It has been an unprecedented year for the world’s banking industry. Once seen as the drivers of economic growth and prosperity, bankers are regarded by many as pariahs. This image is unfair. The collapse of confidence in the credit markets was driven by the recklessness of a few, but the impact of their actions has sent shock waves across the industry. Cash has become king and, increasingly, banks are looking towards their transaction services teams to drive revenue in 2009. Paul Camp, head of cash management for financial institutions at Deutsche Bank, talks about cash management’s evolution in 2009.

Click here to view an edited video of the discussion

THE PARTICIPANTS

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Paul CampHead of cash management for financial institutions Deutsche Bank
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Charlie CorbettEconomics editor, The Banker
  • Do you see 2009 as a battleground or an opportunity?

The world is in transition… You can look at it as a true calamity that we’re living through, or you can look at it as an opportunity. At Deutsche Bank, in cash management we are very well positioned. The crisis is impacting on our clients, it is impacting on our markets. [In 2008] we saw clients move aggressively into cash; you saw it in the equity markets when they plummeted. We saw our cash balances go through the roof, which was a great sign. We also have a gold business and our gold volumes were booming. We actually couldn’t buy gold coins and bars fast enough to replenish the supply for the client demand, as clients were moving out of securities, out of risky instruments and into cash and into gold.

When I look ahead to 2009 I have to be optimistic, or I’d just jump out the window here into the [river] Thames!

We see opportunity. It’s not an opportunity because the market will continue to grow, on the contrary, I think cross-border transactions, international trade [and] international payment flows could actually contract for the first time in 20 or 30 years.

But it is the time when market share changes hands, where banks, who are our clients, move to the most stable providers – to the providers they’ve known the most. Is it an opportunity here for everyone? Absolutely not. I’m optimistic for us [but] for the market, I’m not so sure.

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This is an edited video of the discussion from The Banker's Exclusive Masterclass Series. Click below to view more:

  • Do you think trust can be rebuilt in 2009 and how long will it take?

Trust has gone – it needs to come back. Having governments either actively invest, or passively stand behind banks [is important]. With this level of support, trust starts to come back, but it takes time. Trust is not reborn in a month or a week or even a year, so I would hope 2009 is the year where trust comes back in general. Making it specific to what we saw in the crisis, and how we managed through the crisis and continue to manage going forward, being really close to your client is critical.

  • Has the crisis led us back to a more traditional style of banking?

I think what we’re going back to is plain vanilla banking, back to a focus on stable businesses. I’ve worked in transaction banking for quite a long time now and two or three years ago, when I talked to my friends at parties about what I did, they’d yawn and walk away. Now, they find it extremely fascinating. But transaction banking – and a transaction bank – isn’t born overnight. This is something that has taken long-term investment.

  • What do you think will be the key to gaining market share in a more competitive environment in 2009?

It’s all about market share gains next year. [That] means leveraging the extremely long-term client relationships that we’ve had for years, because clients often will use more than one provider. And through the crisis what [clients] learned was, don’t go to one [bank] provider, have two – because you always need a back up – but make sure they’re the right two. And don’t have 10!

  • What hurdles will transaction banks have to jump next year?

Operational excellence and resilience. To manage through the crisis, one of the things we did as a bank was to put a moratorium on system changes during that period. Why? Because when you change a payment platform, often you have to shut-down for 30 minutes, an hour, or two hours, as you are doing the system upgrades. During the crisis, we never wanted to be down because the market had to see that Deutsche Bank was providing liquidity. It had to see that we were open for business, that we were supporting our clients – and so system stability is critical. If you’re providing that level of liquidity to the market – which we do – you can’t be down or else the market sees it, and the market can convulse.

  • How long before global trade gets going, trust returns and banks start believing in one another again?

Global supply chains are in place and that’s not going to change. That didn’t change after the terrorist attacks in 2001, despite a lack of trust. It comes back. I’m an optimist. Right now, the world of economics is not very good. Inventories have built up and people are going to work through their inventories. When you’re working through your inventories you stop ordering, but eventually the inventories get worked down, and that global supply chain kicks back in.

  • Are regulations such as Sepa and the payment services directive a help to the industry, in that they aim to create efficiencies, or are they just an unrealistic attempt to herd cats that will cost millions to prepare for?

Rather than bailing out the banks, I would almost prefer that we didn’t have all of this regulation that costs so much money, and just let us run a healthy business model. Potentially, this would have been a better way for the governments to bail out the banks. This may get me in trouble for saying it with various regulatory agencies (and I say it a little tongue in cheek) but all this regulation takes investment, and we make absolutely no more money from it.

  • How is the landscape for cash management going to change in 2009?

Very few banks are going to be investing in innovation. If you look at the change in focus for financial institutions right now: budgets are going down, revenue is dropping and people are being laid off. During a period like this, innovation generally takes a pause, which is not healthy for the industry. But it plays very nicely for banks that have invested, and who continue to invest and have this as a core business. [But] it has to be something that clients want. Innovation for innovation’s sake is a waste.

  • What do you think would give you the edge in this market place?

[Clients] want better value for price, they want help with revenue generation and they want help with cost avoidance. When we can help a client to generate revenue, they love it. When we can help a client to avoid operational expense or an investment, they love it. The discussions right now are not esoteric discussions about something that could potentially pay off in two or three years; the discussions are extremely concrete.

  • What will be your primary focus for next year and what grounds, if any, do we have for optimism?

We are going to continue to support our clients. If you stay with the client during a crisis, the client stays with you for ever. If during a crisis you don’t support your clients, the clients see it [and] find somebody else.

  • How will the cash management landscape look in two to three years?

I always try to think two to three years ahead, but what the crisis has led us to do is also think two to three minutes ahead. Looking back, I am thankful we invested in global risk management systems. If we hadn’t done that, we wouldn’t be in the position we are today and be able to look ahead.

  • Will banks learn any long-term lessons from the credit crisis, or are memories too short?

Things are changed, but eventually things move back to the centre. A friend of mine has a good way of looking at the real-estate market, which is interesting to bring up here. He says the real estate market moves in five year cycles and real-estate investors have a five year memory. When I think about some of the things we are living through today, I sincerely hope some of this gets embedded in our long-term DNA but let’s see where it goes.

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