A telephone survey conducted by Profit & Loss of banks providing white label services, shows that these banks anticipate as much as 30% of their FX flows will come from these arrangements over the next five years.
The difficulty in quantifying the demand and take-up of white labelling services stems from partner banks’ reluctance to admit that they are using another bank’s service. However, debate is rife within the industry as to how many banks can maintain FX technology spend on a proprietary trading site in the long term, leading to increased take-up of white label services.
Vikas Srivastava, global head of FX e-commerce at Citigroup, says the CitiFX White Label product is currently seeing around 15% of its FX flows coming from its various agreements, a figure he expects to grow considerably in five years’ time.
“Buy side banks now account for approximately 15% of Citigroup’s overall customer volume, and as more banks become buy side, they will account for a rise in overall customer volume and a higher percentage of it,” says Srivastava. “The buy side banks access liquidity from the sell-side banks via a number of channels, white label being one of the important ones, and it will become more important going forward.”
A number of banks spoken to suggest that a 30% flow figure coming through white label agreements in five years is an attainable number. “It is a very big step for banks to hand over liquidity to a competitor,” suggests Iain Doran, vice president at JP Morgan. “Thirty per cent of flow going through white labelled products is not unimaginable in the future, but there is a long way to go. The pride element of doing your own quoting is starting to disappear, and being replaced with a more realistic approach of sticking to what you are good at.”
“Based on very little scientific evidence (we are talking about five years hence after all), I would say [30%] is entirely possible. In fact, it might even be slightly conservative,” says Christopher Berry, managing director, Global Liquidity Services, at Deutsche Bank.
“Using a broad definition of the term, we are already at the 30% level,” notes Ed Hulina, executive director of foreign exchange at UBS Warburg. “It is not clear at this stage, however, whether banks want to use our tools with their branding or some other form of white label agreement. Banks are still defining their requirements to us.”
One industry source points out that it is important to differentiate between currency volume and ticket numbers. This source estimates that in five years’ time, around 10% of currency volume will go through white label platforms. The source adds, however, that this is likely to represent around 20% of ticket volume.
Another source avoids quantifying the market altogether. “This is an area we have to be in to remain competitive. The technology is there already, with very limited development costs above and beyond the internal development price. So in the end it is not particularly important if it ends up as 1% or 30% of our flow,” the source says.
See the July/August issue of Profit & Loss for the full article.