Guide to wholesale banking in Australia

Business owners in Australia have a variety of banks and financial services to choose from, and it’s important to be aware of what each financial institution can offer. Did you know that wholesale banks fund over 20% of deposits in Australia?¹ Large institutions use wholesale banking to manage complex financial needs – but is it right for your business?

What is wholesale banking?

In Australia, wholesale banking is a specialised branch of banking that caters exclusively to multinational corporations (MNCs), government agencies, and other financial institutions. It focuses on handling large-scale transactions, managing risks, and providing access to substantial amounts of capital.

Some of the traditional Australian banks offer wholesale banking services in addition to serving individuals in retail banking. 

What’s the difference between wholesale banks vs full banks?

The difference between wholesale banks and full banks lies in the customers they serve. 

A full bank in Australia is licenced by the Australian Prudential Regulation Authority (APRA) to provide financial services to both retail consumers and businesses. 

For individuals, they provide personal banking services like savings accounts, mortgages, and credit cards. Meanwhile, small-to-medium enterprises (SMEs) can use full banks for specialised solutions like business accounts, payroll services, and corporate cards. 

Meanwhile, there’s alsoretail banking, and commercial banking in play. Here’s a quick breakdown of how they differ from wholesale banking.

• Retail banking. Also known as personal banking, retail banks serve individual consumers with savings accounts, loans, credit cards, and insurance. This is the type of banking most people use for their everyday financial needs.

• Commercial banking. Also known as SME banking or business banking, commercial banking serves individual businesses with solutions like business accounts, loans, and payroll services.  

• Wholesale banking. Serves institutional clients like MNCs and investment firms, by providing specialised services like structured financing for large global projects, and expertise in mergers and acquisitions. It’s designed for businesses with complex financial needs and high transaction values.

While wholesale banking services are tailored to institutional clients with complex needs, businesses of all sizes can use fintech platforms like Airwallex to expand overseas and manage their global entities. 

What are examples of wholesale banking services?

Wholesale banks excel at these specialised services:

• Trade financing: An umbrella term for services that help businesses manage and fund international trade transactions while addressing the unique risks of global trade, such as currency fluctuations and political instability.⁴ For example, a wholesale bank might create a tailored agreement to finance a cross-border energy project so that the transaction is protected from exchange rate volatility or geopolitical risks in the countries involved. In contrast, trade finance from commercial banks is more standardised and focuses on routine trade needs, like ensuring timely payments or securing goods.

• Structured financing: Wholesale banks provide large-scale, tailored loans to fund long-term projects, often through syndicated loans, where a group of banks jointly provide funding to a single borrower. For example, a wholesale bank might provide a syndicated loan to fund the construction of a renewable energy plant, structured to align with the project's timeline and risks.

• Treasury and cash management: Treasury services help businesses manage cash flow and improve liquidity, ensuring they have enough funds for daily operations. These services include cash flow forecasting, multi-currency liquidity management, and hedging strategies to protect against financial risks.⁵

• Capital raising: Wholesale banks help businesses secure large-scale funding through bond underwriting, syndicated loans, and equity offerings. Unlike commercial banks that offer standardised loans, wholesale banks deliver tailored financial solutions for complex funding needs. For example, a wholesale bank might structure a bond issuance to raise billions for a new airport development.

• Risk management: Wholesale banks help businesses protect against financial risks such as currency fluctuations, interest rate changes, and commodity price volatility. They use advanced risk models like Value at Risk (VaR) to estimate potential losses and recommend hedging strategies. For example, if a company is exposed to foreign exchange risks in a large trade deal, the bank might use hedging instruments to minimise losses.

Advantages and disadvantages of wholesale banking

Like any financial service, wholesale banking comes with advantages and challenges. Understanding its advantages and disadvantages can help businesses decide if wholesale banking is right for them.

Pros of wholesale banking

• Access to large-scale financing. Wholesale banks have the resources, expertise, and networks to provide high-value loans. They can pool funds from multiple sources, such as other banks, to offer substantial loans for capital-intensive projects like infrastructure or energy. Unlike commercial banks, wholesale banks specialise in structuring and managing these large deals, often including services like risk assessment and bond underwriting.

• Tailored financial solutions for complex business needs. Wholesale banking provides customised services to meet the unique needs of large corporations and institutions. Let’s say a client needs to execute a multi-million-dollar infrastructure project, the bank might create a dedicated project treasury management system to track and manage funds from multiple investors and lenders. This solution could include real-time cash flow monitoring and automated disbursements based on project milestones. 

• Global connectivity and expertise. Wholesale banks often have extensive global networks and expertise in international markets, which enable trade and infrastructure development. For example, French wholesale bank Société Générale is collaborating with the Asian Development Bank to finance the construction of three wind farms in Vietnam. Beyond funding, these partnerships bring international expertise, risk management strategies, and financial structuring to support large-scale projects in emerging markets.⁶ 

• Expert risk management. Wholesale banks help businesses mitigate financial risks through tools like hedging and trade financing. By locking in foreign exchange rates, companies can stabilise costs when operating in volatile international markets. These banks also provide interest rate hedging, commodity price protection, and structured risk management strategies to safeguard businesses from unpredictable financial fluctuations.

• Strong due diligence and safeguards. Due to the complexity and scale of transactions, wholesale banking requires strict regulatory compliance and strong due diligence processes. These banks have advanced risk management systems, compliance frameworks, and financial safeguards in place to manage global transactions securely and efficiently.

• Strong infrastructure to support wholesale payments. Wholesale banks are built to settle high-value transactions and operate within a connected ecosystem of banks and financial market infrastructures (FMIs). They facilitate large-scale payments through corporate payment systems like Large-Value Payments Systems (LVPS) in the USA and High-Value Clearing Systems (HVCS) in Australia and New Zealand.  

Cons of wholesale banking

• Limited accessibility. Wholesale banking services are built to serve large corporations and institutions. Their financial services are not designed to help smaller players grow. 

• Complexity of services. The services offered by wholesale banks are often complex and require significant expertise to navigate. For businesses without a strong finance team, understanding and using these services effectively can be a challenge.

• Use of legacy technology. Some large wholesale banks still struggle with siloed operations, making it difficult to get a complete view of a client's business across various services. Many also rely on outdated legacy systems that limit their flexibility and adaptability. This can prevent them from providing real-time responses and cloud-based solutions. 

• Exposure to macroeconomic risks. The wholesale banking industry is closely tied to economic cycles, making it sensitive to changes like interest rate hikes. Higher interest rates can reduce demand for corporate loans, while fewer private equity deals and high debt costs may weaken the mergers and acquisitions pipeline. 

Consider Airwallex for your business’s global financial operations 

While wholesale banks cater effectively to large corporations, their services may be inappropriate for businesses who don’t have large-scale needs.

However, fintechs like Airwallex have similar services designed for businesses of all sizes. The Airwallex Business Account is an all-in-one platform for SMEs and enterprises seeking to grow their global footprint, with products that mirror some services offered by wholesale banks:

• Multi-currency accounts with local bank details. With Airwallex, there’s no need to open bank accounts in markets where you operate. You can instantly open a local currency account in more than 60 countries and start receiving funds in 23+ currencies.

• Foreign exchange risk management. Airwallex’s FX Solutions minimise currency risk by locking in FX rates and tailoring settlement dates to suit your business requirements. This lets you manage short-term risks from cross-border payments as well as long-term risks from extended contracts and other financial commitments.

• Multi-entity management. Airwallex gives you a central platform to manage finances for your global entities. Instead of viewing each market’s local bank dashboard, you get a unified view of your global finances. You can also create global spend controls across your organisation and review and approve global expenses in one place.

On top of these, Airwallex has solutions to support your business’ day-to-day operations through extensive Payments tools, a suite of features to manage team Spend, and awesome integrations that mean the platform will slot easily into your tech stack.

We help over 150,000 businesses around the world simplify their global financial operations. Open an Airwallex Business Account account today or contact our team to discover how Airwallex can support your growth targets.

Frequently asked questions

1. Why is treasury management important in wholesale banking?

Treasury management is important in wholesale banking because it helps businesses efficiently manage their liquidity. By optimising the use of funds and ensuring sufficient reserves, it enables businesses to meet their operational and strategic needs. This is particularly critical in wholesale banking, where clients often deal with large-scale, complex transactions that require precise financial planning.

2. What compliance and regulatory challenges do wholesale banks face?

Wholesale banks face significant compliance and regulatory challenges due to the complexity of their operations and the strict requirements of financial authorities. Like other banks, they must adhere to anti-money laundering (AML) and counter-terrorism financing (CTF) regulations, manage cross-border compliance, and ensure transparency in large-scale transactions. They must also adhere to the MAS’ guidelines for the operation of wholesale banks.

3. What is the role of fintech in modernising wholesale banking?

Fintech is modernising wholesale banking by introducing technologies that streamline operations and improve client experiences. By leveraging innovations such as artificial intelligence, fintech enables wholesale banks to automate processes like credit underwriting, reduce costs, and offer more personalised services.

Sources

1. https://www.cfr.gov.au/publications/consultations/2024/review-into-small-and-medium-sized-banks/pdf/review-into-small-and-medium-sized%20banks-issues-paper.pdf 

2. https://www.abs.org.sg/about-us/memberbanks

3. https://www.investopedia.com/terms/t/tradefinance.asp

4. https://www.ingwb.com/en/network/asia-pacific/australia 

5. https://www.nab.com.au/business/industry/retail-wholesale-trade 

6. https://www.mckinsey.com/industries/financial-services/our-insights/how-data-and-analytics-are-transforming-the-wholesale-bank-at-hsbc

Disclaimer: This information doesn’t take into account your objectives, financial situation, or needs. If you are a customer of Airwallex Pty Ltd (AFSL No. 487221) read the Product Disclosure Statement (PDS) for the Direct Services available here.