When it comes to transaction banking, the client has not always come first. However, this is changing, as banks start to consider their businesses from a client perspective. Jane Cooper examines how this growing awareness is translating into practice.

“We put the client at the centre of everything we do,” has almost become a mantra for the industry; something transaction bankers say and something they all aim to do. Client centricity, however, is easier said than done and many transaction banks are focusing on how they can best cater to their customers’ needs. 

Stefan Dab, a senior partner at the Boston Consulting Group, says that client centricity is high on the agenda for transaction banks, and adds that excelling in client centricity means higher profitability for these banks. 

“The awareness of [transaction] banks on customer centricity has dramatically increased,” says Mr Dab. “If you look at [transaction] banks, few really excel in customer service.” He adds that most have focused on product differentiation and less on customer centricity, and that “now we are starting to see a shift: transaction banks are more customer focused and a bit less product focused”. 

Julian Wakeham, global transaction leader and partner at consultancy PricewaterhouseCoopers, agrees. “Transaction banks historically have been product-centric organisations,” he says. “They have looked at the client around industry verticals and geographies. A lot of that was based on credit risk, which is how banks have primarily looked at the relationship, rather than it being needs based.” 

Mr Wakeham notes that transaction banking was previously a cost centre for banks and was seen as the "plumbing" of the bank. Since the financial crisis, he says, this mindset has changed and as transaction banking has become more revenue-oriented, there is now a recognition that transaction banks need to be more aligned with their customers. “Banks have been good at educating their customers about speaking the language of products rather than educating themselves about speaking the language of their customers,” says Mr Wakeham. 

Thinking small

The biggest gains to be made through customer centricity are with small and medium-sized enterprises (SMEs), says Mr Dab. He explains that 25% of the transaction banking industry’s revenues come from large multinational corporations and financial institutions, with the remaining 75% of revenues come from SMEs, which typically do not need complex or innovative products. “The way to differentiate is the way in which you serve them,” says Mr Dab of the SME segment. 

Raj Subramaniam, head of global product strategy for cash management at financial technology firm Fundtech, says that there has been a trend toward segmentation of clients based on their needs rather than their size. “Transaction banking has moved away from just processing customers’ needs and getting deeper into the way corporates are doing business,” he says. 

“One of the most essential elements of a strong customer-bank relationship is the bank’s understanding of the customer needs and preferences,” says Marcus Sehr, global head of cash management for financial institutions at Deutsche Bank. He argues that the idea of customer centricity is not new, but the client-centric approach suffered as banks grew. “With the expansion of banks’ customer base, which started back in the 1970s, and the subsequent growth in the size of banks, personal understanding of client needs started to deteriorate,” says Mr Sehr. 

And now there is a renewed emphasis by the industry to understand these client needs. Paul Thwaite, global head of transaction services for financial institutions at RBS, says: “One of our key initiatives to hear directly from clients is our global Client Advisory Board Programme. Boards are held around the world and are designed to provide candid feedback on our strategy and all aspects of our proposition. We proactively solicit feedback, even if it's sometimes hard to hear, so that we can shape the best possible client solutions and experiences.”

Bank of America-Merrill Lynch also has a programme where it consults its clients directly. Jennifer Boussuge, the bank’s head of global transaction services (GTS) for Europe, the Middle East and Africa (EMEA), says that clients have been brought into the product development process earlier. The bank's GTS division, for example, has an advisory board where global product heads sit alongside key global clients to discuss what is appropriate for those clients. 

Capital allocation

When it comes to innovation, Rajesh Mehta, Citi’s head of treasury and trade solutions for EMEA, explains that product development in the Citi Innovation Labs is a collaborative effort and always involves the input of the bank’s largest clients. He points to a wider industry trend and the impact of regulations such as Basel III standards. “If you look at the future of banking, it is all about capital allocation – the amount of capital required is going up and leverage is being reduced,” he says.

“Traditionally, banks were organised vertically by product or business line but capital allocation models don’t work that way. The only way to effectively allocate capital is from a client’s perspective. It is that capital allocation at the client level that drives client centricity.” Mr Mehta adds that bankers need a thorough understanding of all the business a client does across the entire institution in order to assess the relationship. 

Ms Boussuge says that Bank of America-Merrill Lynch is now focusing on integrating GTS with other divisions of the bank, so that the corporate banking and investment banking divisions can work with GTS to get a holistic view of the client. “That is where we are in the process of making strides – in breaking down the silos in the organisation within [our] global banking and markets [division],” she says. 

“Banks talk about developing products and bringing them to market, but they forget that you can build things and sell them, and invest in those areas, but if you cannot execute it well, none of that matters.”  

Holistic view

At Deutsche Bank, Mr Sehr agrees that taking a holistic view of the client means not just breaking down the silos within transaction banking, such as cash management, trade finance or securities services, but also at the divisional level with, for example, investment banking. “This involves a great deal of planning and forward thinking, but those that get it right will be the ones to profit,” he says. 

Ideally, says Mr Dab, banks should align their divisions so that they come together in the sales process. For example, if a credit facility is being negotiated with a corporate, the bank could offer a discount on the credit if the company agrees to commit a portion of its transactions to the bank as part of the deal. 

This is not just about bringing the bank’s divisions together so they work efficiently at the front end where the bank meets the client. “The touch point is only one aspect,” says Mr Subramaniam. “Banks need to provide tailor-made solutions driven through software solutions. That requires a powerful middle office.” An example of this would be a middle office determining what cut-off times to give a customer and whether to offer them the standard times or offer them preferential treatment because that client brings in a significant amount of business. 

Many banks have focused on giving their clients a consistent experience of the bank, where there is a single point of contact. And now those clients may be able to access the bank’s platform through a single portal. However, says Jerry Norton, head of banking strategy for financial services at IT consultancy CGI, that is client experience, not client centricity. “Behind the scenes, most banks still have product-based silos,” he says.

Mr Norton views the journey to client centricity as having three stages. The first is a product-specific portal and the second step is the integrated portal through which clients access all products of the bank. “The third step is centricity where the data comes together,” says Mr Norton. “A corporate treasurer wants to see the whole picture across their products – trade finance, cash management and so on. And they want to see and use that data in a dashboard in a consistent way. That is customer centricity. That is what banks need to deliver and most are a long way from that vision.” 

“The technology that underlies this is partially to blame,” says Tim Brew, global marketing director for financial services at CGI. Customer centricity, he says, has to go beyond delivering a superficial customer experience through new front-end systems by pulling together the underlying data from across the silos. “This is a classic example of where big data can come together and deliver real business advantage,” he says. 

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