Tier 1 FX dealer set to dominate deliverable forex, rivaling Transferwise

With a bank the size of HSBC getting in on the action, it is no longer just a case of tackling trendy upstarts. It is the OTC derivatives sector’s own Tier 1 liquidity providers that are seeking to rival Transferwise and Revolut, whilst their interest in leveraged counterparty credit remains conservative

Deliverable FX is a huge and extremely lucrative market, and one that has been of little interest to the OTC derivatives industry.

Only a few companies, one particular example being Sucden Financial in London, have pursued deliverable FX, however as an unleveraged, regulator-friendly, high volume sector which covers every area of currency transaction from travel money to multi million dollar corporate settlements, it is clearly one not to miss.

HSBC, which is one of the world’s largest Tier 1 FX interbank dealers, has taken note of this to the extent that the company is about to launch a product aimed at taking on Transferwise and Revolut.

Heading onto the market under the moniker Global Money Account, it will be a free mobile-based service that customers can use to hold, manage and send funds in various currencies to HSBC customers in over 20 markets around the clock in real-time without incurring any fees.

Global Money Account is launching in the US first, and will be rolled out to other markets in 2021. Customers can get instant access in just five clicks via their existing banking app.

Carolyn Criscitiello, head of digital payments wealth and personal banking, HSBC USA, says: “The ambition for Global Money is to provide our customers with one global account for all of their financial needs so that if they move from one market to another, they don’t need to open a new account, they just take their existing account with them. This will allow them to pay bills in multiple markets, make cross border transfers and spend like a local wherever they are.”

The launch of the service marks a growing trend by banks to claw back business lost to trend-setting fintechs like Transferwise and Revolut, which offer similar borderless accounts to consumers. Banco Santander for instance has launched a standalone service, PagoFX, for the UK retail market and sole traders.

HSBC’s Criscitiello says the bank intends to ultimately extend the payment service to allow instant international transfers to customers with other banks, too.

Deliverable FX is something that many firms have steered clear of – however it should not be taken lightly. A few years ago, Pepperstone founder Owen Kerr highlighted to the entire industry that an Australian deliverable FX firm had sold for over $400 million, and he was then sneered at by FX industry pundits for looking at a deliverable FX firm as though we can value FX brokerages at high levels. He was written off as an IPO attention seeker, a criticism which was totally unjustifed.

Now, Pepperstone is one of the largest and most profitable FX firms with a very good reputation. Such insight should not be ridiculed.

Some four years ago, FinanceFeeds spoke to Sucden Financial in London, a long established institutional liquidity provider to FX brokerages about deliverable FX, which the company does offer.

At the time, Sucden Financial told FinanceFeeds “Sucden Financial is well established in FX and has supplied deliverable/physical foreign exchange for over 30 years. Our clients include money service businesses (MSBs)/commercial FX providers, who in turn deal with companies and individuals wishing to exchange foreign currency.”

“The market has historically been dominated by a small number of large banks. We identified a gap and over the last few years have increased our efforts to capture a greater market share. Sucden Financial is not a bank and does not compete with retail providers. The technological advances of fintech payment providers mean we are a strong fit to assist with these firms, especially in their initial growth stages.”

Quite right. Now the fintech payment providers are the ones with the solutions, and I do not mean the donkey jacket-wearing, gum chewing, thick-accented Israelis who purport to offer payment services to brokers. They are not real payment providers, but money launderers with no technology who get dodgy brokers around proper merchant services regulations, and carry huge risk for client and broker funds due to using third rate bank accounts in unregulated regions of the world with no recourse if something goes wrong.

Brokers should be emulating companies such as Currensea and getting in on the swap business in commercial FX settlements.

CannyFX, run by John Webb, a longstanding FX industry executive, is an example of a company going in exactly that direction. To use CannyFX, a brokerage does not even need to invest in anything as Canny FX provides exactly this facility to use your FX brokerage to access the corporate settlement market, which is a huge, multi billion dollar currency business with no risk.

In April this year, FinanceFeeds was engaged in conversation with many FX industry executives on this matter. At that time, from an institutional perspective, Hormoz Amir Faryar came into the conversation.

Hormoz is Group Global Head of Institutional Sales at FX brokerage Equiti. “This is thought provoking. So we the have cash-rich / profit-rich financial segment (FX/CFD brokers) in an environment where the overall market outlook (in 2-3 years) looks bad. The challenger banks will be touched by the massive bailout money spraying around, by becoming take-over targets of major banks. So we will have inflation in valuations. Essentially one needs to merge a challenger bank with an FX retail broker and sell it off to a bailed-out bank” he said.

Either that or go the straight forward route and use the extensive trading and tech expertise gained in the FX brokerage business to go straight out and rival the new boys who are half our age and use trendy language in their company descriptions, and blow them into the weeds whilst empowering the FX industry by doing what it should be doing best – trade currency, and settle deals internationally.

With a bank the size of HSBC getting in on the action, it is no longer just a case of tackling trendy upstarts. It is the OTC derivatives sector’s own Tier 1 liquidity providers that are heading into the arena.

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