Leslie Holstrom speaks to Jennifer Boussuge, Head of Global Transaction Services EMEA, Bank of America Merrill Lynch
What are the top three client-side trends in transaction banking that you are focusing on?
Treasury operating models – Supporting our clients with organisational and process efficiency, managing cost and advising on issues such as in-house bank set-up and facilitating payments on behalf (POBO).
Transactional efficiency – Clients are looking to achieve greater end-to-end efficiency using technology to do this, e.g. data enhancement through virtual accounts, paper to electronic payments and payment segmentation into the most efficient transaction type.
Working capital management – Since the 2008 financial crisis, working capital optimisation has become a strategic imperative for companies of all sizes. Furthermore, in a low economic environment where access to liquidity is cheap but margin is low there is a need to generate cash and cash flows. We are seeing corporates appointing working capital managers whose responsibility is to review and improve the company’s working capital management.
What are the top 3 trends that are affecting the banking sector and how are those effects manifesting themselves?
Banks have had to focus on the task of implementation and compliance with a number of key regulatory requirements, such as Basel III and Dodd-Frank. At the same time, they had to manage know your client (KYC) initiatives and, in some countries, new requirements concerning business conduct and fair treatment of clients. As a result, confusion regarding the new regulatory regime has led to periodic friction between clients and banks as to what information needs disclosing in relation to new or existing banking relationships. Despite the headwinds of a challenging regulatory, interest rate and credit environment, we have continued to deliver value-added solutions and advice to our clients.
Low interest rate environment and general price compression – Return on equity has caused reviews of traditional business models. Some market participants have reduced their product offerings or withdrawn from regions or markets.
Market landscape: Regulation and Central Bank Action – The current macroeconomic landscape keeps the headwinds blowing in this region and the continuing implementation of regulation creates distraction both internally and to our clients. The UK decision to leave the European Union has created uncertainty about what this will mean to our clients and to the bank. As we learn more about the ramifications of the decision, we will plan accordingly. We proactively advise clients on the best solutions and regulatory advice for challenges and opportunities.
Disintermediation – Beyond FinTech and other new entrants; some recent M&A deals (e.g. Microsoft and LinkedIn) have been initiated with boutique firms before engaging with large banks which brings diversity to the markets. Additionally, PSD 2, will allow more new entrants into the traditional transaction banking market. In particular many global regulatory and industry initiatives have emerged, focusing on, for example, improving payments security and transparency, strengthening fraud prevention and stimulating innovation. These significantly impact many banking activities .Some formalise existing ways of working, others lead to structural changes in the way the banking sector works and the industry’s impact on the economy.
How are these client-side and bank-side trends affecting the way you offer and price your services?
We take pride in understanding the most difficult aspects and the greatest opportunities of our clients’ businesses and aim to build sustainable relationships with them.
Pricing transparency and discussions ensure that relationships are viable and balanced on a bank relationship basis. We work across silos to deliver holistic solutions to our clients, not just in Global Transaction Services, but across the bank. We help clients navigate regulation where it affects them directly. Where certain parts of transaction banking have become commoditised or where margin is constrained, we consider adding value through advisory and relationship.
In particular, how have you altered your product mix, your pricing and which regions/countries you offer your products? How have these changes been received by your clients?
Our intent is to continue to grow in a sustainable manner, which means adapting to new trends and investing in innovations that will provide clients ease of use, flexibility and scalability over the long term. We offer a range of cross product solutions to improve consistency of delivery and client experience. We are working with a number of FinTech companies to add greater efficiency and value to the bank’s current payment processes.
Our clients told us that they greatly appreciated the efforts we take to ensure sustainability across products and regions.
Are you finding that internal technology issues (silos, legacy systems, unavoidable complexity) create a disadvantage in competing with FinTech companies?
Banks offer a wide variety of services and therefore inherently have a more complex IT environment. This can have an impact on time to market for innovative solutions, but can be mitigated when these changes are managed and prioritised in the right way. Banks have the advantage of scale and are therefore better positioned to drive adoption of new standards across the industry.
Now that so many FinTech companies have secure, interesting and fast products, what do you see happening to banks in the corporate space?
There is no doubt that the next 5 years will see more change in the transaction banking space than we have seen in the last decade. Innovation is the new norm and clients are demanding access to the new options that the market has to offer. This is very prevalent on the consumer side and becoming more and more a topic of conversation with corporate customers. These developments are putting pressure on banks to focus on developing their infrastructure, and there are many examples of banks offering creative payment solutions in the corporate market, e.g. virtual accounts management. However, rather than developing the desired functionality in house, partnering with FinTech companies should certainly also be considered. This provides the corporate with the comfort of security, dealing with trusted relations and interacting with a single partner, yet offers access to the innovation the market has to offer.
A prediction: how far out do you see FinTech companies being regulated more in line with banks?
With banks offering a wide set of services and FinTech companies currently operating more in a niche there will continue to be differences in applicable regulation. However we are expecting new developments in regulation to create a more level playing field in the transaction banking space in the near future. Especially in Europe, PSD 2, which is due to take effect in 2018, is aimed to do exactly that. It focuses on creating equal access to client data as well as equal security standards.
Treasurers are now extremely cybersecurity conscious. Is this having any effect on your transaction management business? What about the so-called SWIFT hacks?
Cybersecurity is indeed a very much talked about topic amongst corporates and banks. Fraudsters are getting more sophisticated and are demonstrating a deep understanding of treasury and banking processes. As a bank security is our number one priority and we are constantly investing in our systems and working with our clients to ensure we jointly continue to stay ahead.
What are your views on challenger banks? They have traction in the retail market, but what do you expect for the corporate market?
Changes in the economy and the increase in regulatory overheads have meant that many banks have shrunk. They no longer have a willingness to provide clients with every service, everywhere. 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, which is an important trend that is irrevocably changing the face of transaction banking.