Mergers since 2009 have seen firms including Western Union and Euronet (>> Euronet Worldwide, Inc.) pay up to $1 billion for some of the specialist brokers servicing thousands of companies too small to register on the radar of banks' currency trading arms.

The consolidation, however, also reflects the pressure brought to bear on these businesses by the costs of regulatory checks on currency movements and the rise of automated trading platforms.

Managers in the sector say they are left with two choices: jump on the hi-tech bandwagon and accept the tiny margins it provides, or aim for a more sophisticated service that works closely with companies to look after their foreign exchange at more advantageous rates.

"There's definitely further consolidation to come," says Stuart Holmes, European boss of AFEX, one of the biggest players in a segment that has already been whittled down from almost 400 companies in 2009 to just under 100.

"We bought two companies last year and we will probably buy again. The cost of doing business is increasing and companies are really being squeezed on compliance by the banks."

By offering companies currency at much tighter "spreads" to the mid-market rates banks give each other and their biggest clients, these companies have been instrumental in making forex trading as a whole more competitive.

Holmes says that, while he still comes across companies being charged up to 6 percent of the value of a transaction to buy or sell foreign currency, banks' standard margin for small company accounts is around 150 basis points.

"We would normally hope to halve that," he says. "For an exporter buying several million a year, that has a real impact on his bottom line. It can be the difference between employing a couple of extra staff."

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The biggest brokers say they have grown strongly by watching over the currency needs of company managers too busy to notice that, say, the dollar has hit levels where they would like, or need, to buy or sell.

But they are all having to invest heavily in technology, as firms like Thomson Reuters-owned FXall or 360T put screens with direct and competitive pricing from a number of banks and providers in front of corporate treasurers.

"If you don't reach your customer with some kind of electronic interface, then chances are someone else will," says Mark Tannetta, Vice-President for Europe, Middle East and Africa sales at FX technology firm Caplin.

Other players in the sector say privately-held AFEX is one of the most obvious remaining targets in the market. Holmes says its private U.S. owners have shown no interest in selling.

Of 115 AFEX staff in London, 25 are programmers.

HiFX, which made millions by targeting the wealthy Britons buying and selling property over the past decade, was sold last year to Euronet (>> Euronet Worldwide, Inc.) for $241 million. Monex Holding (>> Holding Monex SAB de CV) bought Schneider FX for $157 million, while Western Union bought out the business payments arm of Travelex for just under $1 billion.

"We sold a couple of years ago because it seemed to us the right time," says Brian Jamieson, one of the founders of Schneider, now running Centtrip, a startup focused on providing forex to travellers through multi-currency prepaid cards and e-accounts.

"But since then, that business has continued to grow strongly. People will always have a need to talk to someone, especially on bigger amounts of money."

(Editing by Peter Graff)

By Patrick Graham