Published: January 01, 2014
In the first edition of 2014, Helen Sanders, Editor, talks to Andrew England, Head of Transaction Banking, Lloyds Bank Commercial Banking about the trends and challenges in transaction banking, and how these are likely to evolve in the future.
Banks are thinking more about what they do for their clients and how they focus their investment to meet client priorities. This involves a deeper dialogue to understand more fully clients’ needs, constraints and strategic vision. In practical terms, banks are motivated to deliver a broader suite of capabilities, not simply in areas such as trade and cash, but solutions that meet core lending needs and short-term access to finance.
At Lloyds Bank, we have recognised and responded to clients’ evolving needs. Initially following the crisis, clients prioritised security and liquidity, but as market stability is slowly being restored, considerations such as yield and cost are becoming more relevant. Supply chain finance (SCF) continues to play an important role, and treasurers are becoming more aware of its potential to support small and medium-sized suppliers as well as improving their own working capital position. Data journeys and the ability to visualise these, as well as key trends, has been a hotspot for us in recent times. We are continuing to invest in evolutionary technology that helps understand clients’ challenges and helps them ask the right questions.
As companies of all sizes move from consolidation to growth, transaction banking has a major role to play in facilitating international expansion, and this is an area Lloyds is focusing on. We help clients to explore their risks and liquidity requirements thoroughly as they explore new markets, maximising the potential for success. As globalisation continues, and clients’ international ambitions expand, it is no longer sufficient for a bank to cover a handful of markets: there are now 28 or so key import and export markets for UK domiciled clients which require transaction banking support. Few banks can offer a consistent level of support and market expertise on this scale alone. At Lloyds, we have established strong alliances with leading local banks in key markets to offer integrated solutions that also comply with local requirements in each market and are supported with local expertise.
Although international growth is an imperative amongst many corporate clients, there are specific trends amongst clients of different profiles. Larger corporate customers have become increasingly cash-rich over recent years as they have held off making major investment decisions. These companies approach the management of these growing cash balances in different ways, however. Some, for example, still do not have a well-defined risk framework in which to manage their cash, while others take a more rigorous approach. As business confidence increases, the dilemma of how best to manage large balances is likely to decline, resulting in higher levels of investment.
Larger mid-cap companies are often focused more on working capital and are turning to banks such as Lloyds to offer fact-based comparisons and insights into their industry sector, such as comparing working capital metrics and techniques with peer companies. We are therefore helping these clients to expand their analytical capabilities, providing peer comparisons and identifying best practices. Most of this is being delivered through our continuing investment in people capabilities and insights that they bring. We put the client at the heart of everything we do and we are aware these clients want to manage their business online 24/7. It is our role to support them through whatever device they wish to interact with us on and we have some exciting plans in place to really deliver to this promise.
SEPA is not necessarily a major priority for our UK-headquartered clients, but it undoubtedly creates a more level playing field for doing business in Europe. We are supporting clients with significant activities in Europe to explore their transaction banking needs and revise their cash and liquidity management structures and processes to take advantage of the potential for synergy and standardisation that SEPA offers.
SEPA is not only affecting priorities and behaviour amongst the corporate community: there is also a significant impact on banks. In the past, banks had to have a physical presence in each country in Europe in order to provide transaction banking services, resulting in considerable overheads. Today, this is no longer a requirement, so we would expect to see a shift in the banking community as they explore new ways of supporting clients on a pan-European basis. With SEPA on one hand providing greater consistency in euro processing, but ongoing concerns about the stability of the euro and the Eurozone on the other, we also anticipate that London is likely to emerge as a stronger centre for Euro capabilities just as it is for US dollars and more exotic currencies.
Clients will still require financing, but it will become increasingly important to find new financing techniques e.g., that bring in other investors, rather than relying solely on the bank’s balance sheet. This will typically involve longer-term financing in order to meet investors’ needs. We therefore see the role of banks changing to become facilitators and conduits for financing, packaging solutions to meet both borrowers’ and investors’ needs.
As the banking environment continues to be competitive, clients’ expectations of their banks will increase. This will require banks to continue expanding skills and expertise and engaging in deeper dialogue with clients to explore how the bank meets the full spectrum of their operating needs, both now and in the future. While this level of engagement may be familiar to the largest corporations, we see it becoming more prevalent across a far wider range of clients.
As I mentioned earlier, supporting clients’ international growth objectives is an essential element of our strategy, one of the outcomes of which is a growing emphasis on commitment to trade in the organisation. Trade is, and will continue to be, complex, involving not only products and solutions, but defining the way in which risk awareness is embedded within the business. Banks should be providing solutions, but also asking the right questions to develop this awareness.
We also envisage more scrutiny by the government about how banks help their clients to grow. Supporting international business is one element of this, but leveraging a wider range of payment and collection methods, both within the UK and internationally is an essential related requirement, such as card processing and eCommerce. Clients’ own data often provides insight but many do not have the tools to maximise this. Where banks can provide additional data such as invoice and payment trends or currency movements and logistics this will allow them to differentiate themselves. We certainly believe that at Lloyds and we are working on some really different digital tools. One of the most recent trends in transaction banking has been the much stronger alignment of technology into businesses, organisationally, to reflect the critical path of IT development and value for money execution for clients.
Banks are no longer simply financiers and transaction processors, but their role as technology innovators will become increasingly important.[[[PAGE]]]
Regulatory compliance, and adapting principles and practices accordingly is an ongoing process, but one which we have placed at the core of our strategy. It is important to anticipate the purpose of regulation just as much as the minutiae, and how this impacts on business practices and culture. Banks need to continue to work to understand their clients, how they manage processes and conduct their business.
Banks such as Lloyds play an essential market role by supporting financial institutions in addition to their corporate clients. The model for doing so is changing significantly as regulators demand greater scrutiny not only of the organisation to which a bank offers services, but the ultimate end clients. Understanding both the client, and their clients, requires a substantial depth of dialogue, and one that many banks are not yet equipped to manage. Balancing pragmatism with due diligence is an ongoing industry challenge, but fundamentally, strong relationships are pivotal to achieving this balance.
Another major emerging topic of scrutiny concerns resilience and nurturing infrastructure assets which has been, rightly, headline news for the industry over the last few months and will continue to be a major theme into 2014 and beyond.
Typically, UK banks will offer the best services in the UK and therefore should be the logical choice for a UK company, and an international business for their banking needs in the UK. The criterion, however, is not where the bank is headquartered, but the quality of its capabilities. If a UK bank is not providing the best services, then questions probably need to be asked about whether it is doing its job properly and/or whether their competitiveness is being hampered by regulation.
The UK continues to be very competitive, with both domestic and international market participants and new entrants. Major institutions that support economic stability and growth need to be able to invest in innovation to prepare for changing conditions over the next four to five years.
The revolution in retail client experiences, through use of mobile devices, is significantly creating similar levels of needs/expectations in the corporate world. Large banks, concretely, need to anticipate and drive solutions against this potential opportunity. Technology will continue to be the game changer, and the pivotal asset of distinction for institutions claiming this space in the transaction banking world. Lloyds is committing major investments and we have exciting developments in the pipeline across the digital and broader eCommerce space.
How Thought Leadership Can Reduce the Cost of Sales by Patrik Havander, Havander & Partners A focused attention on the costs incurred by the global sales and marketing processes is becoming increasingly important for corporate banks and their transaction banking departments. While the client/bank relationship remains vital, research has shown that in fact relationship selling […]
