Winds of change blow through transaction banking industry
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Winds of change blow through transaction banking industry

A survey by Celent, the financial research firm, sheds light on the structural shifts in the transaction banking industry in recent years, including organizational restructuring, technology spending and banks’ priorities for investment and growth.

As the bread and butter of corporate banking services, transaction banking’s importance has shot up during the past few turbulent years – just as the industry has undergone systemic changes. This transition has barely given transaction bankers time to catch their breath. Many banks have restructured their transaction banking services, and, in particular, the area of trade finance has been consolidated with cash management services.

The trend towards further convergence was illustrated last year when JPMorgan combined its corporate banking, investment banking and treasury services into its corporate and investment bank division.

The report Trends in Transaction Banking: A Global Survey, published by Celent earlier this year, highlights the extent to which the world of transaction banking has shifted.

The research, which surveyed banks from Europe, Asia and North America, found that 82% of respondents had changed their transaction banking organization since 2010, with more than half of those having made the changes in 2012.

The report found that different banks had embarked on organizational shifts for distinct objectives. Fifty-four per cent of respondents said their main objective in restructuring was to achieve a more comprehensive product or service menu.

Meanwhile, 39% had aimed to strengthen their operational capabilities, and just under a third were working to build up their cross-border capabilities.

Also surveyed was the approach taken by banks towards technology spending. Almost half (46%) of respondents had an annual technology budget of more than $10 million, with banks reporting they were, on average, spending virtually the same amount on new projects as on maintenance (46% and 47% respectively).

However, further analysis revealed some striking differences in the responses: a number of banks said they are spending 90% of their budget on new projects.

Despite the investment banks have made in this area, they are not resting on their laurels. Where current improvements are concerned, the survey found that almost 80% are looking to develop new payments capabilities in the coming year, while more than half aim to develop new cash management capabilities.

Enhancing clearing, trade finance and supply chain management was identified as areas of focus by a third of the banks surveyed, reflecting the extent to which they are now included within transaction banking.

Indeed, the survey highlighted some interesting variations between what different banks class as transaction banking. All of the respondents include payment and remittance services under this heading, while 89% include cash management and liquidity management services, and 86% include clearing and settlement services.

Supply chain management and trade finance services were viewed as part of transaction banking by fewer respondents, at 68% and 64% respectively. Only 39% regarded securities services as part of transaction banking.

Future trends

Banks were asked to identify their major regions for transaction banking in the coming two to three years. Asia and the US were identified as the top areas of focus by 50% of respondents each. Only a quarter said that western Europe would be a major region, followed by Middle East (21%), Latin America (17%), eastern Europe (8%) and Africa (8%).

The report pointed out that intraregional trade represents more than 50% of the total trade taking place in Asia and that this is “providing opportunities for the regional and local banks operating in Asia and driving them to enhance their transaction banking capabilities”.

Finally, the survey asked which services banks will be focusing on in the coming two to three years and what their greatest concerns are. Payment solutions and cash pooling were the most commonly cited services, followed by ERP data interface and liquidity management.

The greatest concern was regulation, which is unsurprising given the regulatory onslaught banks are facing from a range of new regulations, including Basel III and Dodd-Frank. Other concerns identified by the survey were cost and agility.

These findings reveal that transaction banking remains a dynamic area: banks are continuing to invest substantially in improving their services and capabilities.

However, concerns about compliance with new regulations are significant and will be top of mind for transaction bankers in the coming years.

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