Fairer Rates Open To SMEs

Tuesday, 26 February 2002


Working Capital by Jason Clout - Australian Financial Review


Small and medium enterprises are being slugged for their foreign exchange dealings while they watch big businesses get preferential treatment.

That claim is being made by Matthew Gilmour, managing director of OzForex, which organizes foreign-exchange for individuals and small businesses, market sectors that Gilmour said charged too much by the big banks and traditional foreign exchange dealers.

He is not hiding from the fact that he wants to take business from the banks. But OzForex is prepared to have its prices matched against its competitors via its website.

"The difference between the price paid by small business for foreign-exchange is staggering. A large customer with a bank might pay a fee of $100 to $200 for every $1 million transaction. But the rate for an SME can work out to be $5,000 to $20,000 for the same-sized transaction."

Gilmour said his charge for such a deal would be more like $3,000 to $7,000.

"I would like to say we were below $1,000 but we are not there yet. But we will get more aggressive in pricing in time."

Gilmour is quick to point out that most SMEs would never do a transaction of that magnitude. Most small businesses might do a deal worth $20,000 one month and then $50,000 the next.

By the time they reached the $1 million figure, he said, they could have incurred that $20,000 in fees and charges. Even allowing for volume trading, which is the reason the institutional clients get such good deals, does not justify the price discrepancy.

"There should be a difference in price due to that volume but the difference is way too high", he said.

"At the top end of the market there is incredible competition to get the big clients. But small businesses don't see the benefit of that competition."

Partly, the responsibility for the poor deals rests with SMEs, he said. He suspected too few take the time to check the rates on offer, and just accept their bank's price.

He also recognized that few entrepreneurs can devote much of their attention to foreign-exchange rates. To assist them, OzForex has built into its website, a feature that alerts its clients when a certain exchange level has been reached.

"If an importer wants to know when the $A reached US54c, the service sends out a message."

OzForex outsources the actual administration and payment system to the Customs House Currency Exchange. The two remain separate businesses.

OzForex quotes on about 20 currencies. A check on the purchase of �10,000 yesterday showed OzForex charging $28,074 before fees. "This was $214 better than the cheapest of the big banks and $383 better than the most expensive".

Gilmour says the comparison is based on the published rates cards of the banks each day. This rate is not changed on the OzForex website until the rate card the following day. However, OzForex updates its rates constantly.

The prices quoted by the banks and OzForex also depend on the customer. Some small businesses will get a better deal than others.

"But the point is that it pays to shop around. Some small businesses think that they need to deal with their bank because they have all the rest of the financial arrangements like loans with them. But a better deal on foreign exchange can mean a boost to profits at a time when margins are tight".

jclout@mail.fairfax.com.au

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