One of the questions we get asked a lot by customers is, “Why would my bank improve my pricing?”
There are a number of reasons that banks will capitulate on pricing when approached in the correct way, including the following.
- Marginal costs in FX are very low, so any incremental deal is unlikely to add much to costs. Therefore, any revenue from the next deal is worth trying to keep as most of it flows to the bottom line.
- Not giving a client what they want risks having a client shop around and find a better price. This would subtract revenue whilst the majority of a bank’s fixed costs remain. A bad outcome.
- Adding clients is expensive. The banks control almost 80% of the Australian FX market – they are the incumbents. Price wars in oligopolistic markets suit no participant but the client so are unlikely to happen at scale. So market shares are broadly fixed and the banks are really just trying to protect their patches. Reducing prices is an easy way to do this – but only when pressed.
- They’re likely making plenty of money from you as it is, so can afford to lose some.
Notice, however, that I mentioned this needs to be approached in the correct way. When you seek to reduce your margins, you should make sure you do a few things:
- Establish credibility by knowing where the market is. If you just swing in the dark, it is easy for your provider to side step. FairDealFx can help here if you don’t have access to Bloomberg/Reuters by enabling you to understand precisely how much your FX provider earns.
- Don’t expect the bank to do something for nothing. You wouldn’t sell your products for nil, and neither should they.
In conclusion, there is a very high probability that if you approach it in the right way, your bank will improve your FX pricing. You are simply too expensive to lose.