]It is a trend that has been the same for some time. Burnt by foreign investments and buried under heightened compliance and regulatory standards, American and European banks have scaled back global operations to focus on core markets – with a few exceptions, of course.
But at last there appears to be a new emerging trend: some banks are actually setting their sights in new markets, hoping to leverage strong transaction banking revenue in strategic and high-growth regions.
Standard Chartered, generally considered an emerging market bank, is due to roll out full-service cash management services by its subsidiaries in Europe in early 2020; Deutsche Bank is looking to the Association of Southeast Asian Nations to bolster revenue; and Société Générale’s transaction banking business is gaining market share in Africa.
The latest results of the Coalition Index, which tracks the performance of the 12 largest investment banks globally, showed that revenues from transaction banking rose 9% in 2018 to $31.3 billion. Over the same period, investment banking revenue increased just 2% in 2018 to $21.4 billion.
Diane Reyes, global head of global liquidity and cash management at HSBC, points to the reliability and strength of transaction banking services – and the increased awareness of that within the banking community – and says that increasing trade and cash management product offerings across geographies is one way to overcome sluggish business in others.
“The environment for event-driven business has changed and volumes are lower than they have been in the past,” she says. “And the fact that [transaction banking] has been dubbed mundane and boring in the past doesn’t matter to bankers – positive outcomes for clients, and positive revenues do.”
Motivations
For Karin Flinspach, regional head, transaction banking for Europe at Standard Chartered, offering full cash-management services out of Europe will help to make Europe a “global hub” for cash. It will also support the bank’s cash management services in Asia, the Middle East and Africa.
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Karin Flinspach, |
“Our strategy began to change around two years ago as a number of our Asian and African customers’ businesses started to look towards Europe,” she says.
The bank hopes to make headway in European transaction banking not only by serving existing customers from emerging markets, but by marketing themselves as an alternative to those banks that traditionally dominate the European market.
“I don’t think we have ever really been considered a European bank, but this is changing now,” says Flinspach.
According to the bank’s 2018 financial report, over 80% of its North American and European income comes from financial markets and transaction banking products. In 2018, total profit before tax was $154 million, up 117% on 2017. The UK is the source of 49% of income from Europe.
Numerous delays and uncertainty related to the UK’s withdrawal from the European Union, combined with Europe’s adoption of the second payments directive known as PSD2 are two big factors driving Stan Chart’s change in strategy.
Following Brexit, the EU passporting system for banks and financial services companies – which allows businesses authorized in any EU or EEA state to trade freely in any other with minimal additional paperwork – will cease to exist for British companies. Meanwhile, PSD2 will remove banks’ monopoly over client data, increasing competition.
Standard Chartered has increased its workforce in Frankfurt from around 90 people to over 200 in the last 15 months and is poised to pitch for business from corporates looking to bank with an institution that has a well-considered Brexit strategy.
“We are preparing for a hard Brexit,” says Flinspach. “Anything less will be a bonus for us.”
Asean
Separately, Deutsche Bank’s decisions to bolster its transaction banking business in Asean comes despite numerous internal issues that still weigh on bank strategy.
On Monday, May 20, Burkhard Ziegenhorn moved to Singapore to take on the role as global transaction banking head of Asean for Deutsche Bank, which will officially begin in June. There, the banks hopes to add to its 250-strong staff, introduce a full suite of cash-management and trade products to corporate clients there, and target new customers.
The bank has already invested a lot in IT in the region, says Ziegenhorn, although exact figures were unavailable.
According to Deutsche, Asia (Asean, South Asia and China) currently accounts for 25% of all global transaction banking revenue for the bank, but its renewed focus on the area may change the revenue split by region.
“Asean is a key growth region for us, and as a bank, we have very publicly stated that we will continue to invest in transaction banking – any cost cutting by the bank will not affect transaction banking,” says Ziegenhorn.
At the same time, Europe will remain a key market for the bank, he says: “We are the undisputed market leader in European transaction banking, and our focus in this region will of course remain strong.”
In Deutsche’s 2018 annual report, however, full-year global transaction banking revenue reached €3.8 billion, down from €3.9 billion in 2017. In 2016, global transaction banking revenues were €4.4 billion.
But becoming a transaction banking leader in a new market will not be easy.
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