Pound,” said Buck.

“Despite this growth, there remains an alarming high number of small businesses that are either not aware of, or not confident in, using currency and hedging strategies available to them,” he added.

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