Q: Since the financial crisis there has been talk of transaction banking enjoying something of a renaissance. Is that the case or has this been overplayed?
A: It is true to a certain extent – immediately after the financial crisis this area was seen as a ‘stable’ source of income for banks. Statistics reinforce this view; transaction banking continues to outperform most investment banking lines of business (in terms of revenue growth) in the post-financial crisis period. This type of business does have certain advantages – it offers low capital absorption and fairly constant financials, and it creates liquidity and funding. Yet despite being relatively low capital- or risk-weighted asset-intensive, it requires considerable technological investment, reinforcing the need for scale. There are also a number of ‘uncontrollables’ that are placing an increasing amount of pressure on the business.
