Bankers like to talk the talk about convergence but evidence is emerging that financial institutions are now slowly but surely converging their multi-product corporate-focused business streams. Initially, banks have focused on bringing together their cash management and trade finance activities.
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| Jiten Arora, global head of sales for transaction banking at Standard Chartered |
According to a report on trends in transaction banking published last year by Misys – a financial-services software provider – 47% of respondents have created a transaction banking group combining, at a minimum, cash management and trade finance, while 34% said they had integrated the group, combining cash management and trade finance at an operational level. Nine per cent were planning to create such a group in the near future, while only 10% intended to keep the different areas of the business separate.
This convergence has been driven by the changing role of corporate treasurers, who have gained responsibility for a wider range of activities during the past few years and are expecting their banks to deliver integrated solutions and a single point of contact.
Jiten Arora, global head of sales for transaction banking at Standard Chartered, says the bank began converging its cash management and trade finance activities into a more integrated working capital management offering six or seven years ago.
“After hearing the feedback from clients, we decided to evolve our sales teams into a working capital sales team on the corporate side,” says Arora. “We brought cash and trade together and evolved the sales team to be more multinational and more client segment based.”
According to Arora, these changes gave the bank the capability to address clients’ needs across the whole area of transaction banking.
Standard Chartered subsequently aligned its product team in a similar way so the solutions available began to be more integrated. In the past two years, the bank has begun to create what Arora describes as “synergistic loops” with the rest of wholesale banking.
While a number of banks have converged their corporate products and services in recent years, Arora points out that different banks are adopting different organizational models as they do so.
“We have seen some banks gravitate to the model we put in place seven years back, which is making sure you have a centrepiece transaction banking team, which is more of a client-aligned solution-oriented team, with synergies into the rest of the bank,” he says.
“But we’ve also seen some banks that are breaking transaction banking into different parts and attaching those to some other product areas according to their strengths.”
Further convergence
The trend towards increased integration continues. Research published by Celent in February found 82% of respondents had reorganized their transaction banking operations within the past three years, and that more than half of those had done so in 2012.
While banks initially focused on bringing together their cash and trade activities, some have more recently bolted on other activities such as FX and securities services. And further convergence might be on its way.
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| Enrico Camerinelli, senior analyst at Aite Group |
Enrico Camerinelli, senior analyst at Aite Group, says banks are reconsidering the role of transaction banking within their businesses on a more fundamental level. Whereas transaction banking was once seen as a source of safe revenue providing services with a price tag, he argues, this is no longer what corporate customers are demanding. According to Camerinelli, the integration exercises that have been done by western banks have tended to focus on reducing costs and complying with regulations in a more reactive way.
In Asia Pacific, he says banks are taking a more proactive approach and are looking at this area with a greater awareness of how the different services can be brought together.
Now, he says, transaction banking might be seen as a gateway for any interaction with corporate clients, bringing together the full range of corporate business lines, including capital markets and investments, as well as cash management and trade finance.
Camerinelli cites the recent restructuring of Citi’s institutional clients group (ICG) as a step in this direction. The bank’s securities and fund services, and treasury and trade solutions business lines were previously managed together as Citi transaction services, but both lines now report directly to Jamie Forese, CEO of the ICG.
Beyond the convergence of products and services that has taken place, further changes could be on the way.
Camerinelli says banks are becoming interested in the concept of transaction banking lifecycle management – in other words, focusing on all the different steps involved in a transaction, from the issuing of a purchase order to the final payment.
While the overall cycle includes actions within a company’s physical supply chain as well as financial actions, he argues banks can gain more visibility over this cycle by looking at it in a holistic way. Eventually it could be possible to monitor the status of a payment in the same way parcels can be tracked.
At the same time, Camerinelli says banks are beginning to look at using methodologies such as Six Sigma in the banking world. While Six Sigma is more traditionally used in manufacturing, he says the same principles could be used by banks to improve efficiencies – and that there is a growing interest in this subject.
Banks have been on the road to convergence for a few years, but this trend shows no signs of slowing. The walls that have traditionally existed in between different banking activities are still being knocked down – and could lead to some interesting new models and opportunities in the coming years.