Ask any one of more than 6,000 transaction bankers attending Swift’s 35th annual jamboree in Dubai how they feel about their business and the environment for banking more broadly, and most say “bullish” and almost all say “pretty good”.
Some don’t even have to say anything – a spring in their step as they scurry between one client meeting and the next in the vast, labyrinthine exhibition halls of the Dubai World Trade Centre says as much.
There are, from what they say, good reasons for this and it’s not because so many investment bankers have – whether under their own volition or not – switched to transaction banking and taken their boundless optimism with them.
Transaction banking, which includes everything from cash management, trade finance, securities custody and card payments, has seemingly come of age. Many of these bankers are even bold enough to call it “sexy banking”.
For bank chief executives, the new-found allure for this once dowdy business is a no-brainer: stable and substantial fee and interest driven revenues; high profitability with returns on equity as lofty as 60%; comparatively light demands on bank capital versus, say, investment banking; and an ability, through these businesses, to attract new clients and lock-in existing ones.
On revenue alone, some of the leading global banks, such as Citi, HSBC and JPMorgan, generate annual revenues in excess of $10 billion from this business. And yet Naveed Sultan, CEO of treasury and trade solutions at Citi, says there is room to grow and reckons up to $20 billion of revenues is possible.
It’s little wonder then that so many banks are clamouring to do more in this business. And given the context, when big banks are in essence trying to do more with less, it’s precisely the type of business bank CEOs are looking for.
Not one of the big international bank CEOs made the trip to Sibos, where almost every bank under the sun has a stand. However, it is perhaps symbolic that Samir Assaf, group managing director and CEO, global banking and markets, HSBC, gave the opening address on Monday. Jamie Forese, co-president of Citi and CEO of its institutional client group, is doing the rounds at Sibos too.
Assaf talked about how vital it is banks remain at the heart of economic growth by supporting the flows of goods and capital around the world, and that they could only do this effectively by adapting well to changing regulation.
One example of that, and particularly in minimizing costs related to new regulation, is for banks to collaborate more and adopt shared services.
“Know your customer (KYC) is the most obvious candidate [for collaboration],” said Assaf. “We all use the same data but there is no proprietary value in doing KYC. We should look at creating a KYC utility, which will save costs.”
That might seem a bold idea but it does play to a collaborative spirit among banks active in transaction banking.
Partnerships – where one bank strikes up a partnership with another bank in a region or country where it doesn’t have the capability to fully service its client or clients – are being forged by the likes of Barclays, Bank of America Merrill Lynch, Lloyds Banking Group, SEB, Société Générale, Standard Chartered and Wells Fargo, among many others.
It’s seen as the banking sectors equivalent of the oneworld alliance in the airline industry.
Lloyds’ recently announced partnership with Standard Chartered in Asia is a good example of this, and speaks to Assaf’s remarks about banks supporting global trade flows and collaborating with each other.
Under this partnership agreement, Standard Chartered will enable Lloyds Bank to directly issue import letters of credit locally in some 20 Asian markets, including core countries such as China, India and Korea. This provides Lloyds’ UK clients with the benefit of local language and time zones, as well as local document handling and local currency settlement, including Chinese renminbi.
Andrew England, head of transaction banking at Lloyds, says this partnership will help the bank to improve its product offering, accelerate its growth plans and forms part of a strategy to strengthen its “international partner network”.
Karen Fawcett, group head of transaction banking, Standard Chartered, is no less enthusiastic and says the bank is “delighted to be working with Lloyds to support their clients who are seeking access to the emerging markets of Asia”.
Such partnerships have been around for a long time but what is new is the transparency and openness around them and the spirit of collaboration between leading banks to work together for clients in the markets where they want access.
In the cut-throat world of investment banking, these partnerships simply would not happen for fear that clients would be pinched. Transaction bankers are fiercely competitive too, but their pragmatism is helping to forge a new approach to servicing their clients.
It’s banking, just not as we have known it.