Transaction services guide 2014: The epitome of relationship banking

Laurence Neville
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Relationship banking never died. The supportive role a bank plays in helping clients grow and develop has always been at the heart of transaction banking. Investment bankers could learn something.

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Transaction services guide 2014
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Some of the images conjured up by bankers to describe transaction banking are vivid enough to remain with you for some time. 

Many liken it to a relationship or marriage: courtship is followed by cohabitation, and the potential exists for a lifetime of harmony provided there is candour and mutual financial interest. More dramatic still are the visceral metaphors employed by bankers, describing it as a company’s heart, lifeblood or nervous system.

Leaving aside the question of whether a spouse is as integral to survival as one’s heart, the intent of transaction bankers is clear. 

" Relationship banking deals with everyday activities," explains Marc Carlos, head of global trade and transaction banking at BNP Paribas. "Nothing is more essential than transaction banking services, such as payments and working capital: that is why transaction banking is relationship driven."

For banks, the attraction of transaction banking is straightforward. "When a bank acts as a primary provider of transaction services, the bank’s network becomes an extension of the client’s own infrastructure," says Paul Simpson, head of global transaction services at Bank of America Merrill Lynch. "Inevitably, when you perform such a critical function – and perform it well – you become a trusted adviser."

heart beat envelope

From the perspective of a client, transaction banking epitomizes relationship banking because the services it involves, such as payments and collections, working capital, operational efficiency, risk management, liquidity optimization and short-term funding. These are embedded into a client’s financial operating system, notes Rajesh Mehta, head of treasury and trade solutions, Europe, Middle East and Africa, at Citi. "That presupposes a level of advice, trust and codependency."

It’s the codependency that banks are most interested in. As Mike Verrier, group treasurer of FTSE100-listed Wolseley, the world’s number one distributor of heating and plumbing products, explains, transaction banking services are long term in nature because they "are complex and difficult to switch to another provider". He adds: "Periodically, we run tenders for our transaction services; however, our experience is that we rarely change the incumbent."

Consequently, transaction banking is relationship banking almost by default, because relationships last a long time. "Relationship banking denotes longevity and a long-term view," says Mehta. "In banking terms, transaction banking is sticky because relationships are difficult to unpick" and therefore produce long-lasting revenues, he adds. As Simpson notes, this annuity-style revenue stream is a key attraction.

Jennifer Boussuge large
 For some, a siloed approach [means] it can be difficult to align their structure around the client

Jennifer Boussuge

In addition to its sticky revenue characteristics, transaction banking offers opportunities to win additional business. "Providing transaction banking services to a customer delivers a rich source of data and with it a unique opportunity to attain a deeper understanding of their business," says Diane Reyes, global head of payments and cash management at HSBC. "Leveraging this intelligence enables us to deliver an outstanding customer experience."

Crucially, one of the characteristics of true relationship banking is that a bank can use its insight into a client’s activity to make proactive product and service suggestions. "In such situations, business may be put out to tender for governance reasons, but by making the suggestion, the chances of winning the business are improved because of the bank’s additional knowledge," notes Mehta, adding: "Having a relationship never eliminates competition, however."

Customers look at a broad number of factors when they choose a transaction banking partner, according to HSBC’s Reyes. "Geographic coverage; counterparty strength; transaction banking advice; suitable products; understanding of local regulations; connectivity; reliable technology; and the ability to apply that technology to develop bespoke solutions for customers’ needs are all common factors," she says.

Those qualities are prerequisites for successful transaction banking. However, relationship banking requires an X factor: the ability to conduct a relationship, which can be harder than it sounds. "The main challenge is establishing a partnership," explains Ernst Ohmayer, co-head, global transaction banking, at UniCredit. To do that, banks must stay close to their clients, provide continuing support and advice, listen carefully – in order to anticipate needs – and ensure the entire organization is committed to "following up" on these needs, adds Ohmayer.

The last point is critical to success. "A successful client relationship can only be nurtured if there is no silo-thinking," says Ohmayer. "It is the task of the entire management – not just passionate sales people – to spark the 'client obsession’ a bank needs, if it is to respond effectively to the requirements of corporate clients."

Despite the increased importance placed on transaction banking by many banks, the ability to take a pan-organizational view of client relationships remains a common stumbling block. "For some, a siloed approach [means] it can be difficult to align their structure around the client," says Jennifer Boussuge, head of global transaction services, EMEA, at BAML. "We have an integrated coverage model for GTS, and corporate and investment banking. The integration of our businesses is one of our strengths – our corporate banker covers a large corporate and knows end to end how we service that client; that’s powerful."