Canadian company Custom House Global Foreign Exchange has expanded its Perth operations with a view to joining Travelex as an alternative to the banks in the commercial forex market.
Canadian company Custom House Global Foreign Exchange has expanded its Perth operations with a view to joining Travelex as an alternative to the banks in the commercial forex market.
Custom House has had a limited presence in Perth since early 2004 but recently established a permanent office, lifted its staffing to six people and plans to add further staff.
Under state manager Neale Howden, it aims to provides a cost effective, local service to business clients buying and selling foreign currencies.
Its strategy is similar to UK-based Travelex, which has been offering commercial forex services in Perth for about 10 years.
Travelex has built significant market share in the forex market, helped by its purchase of Thomas Cook’s financial services arm in 2001.
In the micro business market (turnover from $1 million to $5 million), it has 20.9 per cent of primary relationships, making it the number one intermediary for spot forex services, according to the latest survey by Sydney research firm East & Partners.
In the SME market (turnover from $5 million to $20 million), Travelex ranked fourth nationally while Custom House entered the survey for the first time this year (see table).
Travelex has also made inroads into the commercial market (turnover of $20 million to $100 million) and is targeting this segment for further growth.
Foreign exchange is a core service for most SMEs, with 76 per cent of these businesses using spot forex, according to East & Partners.
Traditionally the forex market has been dominated by the major banks – led by National and Westpac, and BankWest in Western Australia – which have been able to leverage their existing relationships with business customers.
However, East & Partners said there had been gradual leakage away from the major banks.
“It is clear that SMEs and smaller commercial companies are willing to move away from their transaction bankers to engage a product specialist,” East said in a research note.
It added that Travelex benefits from “good pricing and is straightforward to deal with”.
“Furthermore these customers know Travelex will not attempt to push other products at them in the way banks often do, when all they require is currency.”
Travelex Australasia managing director Martin Crawford said the company initially focused on retail currency services when it was established 30 years ago, but its commercial currency services now accounted for just more than half its profit.
Its Perth office has eight staff handling commercial payments.
“It’s very much a service proposition around speed and local market presence,” he said.
“Our strategy is to put dealing rooms in the cities where our customers are.”
Custom House was established in Canada in 1992 and now has 80 offices around the world, including in Australia, where it opened its first office in 1998.
It offers retail and commercial currency services in Canada but in other countries specialises in the commercial market.
Senior vice-president sales and marketing Ian Taylor characterised its core service as “helping business make payments”.
He said its Perth clients, including some of the universities, had found Custom House offered a convenient and efficient service for paying foreign invoices and handling foreign receivables.
This included online and automated payment options.
Mr Taylor said technology, people and price were key to market success.
“It used to be that FX was all about price but now people see that we can bring more value add to the table,” he said.
Travelex and Custom House are building on their ‘spot’ forex service by offering ‘forward’ contracts, and Travelex is also starting to offer currency options.
East & Partners research has found that the ‘forward’ and ‘options’ forex markets, which can be used to hedge currency risk, continue to be dominated by the big banks.
Travelex and Custom House aren’t the only intermediaries trying to win market share from the major banks.
St George Bank, HSBC and Citigroup also have a significant presence in the market.
Sydney-based St George is in the process of expanding its business banking presence in Perth, with plans for offices in Osborne Park and other commercial centres.
HSBC focuses on its global network – it has offices in 79 countries – as its main comparative advantage.
State manager Geoff Farr said the bank targeted Australian companies with international operations and offshore companies active in Australia.
It launched an international debtor finance product last year to help exporters manage their cash flow.
