The Banker surveyed some of the leading lights in the world of global transaction services to get a sense of how 2010 is likely to pan out. The results suggest a difficult year for transaction bankers, with as many challenges as opportunities. Writer Charlie Corbett

Bankers are approaching 2010 with a marked sense of cautious optimism. Few dare to predict an end to the global economic downturn, but there is a strong sense that the worst is over and that this year will be one where business begins to get back to normal for the financial sector.

For those bankers that worked in the fee-based transaction services division of banks, it has, relatively speaking, been a good recession. Management has become acutely aware of its value to a bank's bottom line and the steady source of defensive revenues in times of economic hardship has not gone unnoticed. A shortage of liquidity lay at the heart of the crisis and so effective cash management has been critical to companies across the globe. Those banks with the relevant expertise in this area have thrived in a recessionary environment, eking out much-needed liquidity for a thirsty client base. That is not to say, however, that there are not big challenges ahead. Competition is rife and the big global transaction services providers are fighting it out for market share like never before.

A costly business

The gamut of products and services that go into making up the transaction services division of banks offer little in the way of margin. The technology required is prohibitively expensive and the scale needed to operate at any kind of profitability, when it comes to services such as payments and cash management, is beyond the reach of most small or medium-sized banks. Not only this, but as a result of the recession, corporate treasurer clients have become increasingly sceptical of banks in general and are demanding more and more from their relationship banks, at lower prices.

The boot appears to be firmly on the other foot as corporates, struggling through the worst trading environment for a generation, lay the blame squarely at the door of the big banks - no matter what their actual level of guilt - and demand better treatment in the future. This fact was made startlingly apparent at last October's Eurofinance international cash and treasury management conference in Copenhagen. An ad hoc survey of an audience of 100 or so corporate treasurers revealed that almost 60% believed their banks were not doing enough to help them during the downturn. A survey of the same audience showed that 62% of them believed debit and credit spreads had widened as a result of the crisis.

In the words of Philippe Santin, chief financial officer of industrial products manufacturer Dover Corporation Europe, banks should "listen to their customers more rather than just push products".

Uncertain outlook

Add to these difficulties a whole raft of new regulation, particularly in Europe, and the outlook for 2010 looks to be one in which banks will need to continue to invest heavily, while attempting to eke out as much margin as possible.

The Banker surveyed a series of senior transaction bankers from across the world and asked them about the issues outlined above. Top of the agenda was regulation. It is eight years since the Single Euro Payments Area (SEPA) was first mooted and yet bankers and regulators continue to debate whether or not it is a reality. Despite the creation of SEPA more than two years ago, the UK's Financial Services Club still felt the need to host a debate last month entitled 'Is SEPA happening and does it matter?' It should matter. November 2009 saw the implementation of the Payments Services Directive (PSD), which is the legal underpinning of SEPA, and set in motion the framework for supposed SEPA direct debits. As this survey shows, however, most bankers remain sceptical.

cp/73/Long Andrew.jpg

Andrew Long, head of global transaction banking at HSBC

cp/73/Burkie, Michael.jpg

Michael Burkie, head of corporate business development, treasury services EMEA for BNY Mellon

cp/73/Steinmuller Werner.jpg

Werner Steinmueller, head of global transaction banking at Deutsche Bank

Q: What is your outlook for SEPA and the PSD?

A:

Andrew Long, head of global transaction banking at HSBC

Until a defined end date is set for SEPA, we will continue to see relative indifference to the whole story by corporate customers. These same customers have, over recent years pre-SEPA, invested time, money and intellectual capital in creating pan-European payments capabilities. Why should they throw it all away - unless forced to do so?

Michael Burkie, head of corporate business development, treasury services EMEA for BNY Mellon

PSD is now a reality and although we are fully compliant, we are holding an increasing number of discussions with other financial institutions that are concerned about their loss of revenues due to PSD, while still having to support their legacy back-office infrastructure costs. These conversations are leading to an increasing amount of collaborative partnerships, which are enabling both parties to bring economies of scale and coverage to our respective clients. SEPA is still hazy in some of the granularity that we would have expected to see by now, but once it is finalised, no doubt, it will increase the pace of these collaborative conversations across the eurozone.

Werner Steinmueller, head of global transaction banking at Deutsche Bank

This year will be a decisive year for SEPA as we expect progress on decisions regarding the end dates for the legacy national payment systems. Once these have been set - providing the necessary transparency for all stakeholders - both banks and users will be able to move ahead with their migration plans. For the PSD, we expect the remaining countries which have delayed transposition to 2010 to proceed with implementation as quickly as possible, in order to ensure a common legal framework for payments in Europe. In practical terms, there is still some work to be done in most countries to adapt the interbank rules to the new legal environment.

Francesco Vanni d'Archirafi, head of global transaction services at Citi

I see the next stage for the PSD and SEPA as one of adjustment as the market absorbs these major structural changes. In the case of the PSD, a key milestone will be when the remaining countries complete their national transpositions. Regarding SEPA... it is to be hoped that 2010 will see political agreement on setting an end date to kick-start the process towards full migration.

Karen Fawcett, group head of transaction banking at Standard Chartered

The harmonisation of regulations is good for clients. We believe that in the long run, SEPA will make the EU more competitive and we want to make sure our clients benefit. We want to make sure the benefits of the standardisation of processes in the eurozone flow to clients in our franchise markets - Asia, the Middle East and Africa.

Q: What is your biggest priority for 2010?

A:

Andrew Long

Customers are always important but in 2010, after 18 months of economic gloom and with a very mixed outlook, economically, our customers expect much of us. Accordingly we are looking... to improve clients' ability to recognise where cash is in the system and to gain value from that cash, and to continue to invest in big processing engines to improve efficiency.

Michael Burkie

The biggest priority we have is to continue our current momentum of building more collaborative links with many of our leading clients. These clients are experiencing a number of very challenging issues, whether PSD, consolidation of markets or growing regulatory overheads. Each new challenge deflects energy and resource in our clients from their main focus - their clients.

Werner Steinmueller

Investing in our global footprint will be central to ensuring we continue to show strong growth in the coming years. When our clients seek to expand into new markets, we aim to be there with them - we are currently expanding our presence in the major growth markets in Europe, the Middle East, China, India and Latin America.

Francesco Vanni d'Archirafi

We are committed to continuing to invest in our platforms and solutions. We are focused on expansion in our highest priority markets while strengthening our global network, and we are continuing expansion of our services to best address the evolving needs and priorities of our clients.

Karen Fawcett

As economic power shifts from West to East, we believe we have a real opportunity to help clients looking to tap into the opportunities in Asia, Africa and the Middle East. We want to continue to strengthen our position as the best operating bank for our clients in the emerging markets. We focused on existing clients in 2009 and used our balance sheet and strengths to help them through the crisis. This year clients still need support getting back to pre-crisis levels. Managing risk, delivering good service and continuing to capture market share remain key priorities.

cp/73/Vanni d'Archirafi.jpg

Francesco Vanni d'Archirafi, head of global transaction services, Citi

cp/73/Fawcett Karen.jpg

Karen Fawcett, group head of transaction banking at Standard Chartered

Q: How has the market evolved since this time in 2009?

A:

Andrew Long

The stability of the banking system is no longer in question, nor is the viable existence of the major transaction banks.

Economically, however, there are winners and losers with the developed world continuing to evidence a hangover from 2008, while the south-south, emerging markets story is looking stronger and broader-based than 12 months ago. China is key but no longer stands alone as the saviour of the global economy.

Michael Burkie

The biggest change we see since this time in 2009 is a greater 'flight to quality'. We are also seeing a growing number of banks starting to re-evaluate their transaction banking model, as many have come to again appreciate the value of stable annuity business. For some, this will pose renewed operational challenges.

Werner Steinmueller

Last year was a difficult year. The key difference from this time last year is, of course, that we are now emerging from recession and hopefully returning to a period of relative stability and growth.

Francesco Vanni d'Archirafi

Today we are seeing a return to confidence and investment in the future by our clients, but resources are tight and margins are slim. For our corporate clients, 'cash is king' and they are focused, up to the CEO level, more than ever on working capital efficiency. For financial institutions, the crisis has caused many firms to look more closely at what are their core strengths - what they want to continue to do themselves, and what they outsource to other providers.

Karen Fawcett

Market conditions have forced companies to look for more effective ways to manage their working capital. Risk and exposure remain key concerns. In the area of cash management, we continue to see clients looking for ways to address their payments, receivables and liquidity issues seamlessly across borders, so that is a great opportunity for us. Corporate clients also want greater visibility and control of their cash pools. The trade finance industry has evolved. What clients want now are services that improve sales and procurement processes as well as mitigating payments risks - rather than just cheap financing. Overall, clients want services that are smoothly integrated into their working capital processes and solve real problems for them. It's not about selling solutions piece-meal.

Q: What is your biggest concern for 2010?

A:

Andrew Long

A 'tsunami' of regulation, driven more by politics and emotion than by reason, is a significant threat. Should the flood arise, banks will be forced to direct people and investment to respond to the regulators at the expense of the customer.

Michael Burkie

Our biggest concern remains the potential imbalance in the market between banks which are still supported by governments and those which are standing on their own. This imbalance is still affecting the appetite for risk, which in turn is impacting the growth plans of both banks and corporates.

Werner Steinmueller

Balancing growth with risk awareness and control will be a focus for many of our teams in the coming months. Unsurprisingly, in 2008 and early 2009 there was a strong bias towards the former and that is now beginning to change. However, even though the global economy appears to be entering recovery in earnest, striking the correct balance between the two remains crucial.

Francesco Vanni d'Archirafi

A key concern for our business will be the market environment. Both interest rates and capital markets activity are key drivers for our business. We will carefully be watching the direction of interest rates, commercial and capital markets flows activity and the growth of global trade driven by overall global economic growth.

Karen Fawcett

In 2009, clients were concerned about risk, liquidity and control. They needed services that created value in these areas. This year, these issues are going to be just as important. Clients want insight into issues such as regulatory changes and their impact. Most importantly, we remain focused on helping clients get back on their feet.

Q: What will differentiate the winners from the losers in global transaction services for 2010?

A:

Andrew Long

Winners will have deep pockets for investment, open ears to listen to the needs of their customers and eyes wide open to spot trends in technology, regulation and economics. Above all, an acceptance of 'change' will be critical as the market demands flexibility going forward from its service providers in the transaction banking space.

Michael Burkie

In two words: nimbleness and adaptability.

Werner Steinmueller

Those providers that have continued to invest in platforms and systems will be the ones that emerge as winners. This is essentially a scale business so keeping marginal costs to a minimum is key, as is continually innovating and adding functionality in order to reduce costs for corporates and generate revenues for financial institution clients.

Francesco Vanni d'Archirafi

The winners in any industry are those that understand their clients' needs and continue to invest to meet those needs as they evolve. I always like to say that when our clients win, we win.

Karen Fawcett

Banks that have consistently stayed open for business and supported their clients through the crisis will have an advantage. Banks that are totally focused on their clients will too - and that means not just front office and middle office but support functions as well. Standardisation is increasingly important. Banks with standardised platforms across countries and networks can offer clients a very clear-cut value proposition. Finally, banks that can offer clients unparalleled access to the opportunities in the emerging markets will also be in a strong position.

Key issues for 2010:

- Client relationships

- Dealing with an expected 'tsunami' of regulation

- Technology investment

- Embracing the Single Euro Payments Area and the Payments Services Directive

- Staying ahead of the competition

- Emerging markets focus

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter