I was fascinated to hear the priorities and issues facing the head of transaction services in a major global bank this week. He doesn’t want to be named in public domain, so this is an anonymous interview and, in no particular order, here are his key areas of focus …
In March 2011, our focus was on growth strategies and innovation but, after the recent events in Europe and a poor second quarter, this has now moved into far more uncertainty and so risk management is back as our central platform.
Align this with regulatory reforms and I guess our strategy is how to manage growth in a period of regulatory, business and financial uncertainty.
A question that should be part of this process is: why is that banks are not collaborating more on areas of risk, client onboarding and so on.
Take account opening and every time a client has to deliver all their identity proofs to the bank. The bank then has to ensure AML and KYC is followed. Why is it that banks do this every time, each time, for a client and a company
Surely a company or individual should be identified once, when they first open a financial account, and then use that identity for any future account openings with that institution or any other thereafter.
Makes so much sense.
After all, I would never outsource my risk management function but I would happily outsource my risk administration for data collation and document management.
It’s not the same thing as, once my risk managers choose an appropriate outsourcing agency and perform the due diligence, outsourcing risk data and documentation administration is purely the same as outsourcing any other aspect of our business.
Then we can get into the value-added areas of client differentiation.
And this is an area we must get into fast as so many parts of banking are being eroded by new players and innovative startups.
It’s funny as this is something we’ve always known. Back in the 1980s, for example, I was asked to think of any bank product that could not be offered by a non-bank and I couldn’t think of any. However, it was harder back then to offer them, but not impossible.
Now it’s easy.
That’s why there are so many small firms starting up out there and taking bits of our business and gradually those small firms become big firms. Just look at PayPal.
So what concerns me today is that any part of our business can be chipped away by anyone using simple, low-cost, greenfield technologies.
That’s a real concern and, for the newbies, a real opportunity.
Another area that is changing the game is the technology itself.
Take real-time payments for example.
This is a potential game changer for correspondent banks, particularly if we can move into real-time cross-border transactions.
It’s not so key for corporates however, as the corporates tell me they are more concerned with trade and cash forecasting rather than immediate funds transfers.
In fact, some corporates are very wary of real-time as they see it as a way for the bank to charge them more as real-time overdrafts come into play.
So maybe there’s a threat and an opportunity in real-time in the corporate sphere, but there’s definitely a good service to be offered here from the global transaction banks to their correspondent banks.
Another concern is what’s happening in the trade and financial settlement space.
The regulators seem to want to consolidate these and some correspondent banks and corporates would like to do the same. The trouble is that the more you place financial flows into fewer platforms, the more risk you create.
Risk implies you should diversify and hedge your operations, not centralise and consolidate them.
That’s a fundamental challenge too.
On the innovation front, I really do not see why this is important.
As we said, innovation is down the agenda right now and risk is taking priority but, even if markets turnaround and we go back to growth, innovation is an issue because where’s the money?
If you cannot show me a reason to innovate through financial return, then why would I do it? What’s the point?
Today, I’m more focused with what it would mean for my bank to return to processing deutsche marks and drachma than innovation.
Talking of currency and FX, it really bugs me that everyone’s talking up the Chinese Remnimbi RMB).
Oh, it’s the big hype cycle – everyone wants to process RMB – but it’s just hype.
The dollar is still the reserve currency of the world and the RMB doesn’t even figure because there’s no volume.
You look at all the countries of Europe and probably more currency flows between the UK and the Euro than from all of Europe and the RMB.