Challenging year ahead for transaction banking industry
Although the implementation of the Single Euro Payments Area (Sepa) presents the biggest and most pressing challenge to the European transaction banking industry at the outset of 2014, there are reasons for banks and their corporate clients to be optimistic about the year ahead.
Rajesh Mehta, head of treasury and trade solutions for Europe, the Middle East and Africa at Citi, says that the banking industry appears to be at a turning point in the post-crisis era and that there is a focus on positioning for growth. He says: “While the industry pressures of continued regulatory scrutiny, generationally low interest rates and increased competition will continue to pose challenges in 2014, there is also a positive feeling about the year ahead, with growing signs of recovery in Europe, continued stabilization in the US and Japan and continued momentum in emerging markets.
|Rajesh Mehta, EMEA head of treasury
and trade solutions at Citi
“Against that background, banks that have reacted to market disruptions by fundamentally transforming their business and operating models, capital structure and risk management approach will be best able to respond to new opportunities in transaction banking.”
Mehta says that as clients continue to have multi-faceted challenges in terms of regulation, economic change, liquidity and operational and supply chain management, the focus for transaction banks is “to proactively support clients with advice and partnership, the best possible solutions and service”.
In this regard, he adds, technology will continue to drive the industry and is the cornerstone of many of these priorities.
For Sue Dean, head of transaction banking EMEA at JPMorgan, the changing regulatory environment will be one of the most powerful drivers to the industry this year, and one regulatory development in particular.
“The biggest challenge we are looking at in 2014 is Sepa,” she says. “Foremost now is guiding our clients through to the Sepa end date and getting them ready with the new formats and moving from legacy to Sepa transactions. But it’s not just about preparing for Sepa – it’s also about helping clients to maximize the benefits and efficiencies of the Sepa environment.”
With less than a month to go before the migration end date, a question mark remains over whether corporations will be ready on time. Although Sepa direct-debit volumes doubled between October and November last year, they still account for only just over a quarter of total direct-debit transactions in the eurozone. Sepa credit transfer volumes stood at 64% in November. Progress is clearly taking place, but it remains to be seen whether it will be quick enough.
Although Dean says that the majority of clients are on track to meet the Sepa end date, the bank is also prepared with Plan B for any clients that might find themselves struggling in February. “Plan B is about helping clients to repair their transactions as well as talking to them about alternative ways that they can send instructions – for example, by using wires,” says Dean. “In addition, some markets are still accepting the legacy formats, so there could be an opportunity to continue to use a legacy format for a small period of time in some cases.”
Aside from Sepa, Dean is expecting to see a continued focus on efficiency and liquidity. The changing regulatory environment is also a key theme, with European Market Infrastructure Regulation (Emir) and Foreign Account Tax Compliance Act (Fatca) likely to attract particular attention.
“While these regulations are focused on banks, they are likely to have an impact on our clients as well,” says Dean. “We want to help them navigate some of the upcoming regulations, and assess the potential knock-on impact. We have other types of product that could possibly help them to manage through these regulations.”
| Jennifer Boussuge, head of global
transaction services, EMEA,
at Bank of America Merrill Lynch
Jennifer Boussuge, head of global transaction services, EMEA, at Bank of America Merrill Lynch, points out that many global regulatory and industry initiatives emerged during 2013, focusing on topics such as improving payments security and transparency, strengthening fraud prevention and stimulating innovation.
“These will continue to significantly impact many banking activities through 2014 – some formalizing existing ways of working, others leading to structural changes in the way the banking sector works and the industry’s impact on the economy,” she says.
According to Boussuge, the combination of “regulatory pressures and the need to ‘act local and think global’ will continue to fuel collaboration between global banks and local players – an important trend that is irrevocably changing the face of transaction banking.”
Another area of focus highlighted by Boussuge is that of relationships between banks and their corporate customers.
She says that in recent years some corporate treasurers have chosen their banks solely on price, effectively treating the bank as another vendor of products and services.
“Others have taken a more holistic and forward-looking view – working with their banks to ensure the relationship is mutually beneficial,” she says. “As we begin a new year, it is important for both parties to understand where the value lies in the relationship and to develop trust over time.”
Boussuge predicts that, in the coming months, companies that openly discuss their business strategy with their banks, and that are transparent in terms of how business will be allocated, will ultimately get the best value from their banks.
“Your bank should bring to you the best services they can, tailored to your needs, and do this through their network and partners,” she says. “They should wrap around this ownership and accountability for ongoing services and support – both of which are the real measure of a quality provider.”