(Adds full name of FX company and weblink)
By Patrick Graham
LONDON, July 7 From a small, white-washed
basement close to London's Liverpool Street station, Sakthi
Ariaratnam is beating banks at what you would have thought was
their own game - and it is relatively easy.
On a recent Tuesday morning in the heart of London's City
financial district, Sakthi's firm Best FX would sell you 124
euros for 100 British pounds. Less than 20 metres along the
street, the world's third biggest trader of foreign currencies,
Barclays, would only give you 118.
The difference is a familiar one: surveys show consumers
tend to seek travel money from bureau de change booths in
preference to banks because the rates are better and Best
(www.bestforeignexchange.com) are rated by a number of consumer
surveys as offering the UK's best deal.
But at a time when banks are seeking to defend themselves
from charges they manipulated the $5 trillion a day currency
market, the gap stands as a refutation of the lenders' claims
that their foreign exchange market has become extremely
efficient for everyone.
The exchange rates on the board are not even the best ones
Sakthi and his colleagues give bigger or regular clients.
"If people from any one of the big firms we serve want a
better rate, we give it to them," he says. "There is enough
It is not an accident that four of Best's six London
locations are in the financial district. Ask around in some of
the City's major currency dealing rooms and traders say they use
the company for money for business trips and holidays simply
because they get more bang for their pound.
Sakthi lists clients from some of the world's biggest banks,
U.S. giants JP Morgan and Citibank, or their UK
competitors Barclays and HSBC. He also has
regular custom from workers at the brokers, IT and information
providers whose businesses feed off the banks.
"This is predominantly a City area. It is not tourists,"
Sakthi says. "You have to be extremely competitive on price
because they know the market. But if you give the best rates
they will stay with you - and we have a lot of repeat custom."
Senior management at banks are nervous about how the
allegations of currency market manipulation, now being
investigated in half a dozen jurisdictions worldwide, will play
First, there is the potential for fines from regulators that
top the 6 billion euros ($8.18 billion) they have already paid
out in the Libor interest rate fixing row.
But another reason is the possibility that the
investigations will lead to a more detailed look at the
structure of a market from which banks rake in billions
annually. While most of those institutions have moaned loudly
this year about falling profits from foreign exchange, Barclays
for example made 5.54 billion pounds from all trading last year.
HSBC, one of the few banks to break out its FX trading
profits, made $3.2 billion in 2013, almost half its overall
Markets income of $6.9 billion.
At an institutional level, the currency market is highly
competitive. The spreads at which banks buy and sell euros for
their biggest clients - other banks or multi-billion dollar
investment, hedge and pension funds - are just a "pips" or
hundredths of a cent. Senior bank traders and managers regularly
complain that increasingly it is business run at a loss, or at
very thin margins, in aid of keeping key customers.
But by the time they get down to delivering that service to
ordinary individuals, the cost rises. Barclays, for example, is
charging spreads of more than 7 cents - or more than 700 pips.
Parcelled up and back on the interbank market that amounts
to 700,000 euros of profit for the bank on a standard 10 million
Banks say the difference reflects the broader costs they
have to bear as crucial parts of the world's financial structure
and the risks they have to bear and manage in such huge
"Our analysis shows we are competitive against a range of
different FX service providers," said a spokesman for another UK
high street bank, Lloyds.
"Our FX international payments service has an extensive cost
base and the margins charged on payments relate back to the cost
to providing the service, staff, premises, infrastructure and
But speaking on condition of anonymity, officials at two of
Britain's biggest high street lenders said there are concerns of
a steady loss of market share in the retail segment.
"The truth is that the rates banks give to their customers
have never been very fully examined," one senior retail banking
manager told Reuters.
"They are benchmarked against what our immediate competitors
are charging, how much you want to earn or position yourself in
a given segment and so on. But they are not necessarily set
against all of the places you can now exchange currency online.
We do seem to be losing share pretty consistently as a result."
After the surge of the Swiss franc drove rises in mortgage
repayments for millions of eastern Europeans up two or three
times in 2009, Polish and Hungarian policymakers began to ask
why banks were allowed to stipulate that their own rates should
be used for the currency exchanges involved.
Poland's parliament passed a law specifying that mortgage
holders could buy their own francs from wherever they liked and
make the payment themselves. Mortgage payments fell.
But most Europeans exchange only minimal sums annually,
their need for currencies limited to a handful of weekends away
or an annual summer holiday - and only then if they leave the
euro zone. Those who do notice they are getting a worse deal
tend to just swallow it.
"The public really didn't get any of these big international
scandals, they haven't understood the impact on them," says Andy
Love, an MP charged with overseeing Britain's financial sector
on the UK parliament's Treasury select committee.
"Whether the commissions and costs to the consumer are
proportionate, I don't think we have really looked at that. I
would say we should. But no-one is beating down my door to
indicate that they got a lousy deal on foreign exchange at
Still, interest in how best to exchange currency is growing.
Before a lull in the past year which most cast as temporary, the
global currency market had tripled in size in just over a decade
to be worth more than $5 trillion daily.
Much of that is the result of the globalisation and the ease
of communication and global trade. But it also reflects growing
interest among ordinary consumers.
"People are more aware of currencies and what their value
is," says Brendan Callan, European chief of internet-based
retail foreign exchange platform FXCM. "Sooner or later people
start to say: you know what, I have a view on that."
Back at Best in London, Sakthi says he is increasingly
looking at another bigger and complementary market in bank
transfers, where he says banks are charging current account
holders such large spreads he can beat them even when he
swallows the fees the banks charge himself.
His business is beholden to banks for a number of basic
services and he is very reluctant to criticise lenders outright.
But when pushed on the issue of competitiveness he says with a
sigh that he thinks the banks "could do better".
($1 = 0.7331 Euros)
(Additional reporting by Clare Hutchison in London Editing by