The opportunities in the global transaction banking space may be numerous but, knowing the high costs associated with technological and regulatory changes, most banks are pursuing a specialist strategy rather than trying to capture every segment of this attractive market.
As one of the few relatively reliable sources of revenue in the banking sector at present, global transaction banking (GTB) is enjoying something of a renaissance. Margins may be under pressure, in line with general market trends, but banks that are actively seeking ways to differentiate themselves from competitors are finding new approaches to vie for clients.
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The reasons for making operational, product and service investments in the GTB space are compelling, especially at a time when impending regulatory deadlines are forcing banks to reshape and redefine other business units, such as trade finance, which is being impacted by the key ratios being brought in under Basel III.
Of course, regulation is having an impact on GTB as well. But the over-riding market sentiment is that it is a business area offering long-term growth and revenue opportunities. As Enrique Jiménez-Hererra, head of the global transaction banking unit at Spanish bank BBVA, says, GTB emerged from the crisis as a more re-enforced business, unlike trading and long-term lending, for example.
Niche markets
The prospect of long-term client relationships, emerging trade corridors and better synergies between banking operation units as a result of technological advances is encouraging banks to fine-tune their transaction services to capture some of the revenue potential.
Instead of expanding to make themselves into a global brand, many banks are steering towards specialist markets, looking to carve out a niche that differentiates them from competitors by offering a unique selling proposition. This proposition may place an emphasis on certain products, services or regions, and is sometimes even targeted at specific client profiles.
This is creating a new world order that highlights not only the possibilities offered by new methods of client engagement but also those opened up by new technological advances. Market trends are also bringing to light the fact that the emerging markets, especially those in Africa and Asia, are a force to be reckoned with in the world of international banking. Local banks in these emerging markets are fast establishing themselves as regional super powers, and they are benefiting from the fact that a number of US and European banks have sold what they now consider non-core assets in their overseas markets.
Further aiding regional expansion in south-east Asia is a project to integrate the economies of the Association of South-east Asian Nations, which has a targeted end-date of 2015. When it is realised, this will allow banks in these regions to operate across borders seamlessly and, for banks such as Australia’s ANZ and Malaysia’s CIMB, it will facilitate regional expansion. Of course, there will still be challenges to overcome in establishing a regional franchise – each market has individual needs and localised regulations – but these are all manageable obstacles for banks.
Global game
At the other end of the spectrum are the global banks, such as Bank of America, BBVA and Barclays. These players have also recognised the benefits of a product-specific, service-specific or region-specific approach to transaction banking.
GTB has become one of the main pillars of their strategy to drive fee-based income in many global banks. For BBVA’s Mr Jiménez-Hererra, GTB is not only a relevant business, but also one of the key priorities for the bank’s corporate and investment banking unit.
For Standard Chartered, which has traditionally focused on emerging markets, it is now reaping the benefits of both its expertise and physical presence in these markets. Karen Fawcett, group head of transaction banking at Standard Chartered, says that the bank’s transaction banking strategy has not changed.
“We still serve corporate and institutional clients for and in Asia, Africa, and the Middle East," she says. "We have teams on the ground as well as teams that serve clients from the US, Australia, Europe and Japan that are coming into our key regions."
Ms Fawcett says that the bank’s core goal is to “deepen the relationships it already has with its clients and continuously look for opportunities to add value through services within transaction banking as well as the other business units across wholesale banking, [such as] financial markets, corporate finance and private equity.”
Up to pace
Whatever their growth strategy, to achieve long-term success in the GTB market, banks must ensure that they remain competitive and up-to-date in terms of technology. Given the pace of change, existing technologies must be constantly reviewed and, when necessary, replaced. Technology must also remain flexible; the platforms that are utilised in the international banking business must be able to support the design and launch of localised products as well as be able to fit in with specific strategies.
This is easier said than done, especially considering that banks are also having to invest in regulatory compliance at the moment. But, as SEB's global head of global transaction banking, Lars Millberg, says: “Once we have made all of these mandatory investments, we need to make sure the remaining investment capacity is spent wisely to bring more value to customers.”
