Neglect smaller players at your peril

Small and medium-sized companies are becoming an increasingly important part of the major world economies. Banks' failure to court them as an important stream of revenue may come back to haunt them. It is obviously important to maintain solid relationships with the likes of Microsoft and General Electric as they have massive FX liabilities to hedge. Similarly, hedge funds and the largest real-money funds need to be kept on board.

However, in many cases these customers are not nearly as lucrative as they might, on the surface, appear. Hedge funds particularly, are highly promiscuous when it comes to accessing bank liquidity and they often use their perceived power as a bargaining tool to bring down the likes of prime brokerage fees.

Banks would do better to invest time and resources in tracking down the up-and-coming businesses that are exploiting the growth in globalisation. These companies might not be doing everyday $50 million trades but they can deliver consistent and reliable demand. It should be remembered that Microsoft was a small company in the 1980s. Keeping small businesses happy now could reap the harvest of the FX flows of the next Vodafone or Nokia.

It is this part of the market that businesses such as Travelex and Saxo Bank have exploited so successfully. They have signed up companies who became disillusioned with the lacklustre and uncompetitive service they were delivered by the big-name banks. Other, more local players are also benefiting from a culture of 'big is beautiful' at many of the major banks and they are servicing the new businesses that are springing up. This competition should spur the banks on to be more imaginative in seeking new customers.

As the report says, smaller companies are increasingly cherry-picking best-of-breed products from outside their incumbent banks. This means that banks that want to hold on to what is becoming an increasingly important market segment will need to work harder to keep hold of existing customers and lure new ones. This means talking to companies and giving them a personalised service that includes giving advice as well as prices.