Banks have started outsourcing foreign currency and traveller's cheque businesses to foreign exchange specialists such as Thomas Cook and Travelex.
HDFC Bank, IndusInd Bank and Zoroastrian Cooperative Bank have outsourced this business to Travelex, while State Bank of India has at its various branches Thomas Cook foreign exchange desk, meeting customers' needs.
Outsourcing and India: Complete Coverage
The retail foreign exchange market accounts for about $2.1 billion and another $20 billion in terms of money transfer.
Banks can thus hold less foreign currency in their coffers, especially when hard currency is seen as an idle investment and blocks banks' funds, pointed out U Venkataraman, head foreign exchange & money markets, IDBI Bank.
Banks gain from outsourcing this business since it is essentially low value and highly labour-intensive, said a senior public sector bank official.
Traveller cheques and the buying and selling of foreign currency constitutes a small portion of a bank's total business, probably not much more than 10 per cent.
"By outsourcing this to specialists, it helps banks better deploy their staff in more high value products, especially when a bank is selling an array of 15-16 products," said Venkataraman. Moreover, fluctuation in foreign currencies could end up hitting a bank either way.
By outsourcing the business to foreign exchange specialists, the exchange risk is passed on to the foreign exchange specialist. Traveller invariably tend to lose five to six per cent when they surrender their unused foreign currency to banks or moneychangers.
Travelex, the world's largest foreign exchange specialist, offers to buyback foreign currency at the same price at which the traveller bought it from the foreign exchange retail outlets.
Christened Buy back Plus, Travelex is the only agency offering this product in the local market today. Banks and other foreign exchange dealers on the other hand, do not buy back currency at any pre-determined rate.
"Earlier banks were competing with us. Today they realise that this line of foreign exchange business is not their core competence. Therefore we are increasingly seeing the business being outsourced to us," said Gavin Azavedo, CEO Travelex India.
'Pick and pack service' as it is called offer bank customers the option of having the foreign currency delivered to their door-step. What's more, unlike most banks, which keep just a few foreign currencies, Travelex provides a host of currencies including Nepalese's rupiah.
Since Travelex buys and sells foreign exchange across 90 countries in 650 locations including 40 international airports, this provides a natural hedge through its global business.
"This enables us to absorb the market volatility," said Travelex Worldwide Money group director commercial foreign exchange & managing director India, Yogesh Shetty.
Outsourcing the foreign exchange currency desk for commercial and retail bank customers is a common feature worldwide.
"Some of our customers include global banks like Barclays, Deutsche Bank, Rabo, as well as credit card agencies the likes of Visa and Mastercard, said Azavedo. Travelex is also in talks with a host of public sector banks in the country to outsource their foreign currency operations.
Passing the buck
Banks gain from outsourcing their foreign exchange and traveller's cheques businesses since they are essentially low value and highly labour-intensive
They can hold less forex currencies in their coffers, especially when hard currency is seen as an idle investment and blocks banks' funds
HDFC Bank, IndusInd Bank and Zoroastrian Cooperative Bank have already outsourced their businesses to Travelex
State Bank of India has at its various branches Thomas Cook foreign exchange desk, meeting customers' needs
By outsourcing these businesses, the exchange risk is passed on to the foreign exchange specialist
Outsourcing the forex desk for commercial and retail bank customers is a common feature worldwide