OzForex loses Westpac as banking partner

Shares in OzForex initially fell 14% this morning, before settling down about 4% after the web-based international payments specialist said that Westpac was ending its relationship with the company. OzForex holds it's A$ cash balances with Westpac and uses the bank to access wholesale currency markets and to make and receive payments in a number of currencies, including the A$, NZ$ and US$.

The early fall was probably due to heightened nerves around retail forex businesses after several trading firms got into trouble following the Swiss franc's jump last week. But OzForex is not exposed to such businesses, simply arranging payments for customers for which it receives payments in advance. Indeed, following the initial fall this morning, OzForex came out with an announcement confirming that it had 'not been adversely affected' by the jump in the Swiss franc, which is involved in less than 1% of its transactions. The move by Westpac is also not specific to OzForex; the bank has been reviewing its money service clients for a number of months and OzForex survived an initial cull in November.

OzForex can (and will) share the business out among its other banking partners, of which it has 15, including Bank of New York Mellon, Bank of America Merrill Lynch, Barclays Bank, Macquarie Bank and National Australia Bank. It does raise some concerns, though. Media reports suggest that Westpac's move is the result of an increasing regulatory burden, particularly surrounding money-laundering, and these are issues that no doubt affect all banks. If banks generally are getting more reluctant to supply these services, then the services are likely to get more expensive. Coming into line with stricter compliance procedures among its banks could also force OzForex to go through a few extra hoops to bring clients onboard, which might have an impact on growth.So, although we're not greatly concerned by the issue at the moment, it's one worth watching. HOLD.

Note: Our Growth and Income portfolios own shares in OzForex.

Disclosure: The author owns shares in OzForex.