Transaction banking revenues forecast to take a hit in 2020 before finding path to recovery.
Analysis by Coalition and Greenwich Associates estimates that global transaction banking revenue will decline by 6% year-on-year in 2020, compared to 2019, to reach $359bn. This is the same total as was achieved in 2016.
While 2019 saw the same level of revenue as in 2018, there has been a general trend of steadily increasing revenues over the course of the decade. Global transaction banking revenue stood at $323bn in 2010 and over the course of the decade saw a compound annual growth rate of 2%.
Asia-Pacific was the region with the fastest growing revenues until 2019; however, in 2020 it has become the region with the largest expected decline.
At a business line level, cash management is expected to see the largest drop in revenues (when compared to securities services and global trade), with a projected fall of 12%. This is based on lower payment volumes, lower travel and entertainment expenditures and rate cuts across major economies that have impacted margins.
The 8% projected year-on-year decline in global trade revenue is perhaps less severe than could have been expected, given the significant disruption that international trade has faced during the year.
Coalition Greenwich’s ‘Banking after Covid-19’ paper, however, does not anticipate there being a long-term drop in revenues, projecting a return to growth in all three business areas and global regions in 2021.
For cash management, it projects a 6% year-on-year increase based on a relatively rapid recovery in volume and the positive impact of stabilising interest rates on expanded deposits. The paper also suggests that in future, if the interest rate environment remains challenging, banks may need to consider reintroducing fee-based models within cash management, in order to preserve profitability.
For global trade, its pre-Covid growth trajectory is expected to be restored as global trade gradually normalises. Although supply chain financing is expected to outpace traditional trade finance as a revenue driver, as corporates re-examine and adjust their supply chains in light of this year’s events.
In security services, there is expected to be gradual growth, driven by innovation in new fee-based products and exchange-traded funds servicing, among others, and a post-Covid surge in demand for outsourcing. Longer term, the paper suggests banks will need to consider how they can integrate their securities services offering into end-to-end platforms which can provide a full suite of services, from trading and execution through to post-trade and ongoing performance management and risk control — or at least how they can compete against/partner with platforms which are able to provide an integrated offering.
