MAC3703
EXAM PACK
2025
,MAC3703
Assignment 2
Semester 2 2025
Due 30 September 2025
Selected Accounting & Financial Management Techniques
Foreign Exchange Market for Travellers
(a) Risks and Benefits of Main Strategic Options for Existing Banks
Existing banks are increasingly challenged by the rise of multi-currency accounts and
peer-to-peer (P2P) currency exchange platforms offered by challenger banks. To
mitigate erosion of foreign exchange (FX) profits, traditionally earned through wide buy-
sell spreads, established banks must carefully evaluate a range of strategic responses.
Each option carries distinct risks and benefits, requiring critical consideration.
1. Internal Innovation (Developing Proprietary Multi-Currency Accounts and P2P
Applications)
Benefits: Developing proprietary digital platforms allows incumbent banks to retain
customers by offering competitive services such as fee-free multi-currency holdings,
real-time exchange, and improved rates. These features strengthen customer loyalty
while enabling cross-selling of other financial products. Moreover, new transaction-
based revenue streams can be created while retaining control over compliance,
regulatory alignment, and customer data. In markets such as South Africa, where
spreads remain wide, banks that act early could capture a lucrative segment of tech-
savvy travellers, safeguarding their position in a multi-billion-pound industry.
Risks: However, the capital-intensive nature of innovation poses substantial risks. High
development costs, compounded by integration challenges with legacy systems, could
,strain financial resources. Market adoption is uncertain, as agile challengers often
outpace traditional banks in delivering customer-centric technology. Internal innovation
also risks cannibalising existing FX margins, causing short-term revenue declines.
Furthermore, regulatory requirements, particularly in areas such as anti-money
laundering (AML) compliance for P2P platforms, could delay deployment. Failure to
deliver a competitive product may also harm reputation and erode consumer trust.
2. Partnerships or Acquisitions of Disrupter Banks
Benefits: Strategic partnerships or acquisitions offer established banks a rapid route to
innovation. Collaborating with or acquiring a challenger provides immediate access to
technology, digital infrastructure, and new customer bases. By integrating a P2P
platform within existing operations, banks could deliver hybrid solutions, blending
innovation with the reassurance of brand trust. Such strategies enable scale-driven
efficiencies: while per-transaction margins may be lower, volumes can rise significantly,
offsetting reduced spreads. For risk-averse travellers, the credibility of an established
brand strengthens adoption.
Risks: Nonetheless, integration risks are considerable. Cultural clashes may disrupt
operations, causing talent attrition or delays. Acquisitions can also be prohibitively
expensive, with uncertain returns if the disrupter’s model fails to scale sustainably. In
concentrated markets such as South Africa, antitrust scrutiny may hinder mergers or
partnerships. Should collaboration fail, banks may be left vulnerable to reputational risks
if the partner’s platform suffers issues such as cyber breaches or fraudulent
transactions.
3. Competitive Pricing Adjustments (Narrowing Buy-Sell Spreads)
Benefits: Adjusting pricing remains a straightforward defensive mechanism. Narrowing
spreads makes existing FX services more attractive to price-sensitive customers,
retaining a segment that might otherwise defect to P2P alternatives. Coupled with
bundling strategies (e.g., travel insurance or loyalty points), banks can strengthen
perceived customer value. This approach may also deter new entrants by undermining
their cost advantage. In high-volume markets, efficiency gains may sustain profitability
despite slimmer margins.
, Risks: However, reducing spreads directly erodes profit margins and places pressure
on short-term earnings. If transaction volumes fail to increase proportionally, banks may
face declining overall revenues. Moreover, pricing adjustments, absent accompanying
innovation, represent a defensive rather than transformative strategy. This risks long-
term obsolescence as travellers increasingly favour digital-first convenience over
traditional services.
4. Lobbying for Regulatory Barriers
Benefits: Leveraging influence to shape the regulatory environment can slow the
growth of challengers. By advocating stricter licensing standards, enhanced capital
requirements, or more robust AML frameworks for P2P providers, banks can protect FX
profits while buying valuable time to adapt. Such measures may indirectly benefit
consumers through strengthened financial stability and protection against fraud.
Risks: Yet, lobbying carries reputational risks. Banks may be perceived as anti-
competitive, leading to consumer backlash or public criticism. Legal challenges and
scrutiny of lobbying practices could also result in financial penalties. Furthermore, even
if regulation initially constrains disrupters, future policy shifts may liberalise the market,
potentially accelerating adoption of challenger solutions. Importantly, lobbying fails to
address the structural technological changes underpinning disruption.
Overall Evaluation:
While all options merit consideration, a strategy that balances internal innovation with
targeted partnerships or acquisitions appears most sustainable. Competitive pricing
and regulatory influence may offer temporary relief, but neither addresses long-term
structural shifts in traveller expectations. Ultimately, the banks that succeed will be those
able to combine credibility with cutting-edge technology, transforming disruption into
opportunity.
EXAM PACK
2025
,MAC3703
Assignment 2
Semester 2 2025
Due 30 September 2025
Selected Accounting & Financial Management Techniques
Foreign Exchange Market for Travellers
(a) Risks and Benefits of Main Strategic Options for Existing Banks
Existing banks are increasingly challenged by the rise of multi-currency accounts and
peer-to-peer (P2P) currency exchange platforms offered by challenger banks. To
mitigate erosion of foreign exchange (FX) profits, traditionally earned through wide buy-
sell spreads, established banks must carefully evaluate a range of strategic responses.
Each option carries distinct risks and benefits, requiring critical consideration.
1. Internal Innovation (Developing Proprietary Multi-Currency Accounts and P2P
Applications)
Benefits: Developing proprietary digital platforms allows incumbent banks to retain
customers by offering competitive services such as fee-free multi-currency holdings,
real-time exchange, and improved rates. These features strengthen customer loyalty
while enabling cross-selling of other financial products. Moreover, new transaction-
based revenue streams can be created while retaining control over compliance,
regulatory alignment, and customer data. In markets such as South Africa, where
spreads remain wide, banks that act early could capture a lucrative segment of tech-
savvy travellers, safeguarding their position in a multi-billion-pound industry.
Risks: However, the capital-intensive nature of innovation poses substantial risks. High
development costs, compounded by integration challenges with legacy systems, could
,strain financial resources. Market adoption is uncertain, as agile challengers often
outpace traditional banks in delivering customer-centric technology. Internal innovation
also risks cannibalising existing FX margins, causing short-term revenue declines.
Furthermore, regulatory requirements, particularly in areas such as anti-money
laundering (AML) compliance for P2P platforms, could delay deployment. Failure to
deliver a competitive product may also harm reputation and erode consumer trust.
2. Partnerships or Acquisitions of Disrupter Banks
Benefits: Strategic partnerships or acquisitions offer established banks a rapid route to
innovation. Collaborating with or acquiring a challenger provides immediate access to
technology, digital infrastructure, and new customer bases. By integrating a P2P
platform within existing operations, banks could deliver hybrid solutions, blending
innovation with the reassurance of brand trust. Such strategies enable scale-driven
efficiencies: while per-transaction margins may be lower, volumes can rise significantly,
offsetting reduced spreads. For risk-averse travellers, the credibility of an established
brand strengthens adoption.
Risks: Nonetheless, integration risks are considerable. Cultural clashes may disrupt
operations, causing talent attrition or delays. Acquisitions can also be prohibitively
expensive, with uncertain returns if the disrupter’s model fails to scale sustainably. In
concentrated markets such as South Africa, antitrust scrutiny may hinder mergers or
partnerships. Should collaboration fail, banks may be left vulnerable to reputational risks
if the partner’s platform suffers issues such as cyber breaches or fraudulent
transactions.
3. Competitive Pricing Adjustments (Narrowing Buy-Sell Spreads)
Benefits: Adjusting pricing remains a straightforward defensive mechanism. Narrowing
spreads makes existing FX services more attractive to price-sensitive customers,
retaining a segment that might otherwise defect to P2P alternatives. Coupled with
bundling strategies (e.g., travel insurance or loyalty points), banks can strengthen
perceived customer value. This approach may also deter new entrants by undermining
their cost advantage. In high-volume markets, efficiency gains may sustain profitability
despite slimmer margins.
, Risks: However, reducing spreads directly erodes profit margins and places pressure
on short-term earnings. If transaction volumes fail to increase proportionally, banks may
face declining overall revenues. Moreover, pricing adjustments, absent accompanying
innovation, represent a defensive rather than transformative strategy. This risks long-
term obsolescence as travellers increasingly favour digital-first convenience over
traditional services.
4. Lobbying for Regulatory Barriers
Benefits: Leveraging influence to shape the regulatory environment can slow the
growth of challengers. By advocating stricter licensing standards, enhanced capital
requirements, or more robust AML frameworks for P2P providers, banks can protect FX
profits while buying valuable time to adapt. Such measures may indirectly benefit
consumers through strengthened financial stability and protection against fraud.
Risks: Yet, lobbying carries reputational risks. Banks may be perceived as anti-
competitive, leading to consumer backlash or public criticism. Legal challenges and
scrutiny of lobbying practices could also result in financial penalties. Furthermore, even
if regulation initially constrains disrupters, future policy shifts may liberalise the market,
potentially accelerating adoption of challenger solutions. Importantly, lobbying fails to
address the structural technological changes underpinning disruption.
Overall Evaluation:
While all options merit consideration, a strategy that balances internal innovation with
targeted partnerships or acquisitions appears most sustainable. Competitive pricing
and regulatory influence may offer temporary relief, but neither addresses long-term
structural shifts in traveller expectations. Ultimately, the banks that succeed will be those
able to combine credibility with cutting-edge technology, transforming disruption into
opportunity.
