Trends in transaction banking report

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Trends in transaction banking report

Trends in transaction banking report

Background
While the global financial community continues to struggle back from the economic collapse of 2008, transaction banking has remained one of the few stable areas within the bank. The cash management, trade finance, payments and securities services businesses all experienced low capital requirements, stable earnings and product growth over the past three years. However, a raft of market changes threatens to take the shine off this business. New regulations such as Basel III, Dodd-Frank, the never-ending march of SEPA (Single Euro Payments Area) in Europe, as well as the entrance of new non-traditional payment providers could make 2011 a challenging year for transaction banking. In order to gain a deeper understanding of how banks are dealing with the current rate of change in the transaction banking business, Misys commissioned an online questionnaire with Finextra Research, the respected information source for the worldwide financial technology community. The aim of the survey, which ran from July until the end of August 2011, was to gather industry views on a wide range of topics including a look at banks strategic focuses, where the major challenges for growth are and what functionality they are adding in online corporate banking. In all, 121 representatives from banks in 45 countries, ranging from huge global players to domestic financial groups, responded to the survey. This report summarises the findings.

Trends in transaction banking report

Finextra Research Ltd.

Trends in transaction banking report

Executive summary
Reducing IT complexity and reducing costs remain the dominant concerns of transaction bankers in this Trends in Transaction Banking 2011 survey. The trend among large regional and global banks to consolidate their product management and development activities in payments, cash management and trade finance into a central global transaction banking group shows no sign of slowing down. A huge majority of those responding to the survey, 77%, claimed to have created a transaction banking group combining, at a minimum, cash management and trade finance. Adding new products and services remained the top strategic focus for banks managing their transaction and cash management business over the next three years gathering 26% of respondents. 34% of those surveyed listed Increasing IT and system complexity as the major challenge facing their banks transaction banking group. While 33% see Increasing regulation as the major challenge. 43% of all those surveyed listed Online channel development as the top transaction banking priority for next year. This reflects many trends we are seeing in transaction banking at the moment towards the online delivery of cash management and trade finance in a unified fashion. With the growth of mobile, it is easy to see why Real-time payment tracking took the top spot in the survey taking in 25% of those surveyed. Being able to check your payments, in real-time, anywhere, is a real demand banks are seeing from corporates. It is also interesting to note that Trade services functionality narrowly beat Cash flow forecasting tools with 14% and 13%, respectively, confirming yet again the prominent status and importance of trade finance in a banks service offering nowadays. Almost half those surveyed, 45%, describe their infrastructure as Multiple core processing systems, which echoes the interest we are seeing in payment hubs and their ability to help banks centralise and streamline their payment processes when faced with such heterogeneous environments. Again, a move towards simplifying processes emerges on top in this survey of trends in transaction banking. 35% of those surveyed listed Simplified process for making changes to payment standards and rules across all systems as their top priority.

Finextra Research Ltd.

Trends in transaction banking report

Trends in transaction banking report

Please describe your organisational structure for transaction banking services

10% 13%
We have created a transaction banking group combining at a minimum cash management and trade finance We have no plans to create such a group and will continue running separate organisations We plan to create such a group in the near future

77%

The trend among large regional and global banks to consolidate their product management and development activities in cash management, trade finance and payments into a central global transaction banking group shows no sign of slowing down. A huge majority of those responding to the survey, 77%, claimed to have created a transaction banking group combining, at a minimum, cash management and trade finance. Three years ago, just before the collapse of Lehman Brothers, 57% of respondents gave this answer in a similar Misys and Finextra survey on transaction banking. Despite the obvious growth in banks running central transaction banking groups, questions around consolidation remain. It is one thing to combine the cash management, trade finance and payments groups on the same floor or in one building, it is quite another to ensure seamless integration of operations and back office processes. The cash management business tends to be run by very tech-savvy people, while trade finance attracts those interested in the business of international trade & supply chain. Whether those divergent approaches to the business eventually meet to benefit both the customer and the bottom line is a deeper question.

Trends in transaction banking report

Finextra Research Ltd.

Trends in transaction banking report

What will be the strategic focus for managing your transaction services or cash management business over the next three years?
3% 10% 12% 3%
Adding new products and services Rationalising and streamlining back-office systems Reducing cost to income ratios Attracting more corporate customers Improving customer service Expanding self-service channels, such as Mobile or Online banking Expanding into new geographies Primarily focusing on risk management

26%

12% 17%

17%

Adding new products and services remained the top strategic focus for banks managing their transaction and cash management business over the next three years gathering 26% of respondents. The results are not surprising projects that create additional revenue streams should be a part of any client-facing business. However, these results should be viewed in the context of three other findings. The following two top responses, coming in at 17% each, included Rationalising and streamlining back-office systems and Reducing cost to income ratios. Given that 77% of respondents, in question one, said that they ran a consolidated transaction banking business it is interesting that streamlining back-office systems and reducing costs ranked high on a list of strategic focuses. It wouldnt be a giant leap to infer that while these global consolidated transaction banking businesses may have had successful business integrations the resulting IT complexity is an unfortunate consequence of this trend. Thirdly, three years ago, almost 39% of those surveyed claimed adding new products and services as their top strategic focus for the next three years. The significant percentage drop in 2011 to 26% may reflect the complex IT integration issues with adding new business lines. Both Expanding into new geographies and Primarily focusing on risk management barely registered as a strategic focus on question two getting only 3% of respondents each. The latter is an interesting result as it paints a less gloomy picture in terms of what keeps transaction bankers awake at night: more focus on innovation with new products and services than the wait-and-see approach often associated with a focus on risk management.
Finextra Research Ltd. Trends in transaction banking report

Trends in transaction banking report

What do you see as the major challenges to growing revenue from your banks transaction services or cash management business?
3% 2%
Increasing IT and system complexity De-centralisation of corporate treasury functions No way of offering international cash management and trade services

13% 34% 15%

Increasing regulation New entrants offering transaction services Dominant global banks

33%

Question three, again, sheds some light on what banks are really concerned about despite a majority claiming a fully integrated cash management, trade finance and payments business and a significant number focused on adding new products and services IT complexity and regulation. 34% of those surveyed listed Increasing IT and system complexity as the major challenge facing their banks transaction banking group. While 33% see Increasing regulation as the major challenge. That adds up to 67% of respondents listing non-market forces as the biggest challenge to their business. This is not a confident position for any industry to be in, never mind banking. Three years ago, in the 2008 Misys/Finextra Transaction Banking survey, 26% of those surveyed listed IT complexity as a top challenge and 17% listed increasing regulation. The rise in those citing regulation is understandable. Post-Lehman Brothers, the shadow of impending global financial regulations has loomed over the entire banking sector. However, the consolidation of transaction banking, trade finance and even, in some cases, securities services was supposed to create a more streamlined and efficient business culture. Reading between the lines of this survey would suggest that the road to seamless operational integration is rocky for most global transaction banking groups. Despite the analysis of the top challenges, the most striking result is that 15% of those surveyed listed New entrants offering transaction services, while 13% listed Dominant global banks. In the 2008 survey dominant global banks gathered 20% of the vote, while new entrants only managed 5%. The difference in those figures, three years apart, doesnt require extensive analysis.

Trends in transaction banking report

Finextra Research Ltd.

Trends in transaction banking report

Where do your transaction banking priorities lie for next year?

5% 3%
Online channel development Other Reporting i.e. delivering a consolidated view to treasurers

20%

43%

Back office change to support new service offerings Dealing with regulation

29%

Almost half of all those surveyed listed Online channel development as the top transaction banking priority for next year. This reflects many trends we are seeing in transaction banking at the moment. Corporate clients, whether they are SMEs or large multinationals, are demanding more sophisticated and innovative products from their banking partners. Individuals, who are used to online banking and mobile access with their retail banking accounts, are now looking for many of the same services from their corporate relationships. The growth in smart phone, and now tablet, usage is fuelling the demand for these services especially for low level activities, such as payment authorisation or reporting. However, that old problem of IT complexity rears its head yet again with question four. Back office change to support new service offerings was ranked as a top priority by 29% of those who responded to the survey.

Finextra Research Ltd.

Trends in transaction banking report

Trends in transaction banking report

How has the ratio of traditional trade finance, e.g. letter of credit, versus open account transactions changed over the past twelve months?
Traditional trade taking a greater share

29%

37%

No change Open account taking a greater share

34%

The interesting and relatively surprising result here is that traditional trade finance takes a greater share of the trade & supply chain business at 37% of respondents, given the generally accepted massive move to open account trade and at times how unpopular letters of credit (LCs) are with part of the corporate community. Not only are letters of credit unpopular, their volumes have remained flat in recent years. It is now estimated that over 80% of global trade is conducted on an open account basis, according to Swift. This shift away from traditional trade finance led to Swifts launch of the TSU (trade services utility), a collaborative centralised data matching utility, which allows banks to build products around its core functionality to improve the speed and flow of open account trade. However, letters of credit are still very much in use in emerging market trade and trade in countries where exchange controls are enforced. It might simply confirm that, with an enduring period of turmoil, the more traditional trade finance tools still have an important role to play and should not be discarded at any bank serious about its transaction banking offering.

Trends in transaction banking report

Finextra Research Ltd.

Trends in transaction banking report

Do you see demand for financial supply chain services from your corporate customers?
9% 12% 36% 14%
Yes and we have standard solutions to offer them Yes and we would like to offer them more than we currently have No our corporate customers are not demanding financial supply chain services Yes and we are about to roll out new solutions Yes and we respond with tailor-made solutions but dont have standard products yet

29%

These results raise some questions. 36% answered Yes and we have a standard solution to offer them when asked about demand for financial supply chain services. It is generally understood that most banks do not offer a standard set of supply chain services given that each corporate clients supply chain may differ. However, the results of question six may reflect a new trend in the evolution of supply chain services.

Finextra Research Ltd.

Trends in transaction banking report

Trends in transaction banking report

What functionality do you plan to add to online corporate banking within the next twelve months?
4% 2% 2%
Real-time payment tracking Invoice and payment reconciliation Trade services functionality Cash flow forecasting tools Information from accounts they hold with other banks Ability to trade FX online Information on cash location and amount Allowing set-up of automated moving/ sweeping Ability to make transfers Advertising New entrants offering transaction services

6% 7% 7% 8% 12%

25%

14% 13%

This chart is intended to show the top priority for adding functionality for the next 12 months. However, the fragmented results show that many banks are looking to add a range of services to their online corporate banking offerings. With the ever-increasing demand for instant information, the slow roll-out of faster payment infrastructures in numerous countries and the growth of mobility, it is easy to see why Real-time payment tracking took the top spot in the survey taking in 25% of those surveyed. Being able to check your payments, in real-time, anywhere, is a real demand banks are seeing from corporates. It is also interesting to note that Trade services functionality narrowly beat Cash flow forecasting tools with 14% and 13%, respectively. Who would have imagined a few years ago that trade finance would one day gain a higher profile than cash management as a development priority for banks in the development of their corporate offering? This reflects well a trend we are seeing today of greater importance of trade finance in banks development of more comprehensive and holistic working capital management solutions for their corporate customers.

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Trends in transaction banking report

Finextra Research Ltd.

Trends in transaction banking report

How would you describe your current payments management/processing infrastructure?

Multiple core processing payment systems Central payments processing engine Payment processing hub

21% 45%

34%

There has been a lot of press about banks moving to more efficient payment processing hubs over the past few years. However, almost half those surveyed (45%) describe their infrastructure as Multiple core processing systems, which tend to be more error prone and cause delays for customers. However, this result may not be surprising given the amount of weight IT complexity has been given in other parts of this survey. However, the industry has seen a rise in demand for payment hubs. Since many of the respondents say they are looking to reduce operational complexity, that 45% may be looking to centralise and streamline their payment processes when faced with such heterogeneous environments.

Finextra Research Ltd.

Trends in transaction banking report

11

Trends in transaction banking report

What are your priorities for improving your payment processing environments?
6% 10% 35% 13%
Rapid deployment and return on investment Simplified process for making changes to payment standards and rules across all systems Protect investment in existing systems Enhance ability to track payments as they pass through your systems Improve quality of outgoing messages

13% 23%

Better metrics for monitoring service levels and charges

Again a move towards simplifying processes emerges on top in this survey of trends in transaction banking. 35% of those surveyed listed Simplified process for making changes to payment standard and rules across all systems as their top priority. Rapid deployment and return on investment follows closely behind at 23% and Better metrics for monitoring service levels and charges rounds out the top three at 13%. Reducing IT complexity and reducing costs remain the dominate concerns of transaction bankers in this 2011 survey.

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Trends in transaction banking report

Finextra Research Ltd.

Trends in transaction banking report

Appendix
The following banks and job titles from the following 44 countries responded to the survey. Individual responses to the survey remain anonymous.

Participating companies
Absa Capital African Development Bank Aktia Bank ANZ Banco CAM Banco Popolare Banco Security Bank Bemo Saudi Fransi Bank Central Asia Bank Muscat Bank of Cyprus Bank of The Philippine Islands Bank of Tokyo Mitsubishi Bankia Barclays Bank BBVA BNP Paribas BNP Paribas Fortis Bank of New York Mellon BPPR Central bank of Tunisia Citi Commercial International Bank Commerzbank Commonwealth Bank Credit Suisse DBS Bank Deutsche Bank FirstRand Handelsbanken Hellenic bank HSBC ING Bank Intesa Sanpaolo Islamic Development Bank J.P. Morgan Jordan Kuwait Bank Jyske Bank KeyBank Kleinwort Benson Macquarie Finextra Research Ltd. Trends in transaction banking report MBF Cards Mizuho Bank Morgan Stanley National Australia Bank Natixis Nedbank Nordea Bank Nova OP-Pohjola Bank Group Oriental Bank Of Commerce PKO Bank Polski PNC Bank Privredna Banka Zagreb Prominvestbank Rabobank Raiffeisen Bank Renaissance Capital Royal Bank of Scotland SA Reserve Bank Scotia Bank Sharjah Islamic Bank Siddhartha Bank Standard Bank Standard Chartered Bank StellarOne Bank Sydbank Syndicate Bank UBS UniCredit Unicredit Bulbank Union Bank VTB Bank Wells Fargo YBS

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Trends in transaction banking report

Appendix continued
Job Profile
Assistant General Manager Assistant General Manager, CMS AVP Chief Operations & Information Officer CIO Clearing Representative Deputy Chairman Design Manager Development Manager Director Director, Payment Central Director of eChannels & Payment Solutions Director, Business Development Corporate Sales EVP Executive Director, Global Market Infrastructures Executive Manager General Manager General Manager, Transactional Banking Global Cash Management Global Network Manager Global Program Director SFS Technology & SVP Global Relationship Manager Group Head of Payment Services Head EPMO Head Electronic Payment Systems Head MSG of Ops Head of Asset Servicing Operations Head of Business Services Head of Card Services Management Head of Global Markets Operations and IBC Head of GTS Head of International Payments Head of IT Department Head of Market Infrastructures Head of Marketing Head of Marketing & Innovation Head of Operations Head of Payment Infrastructures Head of Payment Operations Head of Payments Industry Head of Payments Infrastructure Head of Product Development Head of Retail Strategy Head of Strategy, Transaction Services Head of Strategy, Global Transaction Banking Head of Transaction Banking Head of Transaction Services Head, Global Payments FI Asia Head, Financial Institutions Head, Settlement & SWIFT Director, International Operations IT Chief Manager IT Manager IT Project Coordinator Manager Manager Manager, Integration Manager, IT Application Management Manager, Head of Sales PCM/FI Manager, International Payment Services & Cash Management, Corporate Division Managing Director Managing Director, Head of Transactional FX Marketing Manager MD Head, Payment Processing Payments Manager President Principal Treasury Officer Product Manager Product Manager, Money Finextra Research Ltd. Transmission, PCM Programme Executive Quality Manager, Payments Relationship Director Relationship Manager Sales Manager Cash Senior Business Development Manager Senior Consultant Senior IT Manager Senior Manager Senior Manager Online Payment Solutions Senior Manager (IT) Senior Manager IFI & Correspondent Banking Senior Project Manager Senior Relationship Manager Senior Vice President Senior Vice President, Head of Intern. Payments Strategic Analyst Strategic Planning Analyst SVP SVP & Manager SVP Product Management Technical Services Analyst Treasury Department Treaury Manager Treasury Services Head of FI Sales Western Europe Vice President VP VP Market Infrastructures VP Market Management

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Trends in transaction banking report

Trends in transaction banking report

Appendix continued
Participating countries
Australia Austria Belgium Bulgaria Canada Columbia Croatia Cyprus Denmark Egypt Equador Finland France Germany Hong Kong India Indonesia Italy Japan Jordan Kuwait Malaysia Nepal New Zealand Nigeria Oman Phillipines Poland Puerto Rico Russia Saudi Arabia Singapore Slovenia South Africa Spain Sweden Switzerland The Netherlands Tunisia Turkey Ukraine United Arab Emirates United Kingdom USA Finextra Research Ltd. Trends in transaction banking report

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About Misys
Misys is at the forefront of the financial software industry, providing the broadest portfolio of banking, treasury, trading and risk solutions available on the market. With 1,800 customers in 120 countries our team of domain experts and partners have an unparalleled ability to address industry requirements at both a global and local level. Misys was formed by the merger of Misys with Turaz, which includes the awardwinning Kondor+ product line. Combined they are able to address all customer requirements across both the banking and trading book businesses. Misys is the trusted partner that financial services organisations turn to for help solving their most complex problems. Find out more at www.misys.com
Misys and the Misys globe mark are trade marks of the Misys group companies. Copyright 2012 Misys. All rights reserved.

About Finextra
Finextra (www.finextra.com) is the leading independent newswire and information source for the worldwide financial technology and banking community. Finextra publishes the most important and up-to-date technology, operations and business news, features, blogs, analysis, videos and webcasts from the capital markets, investment banking, retail finance and corporate banking sectors. This information is accessed by more than 165,000 monthly users from global financial services institutions on www.finextra.com and via free newsletters.Finextra runs Finextra@Sibos (www.sibosonline.com) the official Sibos exhibition news portal and has a portfolio of industry events covering Euro payments, post-trade services, social media and mobile financial services.