The annual Sibos conference provides an ideal opportunity for transaction banking leaders to take stock of an industry that has over the past year seen notable geographic shifts, a greater focus on the client, and a reinvention of market infrastructures.

Another year, another Sibos. As in previous years, the annual conference of the Society for Worldwide Interbank Financial Telecommunication (Swift) is a chance to take a temperature reading of the transaction banking industry. And this year, thousands of delegates will gather in Dubai, the first time Sibos has been hosted in the Middle East. 

Last year all eyes were on Japan, which, as well as hosting Sibos in Osaka, played host to the annual meeting of the International Monetary Fund in Tokyo. Those eyes, however, soon moved away from Japan and onto China, which withdrew from the meetings in protest over a territorial dispute between the two countries. 

China’s largest banks have been climbing up the rankings of The Banker’s Top 1000 World Banks ranking and have similarly become more noticeable in the transaction banking industry. At Sibos 2011 in Toronto, their stands were prominent and the Chinese banks seemed intent on making it known that they were serious players in the global transaction banking industry. Their absence in Osaka was noticeable and made Sibos 2012 a quieter affair, especially as many other international banks were wanting to show off their growing renminbi business. 

Changes afoot

The Chinese banks are back on the exhibitors list for this year’s event in Dubai. As the industry comes to gather again at Swift’s annual event, it would be easy to think that it is business as usual. While the familiar routine of business meetings with financial institutions will continue, there are larger shifts that are at work in the industry. 

Fundamental changes are under way in terms of how trade patterns are shifting, how transaction banks are thinking about their customers and how the underlying market infrastructures are reinventing themselves. 

The global economy’s centre of gravity is shifting to Asia, and the transaction banking industry has developed rapidly to support this growth, with Singapore developing as a transactions centre for the region. 

Although Dubai’s transaction banking industry does not have the same size as Singapore’s, it has firmly developed as the hub for the Middle East. Strategically located as a trading centre between East and West, Dubai is benefitting from China’s increased trading with the rest of the world, as well as growing investment in Africa. Where once transaction banking in Dubai was dominated by international banks, however, now local banks in the United Arab Emirates are carving out a role for themselves and have been updating their cash management platforms. 

Customer at the centre

Changes are under way in the wider industry, not just in the product development of such technology platforms, but in how transaction banks interact with their customers. The industry has long been focusing on products such as payment solutions and cash management platforms, but now work is under way to build new models of customer centricity. 

Pre-crisis transaction banking was viewed as a cost centre that provided the nuts and bolts of transactions services and was often overshadowed by banks’ desire to win investment banking deals. In recent years at Sibos, the industry has blossomed along with the recognition that transaction banking is a revenue-generating business that is less intensive on capital, and a provider of stable returns. With that development, the industry is now shifting its focus away from selling products to providing solutions. Customer centricity and customer experience – concepts familiar to the retail banking industry – are now the holy grail of transaction banking. 

Such a task is easier said than done, however, and doing customer centricity well involves a huge transformation for banks, which now have to reorganise themselves to align their different divisions to focus on their clients' needs. 

Transformation is occurring elsewhere in transaction banking, particularly in the market infrastructures underlying the industry. Market infrastructures are now re-inventing themselves to adjust to the changes that are being brought about by Target2-Securities and the finalisation of the European Commission’s regulation for Central Securities Depositories (CSDs). Among the changes, the industry is witnessing custodians entering the CSD space while CSDs are moving in the other direction and looking to offer custody services. Competition and choice is expected to flourish in the post-trade industry with services being unbundled and the harmonisation of the patchwork of arrangements that currently exist in Europe. 

It may be another year and another Sibos, but beneath the surface of the familiar routines of the annual convention, there are significant shifts occurring and new models forming. 

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