Paul Camp, global head of Cash Management Financial Institutions at Deutsche Bank, looks at the current industry landscape and how the business will develop over the coming years.

Q: Could you give an overview of developments in the Cash Management Financial Institutions space for the first half of this year?

A: We’ve seen a very good start to 2011 with a significant bounce back in most developed markets around the world. While 2010 was defined by strength in emerging markets such as Asia, eastern Europe and the Middle East – where our great client relationships and very strong business flow were matched by growing economies –this situation is now being replicated across the developed markets in 2011.

So, looking at our business globally for the first half of 2011, there has been very sound business growth coming from both developed and developing markets, which is fantastic. Client traction and growing deal flow is now being complemented by stronger underlying economics across most markets.

Q: Where do you see the industry heading in the second half of 2011 and 2012?

A: We are seeing a moderation taking place in the second half of 2011. This is, at least in part, because comparisons with 2010 become more difficult. The start of last year was quite mixed – emerging markets were performing well and developed markets less so – but by the end of 2010 we were seeing a global recovery.

We are certainly optimistic for the next few years, but with some caveats. Recovery will continue, but there will be some bumps along the way. While we don’t anticipate the markets falling apart again, we do see some challenges as recession isn’t quite over in some regions. Having said that, the global picture will likely be one of sustained overall growth.

Deutsche Bank Cash Management Financial Institutions is very much a global business driven by cross-border activity and we are quite bullish regarding the ongoing expansion of such activity for the rest of this year and into 2012. However, it will not be a linear path and we should be prepared for some adversity along the way.

What has been the impact on the industry of China’s renminbi reforms?

China presents an interesting and enormous opportunity, and these reforms are the first step in further opening up the market. Our connection with China is long-standing and the client relationships that we have built are very strong. And while the reforms won’t directly affect the strength of these relationships, their nature will certainly begin to change. What we are capable of doing in this market is changing and growing – the market is opening up for us, as well as for a variety of other institutions.

We also have the promise of the renminbi emerging as a third globally accepted currency alongside the euro and the US dollar. In our view, the renminbi certainly has the potential to achieve this, but reaching this stage will be a journey that takes time. This initial opening up of the renminbi is the beginning of that journey.

Are there any other regulatory initiatives you would like to comment on?

Of course, regulatory issues are an area we should always be considering. Looking at where we are today, we have recently been through a series of regulatory hurdles. Taking Europe specifically, we’ve seen both the Single Euro Payments Area and Payment Services Directive, so Europe has certainly been the focus of many of the key cash management regulatory changes in recent years.

These European initiatives were very much driven by consumer price protection, and while they were very challenging for many financial institutions – forcing investment while reducing revenue – they should be beneficial in the long term, helping Europe to deliver on the promise of the euro and develop a free market that allows for increased transparency and growth. However, there has certainly been a cost in the short term. Revenues have dropped, driving greater consolidation in the market. Not all providers have been able to afford the necessary investment and this has turned European cash management into a scale game; banks need to be big to afford the investments required. So this is a changed market that continues to consolidate and, now that many of the investments to meet regulatory changes have finished, there will hopefully be a bigger emphasis on innovation from all providers.

Looking more globally, there is a constant focus on upholding the strictest standards on anti-money laundering and this is something that will continue – keeping the system clean is critically important.

Finally, Basel III is on the horizon. The impact will vary between providers, but we are currently working with clients to assess its implications and how we will be able to assist them in maximising opportunities for revenue generation, as well as controlling costs and risks, in this new landscape.

Where is Deutsche Bank Cash Management Financial Institutions concentrating its investment at the moment?

While investing to meet regulatory demands is important, investing for innovation is also a key focus for us. What I mean by this is driving the market forward with new products and services that make our financial institution clients more successful so that they can win business locally. In this respect, our goal is to build products and services that can assist our clients in winning market share and improving margins. For example, one recent success in this area has been FX4Cash, our new cross-currency payments platform. Investment in this platform continues and, over the next few months, we will be launching other new products that combine expertise from the markets and global transaction banking areas and really bring to clients the value of working with a global partner, such as Deutsche Bank.

Where is investment being avoided?

This is a good question, especially given where we are in the business cycle. Budgets for investment remain constrained and institutions need to make some good choices regarding where they will invest – and, just as importantly, where they won’t.

In this respect, we’re not investing in areas where we don’t have scale or where we think we could leverage a partner to do something better. Delivering maximum value to clients doesn’t mean that we have to do everything ourselves. For example, we leverage partners for the distribution of remittance payments into markets, such as Brazil or China. So we offer our clients a global remittance product but, as we don’t have thousands of branches on the ground in these markets, we leverage key partners to enhance distribution. Making the investment to do it ourselves just wouldn’t make sense.

Regarding integration within corporate and investment banking, how is this affecting the Cash Management Financial Institutions business?

The corporate and investment banking divisions of Deutsche Bank were recently brought together under Anshu Jain and this has resonated very well with clients, especially those that do business with Deutsche Bank across these areas. 

Bringing the powerhouses of markets and global transaction banking together has opened up great opportunities in terms of the additional value we can bring to clients. For example, while FX4Cash shows what integration can do on the product side, presenting a unified face to the client will have a positive impact on relationship building, allowing us to deliver more compelling messages.

Finally, do you have any other thoughts on the current state of the industry?

I would like to underscore how important a true partnership approach is in this business. What we’re seeing is the emergence of several distinct business models that involve being a strong provider at one of the global, regional or local levels. Our goal at Deutsche Bank is to be the global provider of choice for financial institutions to help make these clients successful in their own local market.

However, highlighting the emergence of these three business models isn’t presupposing that any one is superior to the others. Any of these models could lead to success with robust management, but financial institutions must determine the one that will work for them, then invest correctly and select the right partners. We are seeing innovation coming from all three levels and we are privileged at Deutsche Bank to be working with some of the strongest and most innovative regional and local banks in the world. While it is a pleasure for us to bring our products and services to them, it is very much a two-way street – we learn and grow from our clients and leverage their capabilities in the same way they do ours.

Overall, I’m optimistic that we will be able to continue building these partnerships to both maximise value on the up-side, but also to identify, address and develop solutions to the inevitable bumps in the road that all institutions will face over the coming years.

Client experience:

Agricultural Bank of China expands its payments and cash management relationship globally with Deutsche Bank

Agricultural Bank of China (ABC) recently broadened its payments and cash management relationship globally with Deutsche Bank to include remittances to and from China worldwide. ABC widens its usage of Deutsche Bank's cross-border payments solution and also utilises the bank's global cross-currency payments platform. “Building on our already strong collaboration with Deutsche Bank, we have decided to extend our payments and cash management relationship to span the globe," says Chen Shangyuan, deputy general manager of the operation management department at ABC, adding that he expected ABC to benefit from increasing business thanks to Deutsche Bank's strengths as a euro and US dollar provider.

Deutsche Bank partners with Itaú Unibanco to broaden its remittance services to and from Brazil

Itaú Unibanco has partnered with Deutsche Bank to jointly expand its remittance offering to and from Brazil. Deutsche Bank extended its remittance services to include a new corridor in Brazil, allowing Brazilian workers across the globe to send US dollar and euro payments home. Remittance beneficiaries will be able to receive account credits or pick up cash at more than 3300 of Itaú Unibanco's locations. “Deutsche Bank is a key partner for Itaú Unibanco group and this new agreement will leverage our existing cash management relationship by expanding our remittance offering outside Brazil,” says Carolina Camargo, head of the international financial institutions division at Itaú BBA.

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