Target2-Securities, a still-sluggish economy in Europe, technological challenges, the rise of Bitcoin, an increase in project volumes and trade finance, developments in Asean, what next for the renminbi? No one is really sure what the big topic for transaction banking in 2015 will be, as Jane Cooper discovers.
This time last year it was all about the ‘r’ word. Ask people what they thought would happen in transaction banking in the coming months and their answer would in some way be related to regulation.
As the transaction banking industry looks ahead to 2015, however, the outlook is more diverse and senior executives have different views of what the hot topics will be in the coming months.
T2S implementation
At Sibos – the annual conference of the transaction banking industry – which was held in Boston in 2014, The Banker asked senior transaction bankers what they expected the industry to be talking about in 2015. The variety of responses shows how the industry has moved on from giving similar answers that were related to regulation, implementing regulation and assessing its impact.
One regulatory deadline that stands out in 2015 is that of Target2-Securities (T2S), the initiative in Europe to harmonise the post-trade settlement landscape so that different markets in Europe are working to the same standards. The project, which began in 2008, will be implemented in four waves, with the first scheduled to be completed in June this year.
Álvaro Camuñas, head of Spain, Portugal and Latin America at BNP Paribas Securities Services, expects T2S to be one of the major topics at Sibos 2015, which will be hosted in Singapore. “Sibos in Singapore is going to be in October, and June 2015 is the first wave for countries to join T2S. I’m sure that it is going to be a huge celebration of a big success – of probably one of the biggest financial projects that we have had in Europe,” he says.
The tone is different for Thomas Zeeb, chief executive officer of Switzerland-based SIX Securities Services. He expects to see a “post-mortem on how T2S has been implemented in the first wave and whether that is a model for Asia. I don’t see it at the moment, but there will be lessons learned coming out of the implementation,” he says.
Subdued economies
Aside from the industry-specific regulations, transaction bankers are working in a macro-economic environment where the outlook is uncertain and there are numerous questions, such as when and how quantitative easing will be tapered.
One issue that Stephanie Wolf, head of global financial institutions sales, global transaction services, at Bank of America Merrill Lynch, highlights is interest rates. In 2015, she says, “I hope we are talking about rising rates and the fact that interest rates have actually begun to rise in the US and in other countries where there are record-low rates.”
The wider economic environment is having an impact on how corporates and banks go about their business, according to Claudio Camozzo, co-head of global transaction banking at UniCredit. “In Europe, a subdued economy at home means corporates will look to other regions for growth," he says. "To support this, transaction banks will put ever-greater emphasis on the relationship approach, which really comes into its own when clients embark on strategic initiatives. For example, a European corporate expanding into the US or Asia will need to manage treasury activity, foreign exchange risk and supply chain across the continents and a reliable partner bank can help make the move less challenging.”
On the increasing importance of transaction banking, Mr Camozzo says: “Transaction banking is a priority for many banks due to its reliable and sticky customer relationships and combination of interest and fee income.”
Tech focus
This does not, however, mean that banks can be complacent about the competition. Tod Burwell, president and CEO of the Bankers’ Association for Finance and Trade, says that in 2015 the transaction banking industry “will be talking about the new players in the industry and how the business has evolved. One of the things we are seeing pretty much across the board is a significant change in how business gets done. I think that’s going to have a big impact on how banks operate.”
Carole Berndt, head of global transaction services at RBS, says: “Technology is lowering the barriers of entry to alternative payment and currency providers, while banks need to invest more in systems to meet regulatory and risk controls. Aspirations of global supremacy and a global, one-stop corporate and investment banking shop is giving way to the reality of constrained returns and resources.”
Technology will continue to be a major theme at Sibos 2015, according to Stuart Tait, global head of trade and receivables finance at HSBC. “There’s a lot of great work under way by various firms and the banks. I think we will have moved from concept stage into reality as people get more comfortable with some of the changes that are occurring,” he says.
Cyber security as well as virtual currencies are two of the main issues that Peter Ware, director of the Swift Institute, expects to be discussed in 2015. While Bitcoin may have been a novelty topic a couple of years ago, transaction bankers are now having to give it serious thought about what this – and similar protocols – mean for their payments business.
The positives
The outlook for payments volumes is positive, however. A global payments report published by the Boston Consulting Group and Swift estimates that the value of non-cash transactions will have a compound annual growth rate (CAGR) of 7% and reach an estimated $780,000bn by 2023. In the same time frame, the report estimates that payments revenues will reach an estimated $2100bn, a CAGR of 8%.
It is not just payment volumes that are projected to increase in the coming years, but also trade finance. According to research by Greenwich Associates, the use of international trade finance by corporates in western Europe continues to rise and corporates from the region are now using more banks than in previous years.
In terms of the leading providers of trade finance in Europe, Greenwich Associates places BNP Paribas, Deutsche Bank and HSBC in the top three by market share, with Commerzbank, Nordea, RBS and UniCredit next. The report also notes that European corporates are present in more regions than their peers in Asia or North America, which means that Europe-based banks need to have a broad network so they can serve their clients in various international markets.
Moving beyond Europe, the outlook for global trade was not rosy in 2014. George Nast, Standard Chartered’s global head of product management, transaction banking, says: “[In 2015] I think we’ll be talking about the recovery of trade. It’s been flat over the past 18 months or so but we expect to see it to come back over the next year and we’ll be talking about how we can take advantage of some of the new corridors that are opening up, particularly within the Association of South-east Asian Nations region, where we expect to see continued and significant growth.”
This optimism regarding south-east Asia is shared by Pascal Augé, head of global transaction and payment services at Société Générale, who also mentions the new trade corridors in Asia as a major talking point for the coming months.
Where next for the renminbi?
At HSBC, Mr Tait has a different perspective, where he expects China to be a major topic of conversation, particularly how the performance of China’s economy will impact upon global trade. Part of this story is the growth trajectory of the adoption of China’s currency, the renminbi, internationally. As Sibos 2015 will be in Singapore, Mr Nast expects that the renminbi will be a major topic, especially as the city-state is emerging as a regional hub for transaction banking as well as renminbi.
A transaction banker based in Singapore – Lisa Robins, Deutsche Bank’s head of global transaction banking in Asia-Pacific – also believes the renminbi will be a major topic. She also mentions other themes she expects will be big in 2015, such as “digitalisation, data protection, regulation and infrastructure related to how we support all of the above”.
Chris Lewis, global head of trade services at Wells Fargo, echoes the positive outlook of Mr Nast for global trade. “I hope one of the things we are talking about is the comeback of trade in the emerging markets – it was pretty flat in 2014. I hope in 12 months it will be a comeback story,” he says.
