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Size matters

Imagine yourself going on holiday and wanting to exchange your local currency for Australian dollars. All banks can help you make currency exchanges. The transaction is paid for through an exchange rate that is constantly changing and a  commission fee. If you were a small business conducting transactions that involved a few currency exchanges per year, then you may have to pay the ‘going rates’ at your local bank, or shop around for the best rates. However, for a company such as Renault, imagine the variation in its profits depending upon the relative value of the euro to the US dollar and how much it costs for each currency transfer. Think of the currencies that Renault may have to deal in and the number of transactions and flows of funds. To Renault, the fluctuations in currency values and timing of cash transfers are crucial factors that can make the difference between sound profits and a loss. Given the volume of its business and the size of its transactions, Renault would not pay the ‘going rate’ to a bank that you or a small business would. Renault would expect a cash-management banking service tailored specifically to its operations, which may be radically different from the operations and expectations of, for example, BMW. The target markets in cash-management banking sought by major banks are those companies that operate internationally or even globally, dealing in huge sums and a variety of currencies. There may be millions of individual transactions to manage, huge networks of transactions across many countries or very high values to the transactions. When examining the nature of businesses that fulfil these requirements, there are relatively few compared with the total number of businesses, which is why the Global Cash study, conducted on behalf of 15 of the largest pan-European banks, targeted just the largest 5,000 companies in Europe – a very small fraction of the total number of European businesses.