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| Etienne Bernard, Head of Transaction Services Origination, EMEA, RBS |
Banks are responding to regulators’ demands by becoming more streamlined – automating processes and innovating to make their balance sheet as efficient as possible. Only the most agile banks will thrive in the heavily regulated, post crisis, landscape. The first and most obvious benefit of beefed-up regulations is a safer and more robust banking system. Local, European and global rules are raising banks’ capital buffers, cutting leverage and increasing transparency. They are ensuring banks fulfil their primary duty – safeguarding deposits.
But changes prompted by regulation go far deeper. By imposing a heavier regulatory burden, they are pushing banks to simplify processes and become far more efficient. Customers are already reaping the rewards.
In the area of transaction services, regulations now oblige banks to be far more comprehensive in their recording of client information The banking industry’s response to the mountain of information now required is eBAM – electronic Bank Account Management – a vastly quicker and simpler system that allows corporate customers to open accounts, initiate and track online requests and generate bank statements – all in just a couple of clicks.
Banks that truly grasp the scale – and opportunity – of regulatory change in this area are going further. The next generation of payments services will allow clients to reach right into the heart of their bank’s back-office, allowing them to do everything from modifying employee payments, tracking returned customer payments or checking the status of claims – all in real time. Despite the cost, the payoff is clear: simplify the client experience and banks will save money in the long run and free up time to invest in more meaningful relationships.
The regulatory push is also giving companies a far stronger negotiating hand on bank pricing. How? A regulatory squeeze on bank balance sheets means that unless banks are prepared to radically reduce their loan book they need to attract greater customer deposits.
Operational deposits are particularly desirable. Under Basel III – the regulators’ signature response to the crisis – banks only have to hold a liquidity buffer against 25 per cent of this type of cash compared with 40 per cent of non-operational deposits.
The Single Euro Payments Area (SEPA) – designed to simplify the transfer and collection of euros around Europe – will give a company an even greater bargaining chip in this respect. The EU initiative will give corporates operating across the bloc the ability to use a simplified structure when it comes into force next February. That means the operational balances flowing though that company’s bank – whether they be payments, collections or idle cash – will be that much larger.
The price of these deposits should be better terms on loan rates or other products for customers. Despite squeezed pricing, the prize for banks, in addition to operational deposits, should be more opportunities to offer advanced and value-added transaction banking.
In supply chains too, banks are innovating in response to new EU regulation to ease the pain of late payments, particularly for small and medium-sized businesses. The European Commission estimates a new directive, now in force across most of the Union, will free up some EUR180 billion into the European economy by limiting late payments to no longer than 60 days. To do that, banks are playing a crucial role by offering supply chain finance solutions – allowing the buyer to continue benefiting from extending payment terms while simultaneously freeing up liquidity for their suppliers earlier.
In those instances where regulation does not help but threatens to restrict, banks should also play a bigger role. For example, where an emerging country has restricted a foreign company’s ability to transfer funds cross-border, their banking partners should offer tailor-made structures to unlock money trapped there. By putting the right liquidity structure in place, a truly international transaction service bank can use cash deposited in one country to fund their operations in another, and do so at the lower interest rate in most cases.
Companies can gain an important competitive edge by harnessing financial regulation but they rely on banks to make that a reality. Innovative solutions to a new rulebook must be part of any offer to clients, as must a global network with which to carry out those ideas. Those banks that see regulation as an opportunity to improve their systems and processes, rather than a cost, will be best placed to thrive in the post-crisis landscape.
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