A focus on individual key strengths, both in terms of products and geographical footprint, is the driving force behind big banks’ global transaction banking business strategies as they search for a unique selling point in an increasingly competitive market.

It is not surprising that transaction services, as well as particular businesses within the sector such as cash management, are a hot business. Relationships are based on annuities, so unless the client decides to switch banks, the global transaction services (GTS) business can be one of the most predictable areas for revenues. Growth in one product leads to growth in another. “But margins vary from year to year in the business everywhere,” says Standard Chartered’s group head of transaction banking, Karen Fawcett. Five years ago, margins on cash were twice what they are today, she says. Returns continue to be repressed, but there is valuable liquidity in the market.

“The liquidity you get from global transaction banking [GTB] is sticky. It is on the operational account, rather than the excess cash, which tends to go into fixed or structured deposits. We deal with operational accounts – it is more about the daily activity of clients. So as long as clients operate, we get business from them. This is the reason GTS is now in vogue in the industry – revenues are assured,” says Ms Fawcett.

Finding a specialism

The predictability in revenues from GTS encourages banks not only to look for the best possible products and services – creating a portfolio of services based on in-house and third-party solutions – but also to look for more cross-selling opportunities to deepen client relationships and acquire new clients. Investments are also needed to keep apace with all regulatory and compliance changes.

Changes to the securities market, particularly the Single Euro Payments Area and Basel III, are putting pressure on the overall GTB market, says Enrique Jiménez-Herrera, head of the GTB unit at Spanish lender BBVA. But compliance-related investment also provides an opportunity to capture new business, he adds.  

Balancing the costs incurred from investing in regulatory compliance is thus weighted against structuring products to offer the best possible returns for clients. This makes liquidity management crucial for both banks and corporates, as both pile up cash but also have limited investment opportunities.

SEB follows its market 

A focus on available and established strengths, rather than trying to gain global mass with a large footprint or a wide range of products, has thus become a common strategy among major banks. It therefore makes sense that banks are looking to spend their remaining investment capacities, after complying with regulations, “to bring value to customers,” as Lars Millberg, head of transaction banking at Sweden's SEB Merchant Banking, describes it.

He says the Nordic industry has traditionally had large corporates that go outside of the domestic markets as growth within the area is limited, and so SEB follows corporates into the regions in which they operate. For the first 140 years of SEB's existence, the bank focused on Swedish corporates. For the past 20 years, it has been growing its client base outside of Sweden. In the 1990s, for instance, SEB bought a retail bank, BFG, in Germany. Last year it sold the retail division to Santander.

SEB's focus is now on clients with a base in the Nordics and Germany, or clients with significant business in the Nordics for whom the bank caters on a global scale. It has branches in 17 countries, including Hong Kong, London, Singapore and the US, and the merchant banking division’s total income is increasingly being generated outside of Sweden.

Commerzbank's good relations

Germany's Commerzbank has no regional or autonomous subsidiaries. Instead, it has 7000 correspondent banking relationships that enable it to cover risk areas that other banks are unable to meet, according to Klaus Windheuser, the bank's head of cash management and international business.

“Our connectivity strategy for corporate banking is bilateral – we follow our German and Polish clients into the countries they expand in. Those are countries where we build commercial branches. Then we also follow clients from those countries into Europe and other markets, if they are active in Germany and Poland,” he says.

Part of Commerzbank’s expertise network is Africa, although it also has a focus on Latin America and Asia. “We never left Africa, not even during the 1980s when the debt crisis swept through the continent," says Florian Witt, the managing director and head of Commerzbank Africa's financial institutions business. "Many foreign banks then exited the market and we too re-adjusted our risk management, but we stayed there.” 

With its 143-year history in trade finance and 61-year long presence in Africa, Mr Witt says Commerzbank understands the potential of trade finance in and for the continent, something he believes the bank's competitors lack.

“Big players, such as Commerzbank, in growing markets such as Africa will continue to be able to compete. Smaller players, those currently in 10 to 12 out of big 15 markets, will probably exit the business because they cannot analyse the risks properly and end up with standard approaches – as individual approaches are expensive,” adds Mr Witt.  

Commerzbank has a team of 50 people in its risk management unit, six bureaus and 500 correspondent banks in Africa, “something you can only keep up if you have strong compliance checks and processes”, says Mr Witt. “For other banks, focusing on so many individual banks as partners may not be worthwhile in the trade finance business.”

Barclays' wide reach

Africa is also a big market for UK bank Barclays, although it does not have a distinct GTB business unit. Instead, it is organised as a corporate bank with product lines of business, such as cash management, trade and debt. In 2012, Barclays extended the responsibility for corporate banking to include its South African subsidiary Absa, meaning it now has a cash management team for the corporate banking division covering the whole continent and transaction banking and liquidity management services, and the bank’s full range of channels.

In terms of cash management, Barclays' major markets are the UK and South Africa and its total network covers the rest of Europe, Middle East and Africa (EMEA) plus North America, giving it a presence in 23 countries, as well as a further 17 countries covered by its strategic partner bank agreements.

In EMEA, the bank’s focus is on cash management and trade services, with a link to its US operations, “so that we can provide local support to US multinationals buying transaction services across EMEA”, says Richard Martin, head of transactions product management, global cash management, at Barclays.

While it continues to develop its business in Africa, Barclays’ trade team is expanding across Asia as the bank looks to facilitate trade flows between Asia and Africa. It is also making use of new technologies in the retail banking space. Recently, it converted its mobile payments app Pingit, which is available for retail customers in the UK, into a collections service for corporates, and is looking to extend this service to include disbursements, although Mr Martin says it is unclear when exactly this will be available.

As well as its substantial branch network in Africa, which Barclays is looking to expand further across the region through strategic partner banking relationships, the bank also has partnerships in Scandinavia and in 12 countries in central and eastern Europe.

Extending BAML

Bank of America-Merrill Lynch (BAML) also follows clients into new markets and it has, over the past four years, invested approximately $1bn outside of the US in new product releases, infrastructure and technology. Significant investments have been made in foreign exchange, trade, custody and cards, both in the US and abroad. At BAML, GTS is made up of cash management, liquidity, payments, receivables, trade, custody and cards, a business that has been growing impressively over the past few years, according to Paul Simpson, BAML's head of GTS.

BAML's GTS unit works closely with its corporate and investment banking teams. In 2011 and 2012, it employed about 200 people in Asia alone, solely dedicated to the technology and operations platform, Mr Simpson says.

Investments were not just made for regulatory compliance reasons but “to be ahead of the market in serving and advising our clients about doing business within the new regulatory framework,” says Mr Simpson. One heavy investment was in foreign exchange capabilities across the entire client base.

Mr Simpson says that the bank provides clients with both on- and off-balance-sheet opportunities to deploy their cash. “Large corporate clients tend to deposit large volumes of cash with us. We offer these clients off-balance-sheet products, such as corporate bonds and investments in money market funds or in our own propriety funds. Both the middle market and large corporate clients are all starting to avail themselves of these opportunities,” he says.

In terms of geographical focus, Mr Simpson cites Brazil as a key market. Over the past few years, BAML has employed 60 to 70 new GTS and corporate bankers in the country and recently introduced a liquidity investment product that gives clients a real-time valuation of their deposits in local currencies.

Last year, BAML also joined up with the Hong Kong Monetary Authority to promote the Hong Kong’s offshore renminbi financial platform to Brazilian corporates and financial institutions. “The Latin America-China corridor is bilateral and we are looking to capture growth in both directions,” says Mr Simpson.

Settled strategy

Two banks that have established their own particular niches are Standard Chartered and BBVA. Standard Chartered has always focused on what is now known as the emerging economies, while BBVA has always been present in Latin America.

At Standard Chartered, where GTB makes up between 30% to 35% of wholesale client banking revenues, the GTB strategy has not changed, says Ms Fawcett. “We still serve corporate and institutional clients for and in Asia, Africa and the Middle East. We haven’t really added new products to our offering, but we did get better at what we do,” she says. 

This means that the bank first chooses a client and then works out suitable services and products from its four main product lines: cash management, financial markets, securities and trade finance. Besides its Asia, African and Middle Eastern footprint, the bank also has teams serving clients from the US, Australia, Europe and Japan that are coming into its key regions.

At BBVA, GTB is part of the corporate investment banking unit, which also includes global markets, corporate finance business, structured lending and syndicated lending. Within GTB, the bank focuses on working capital-related products and services, such as trade finance, liquidity management and the deposit business. Clients include small and medium-sized enterprises (SMEs) as well as large corporates. For SMEs, the bank offers specific product management services and trade finance.

GTB is BBVA's main business and a priority in the corporate banking unit, according to Mr Jiménez-Herrera. He says the bank has a physical advantage thanks to its existing presence in different regions, including Asia, in both retail and corporate banking. The way he sees it, GTS is still a global business, but BBVA gives it a Latin American twist. Its business in the US, Compass, also helps with BBVA's ambitions in trade finance as the bank can leverage the US network and its Latin American expertise.

“We have been investing a lot in trade finance in the past five years. We have been active in trade finance for many years and are increasing our efforts to foster this business, not only for big corporates but also for SMEs,” says Mr Jiménez-Herrera.

He also notes that in the past five years bigger corporates have started asking for several solutions that can be used across their footprint worldwide rather than just the one. “These corporates would prefer to have no more than three banks that can operate on an integrated platform that has a high level of common IT structure," says Mr Jiménez-Herrera.

Such a demand, of course, incites banks to carve out a unique selling point to retain and acquire clients. And it also spurs on innovation, something high on the agenda at all banks.

Thinking outside the box

One bank that stands out in particular when it comes to the provisions of solutions is SEB, which has gone as far as setting up a transaction banking innovation structure where it crosses product disciplines to find hybrid solutions. “You take an e-invoicing [expert] and put them with a person from receivables to solve a client demand and see what comes up,” says Mr Millberg of the new structure.

The idea is to encourage bankers to spend time focusing on things that have not been on their agenda before. If someone has an idea, they gather colleagues into a lab. After the discussion, if an idea develops, they write a short memo of what the goal is and what it would achieve, and then submit it to a portal. People can then like or dislike it.

After the idea is screened to see if it fits the strategy of the bank, it is then sent to a committee, which will consist of six or seven people that get together twice a quarter to listen to the ideas. If the idea receives approval, the developers of the idea get the go-ahead. “We see an increased number of ideas coming through. Since January 2012, we have had approximately 80 ideas presented to the committee,” says Mr Millberg, who chairs the committee, which is made up of senior employees from different areas of SEB.

“This is our way of trying to find the next generation of products by allowing the entire organisation to think of new products. One of the tools that has emerged from the innovation lab is an app that allows the monitoring of liquidity forecasts,” says Mr Millberg.

BAML has a similar approach. Its global banking platform, CashPro Online, which has more than 40,000 clients and nearly 400,000 users, is integrated with the custody, foreign exchange and corporate banking businesses. In 2004, the bank established the CashPro Advisory Board, which compromises 25 large corporate and middle-market clients from different industries. BAML also created the Global Client Advisory Board “to spearhead leading-edge thinking on treasury issues, while facilitating idea sharing, debate and innovation,” says Mr Simpson. Members of the board include corporate treasurers and chief financial officers from around the world and Mr Simpson says the board helps ensure that any product innovation is commercially viable from day one.

Back to basics

But although regulatory compliance and innovation are crucial, getting the basics right is paramount. Mr Windheuser says Commerzbank finished a strategic project last year and concluded that GTB may eventually include new technologies such as the cloud and mobile payments.

“But the core business remains the same: payments, operating and financing trade including coverage of country risk and cash-flow management. The bigger trend is growing trade volume and the internationalisation of the workforce. That means, you are getting more and more SMEs in international trade, which is good news for banks such as Commerzbank that can advise these smaller corporates as they expand abroad,” he says.

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