LIZ SALECKA talks to senior executives who attended this year’s Sibos Convention in Japan about the top global issues and topics that emerged in relation to transaction banking and payments, treasury and trade finance
While the shift in global economic growth patterns, the impact of new regulations, and the role of technology in achieving competitive edge were the key themes at this year’s Sibos Convention, they were by no means the sole talking points for delegates convening at the International Exhibition Centre (INTEX) in Osaka, Japan.
High on the agenda was the need for banks to build next-generation, future-proof transaction banking models; introduce greater innovation into their offerings; and form strategic partnerships to drive forward their businesses in an ever-changing, global financial services environment.
“Partnerships between banks are a big topic, and there is now a much greater focus on how banks can work together to acquire more business and help each other service clients in markets where they do not have a local presence,” commented Asif Raza, managing director, head of treasury and securities services MENA, JP Morgan, pointing out that this is just as pertinent an issue to Middle Eastern banks.
“Many Middle Eastern banks are now investing in sophisticated transaction banking products and services to meet the requirements of large local corporates. They are also now reaching out to some international banks, and entering into greater dialogue and discussion with these banks, about how they can help them service clients in those Middle Eastern markets where they (the international banks) do not have a local presence themselves.”
At this year’s Sibos, SWIFT partnered with the Boston Consulting Group to introduce a series of key sessions on the challenges facing transaction banks and how they should adjust their business and operating models to deal with the globalisation of trade flows and rapid rise of Asian e-commerce; the increased sophistication of corporate clients; and the fast growth of non-cash payment services in rapidly-developing economies.
Several discussions debated the rapidly changing global payments landscape together with the need for greater innovation; the role of mobile payments; and the transformation taking place in the eurozone, where all corporates and public sector bodies have been mandated by the European Commission to migrate to Single Euro Payments Area (SEPA) instruments by February 2014.
“Transaction banking was very high on the Sibos agenda as it is a priority for all bank CEOs today. Within this area, payments and cash management are the most discussed subjects because they are at the heart of customer relationships,” said Simon Newstead, head of FI market and business strategy, Royal Bank of Scotland. “Payments is a growth market and very competitive – and there needs to be constant innovation on the part of providers to stay current. New regulation also continues to make this a challenging market.”
“Payments featured strongly at Sibos because of industry standardisation and the cost-efficiencies and economies of scale that can be achieved,” added Faisal Ameen, APAC cash head, Bank of America Merrill Lynch.
“On the back of that, banking infrastructure has to be considered. When banks make investments they tend to look at a 30-40 year horizon – but the biggest impact on payment mechanisms is happening right now,” he added, noting that the provision of payment services is also now subject to greater compliance, sanctions and anti-money laundering (AML) regulation – all of which bring infrastructure issues.
Growth in non-cash payments
Sibos 2012’s strong focus on the evolution taking place in payments globally was given further credence by the World Payments Report (2012), released by Capgemini, Royal Bank of Scotland and Efma, which revealed that global volumes of non-cash payments grew by 7.1 per cent in 2010 to reach 283 billion, and are expected to show further growth of 8.2 per cent for 2011.
While card usage, particularly debit cards (107 billion transactions in 2010) were the biggest single drivers, online payments (e-payments) and mobile device payments (m-payments) expanded rapidly to reach a total of 22.5 billion transactions globally in 2010, and an estimated 28.3 billion in 2011.
“The interesting thing that comes out of the analyses on the mobile side is that over the last two to three years, we have seen roughly 54 per cent growth per annum in mobile payments – but despite that only about two per cent of mobile users are mobile payment users so far,” said Newstead, who helped to compile the report. “This demonstrates that the upwards potential is massive. By 2013 about 17 billion mobile payment transactions are anticipated. A similar picture emerges for internet payments. This is seeing dramatic growth rates of 20 per cent per annum and by 2013, we are expecting that there will be more than 30 billion e-payment transactions.”
The World Payments Report also revealed that rapidly-developing markets are witnessing the fastest growth in non-cash payment volumes (nearly 17 per cent) in comparison to the Western world (nearly five per cent).
One of the highest growth levels was experienced in the CEMEA (Central Europe, Middle East and Africa) region – at 22.7 per cent for 2009-10 – serving as an early indication of the success of government policies in regions such as the Middle East to introduce greater automation into their payment and collection processes.
“This trend generally reflects growing instances of innovation and e-government initiatives. When you look at the situation globally, there are a number of cases where e-government programmes and the active engagement of governments in the development of payment systems is driving this forward,” said Newstead. “In some cases, the sole objective is innovation, whereas in many e-government examples, the objective is to drive the market forward. Settlement risk reduction and achieving standardisation and efficiency are the other prime goals.”
The payments report also assessed 32 different regulatory initiatives at global and national level and the fundamental impact they will have on the payments landscape.
According to Newstead, while some regulations will trigger greater innovation, others may constrain payments innovation. “The relationship between regulation and payments innovation is a complex one – and some types of regulation will create innovation. Basel III, for example, will have an innovative effect in relation to requirements for the monitoring, tracking and management of intra-day liquidity,” said Newstead.
Corporates go mobile
The prospects for mobile corporate banking – and the growing use of mobile devices by senior corporate finance and trade executives for both cash management and trade and supply chain finance (SCF) activities – also featured strongly at this year’s Sibos.
“The trend we are seeing towards B2B payments all boils down to convenience. When we talk about SCF, payments or another form of transaction, it is about using a mobile device for viewing, authorisation and the provision of administration functions,” said Ameen, whose bank has launched mobile solutions for both cash and trade.
Meanwhile, Citi Transaction Services, which launched CitiDirect BE Mobile last year to allow corporate clients to use mobile phones to access core transaction functionality available with CitiDirect Online Banking, revealed that this service has recently surpassed the $10bn mark in total transaction value in 86 countries.
“From CitiDirect BE Mobile, we have learned that when you provide clients with innovative solutions that meet their changing needs, accelerated client adoption and commercialisation are very achievable,” said Naveed Sultan, global head of treasury and trade solutions, Citi.
At this year’s Sibos, Standard Chartered Bank was also showing potential clients the new capabilities it has built into its Straight-to-Bank Mobile payment and trade authorisation tool to allow greater efficiencies in working capital management. The remote payment and trade transaction authorisation app now includes balance inquiries; mini statement functionality; trade limits; letter of credit summaries; bills for collections and guarantees.
“We are confident that today’s enhancements will enable greater efficiencies in corporate financial processes, and offer greater control and visibility over working capital management, thus enabling greater optimisation of physical and financial supply chains,” said Gautum Jain, global head of client access at Standard Chartered Bank.
Trading up with the BPO
Not surprisingly, the potential of the Bank Payment Obligation (BPO) stood out in much of the trade and trade finance-related debate at Sibos, particularly in light of the collaboration between SWIFT and the International Chamber of Commerce (ICC) Banking Commission on the creation of industry-standardised rules for the electronically-transmitted instrument.
While banks recognised the opportunity that the BPO affords by fully automating processes associated with the provision of trade finance, while also mitigating risk, there was also a general understanding of the need to generate greater awareness of the BPO’s benefits among the corporate community.
According to Raza: “Banks came up with this novel innovation, and their objective now – mainly in the open account space – is to put it into the equation as a means of risk mitigation and putting trade finance in place to offer a value proposition to both buyers and sellers.”
Debates in the trade finance space also focused on the growth of supply chain finance, and how banks can support corporate clients’ needs for ever larger – and more global – SCF programmes. Discussions here focused on collaborative, multi-bank SCF solutions, but the importance of attracting non-bank participants was also noted.
“The need to attract alternative investor classes to trade finance has been discussed for many years, but the uptake has been slow,” said Raza. “However, this is now becoming a necessity because of Basel III and the added capital costs it brings to trade finance. Banks need to attract alternative investors so that they can recycle trade finance assets, and secure the balance sheet capacity required to do more trade finance business.”
He also pointed out that this is a global issue – and that greater education was still needed. “We know who the alternative investors could be, but they do not have much historical experience of trade finance instruments and how they work. To attract these investor segments, we need to design and launch new products, and enhance education in this area so that they feel comfortable with this asset class.”
Back seat for e-invoicing
While the opportunities offered by e-invoicing did not receive as much attention at Sibos this year, this was generally attributed to the longer timeframes that mass scale adoption of the technology is likely to take – given the lack of global standards – and the urgency of more imminent challenges.
“E-invoicing has to be looked at in the framework of client demand,” said Ameen. “Until now, it has captured more interest in regions such as Europe, but there are now other things happening in Europe such as SEPA, which have required much more immediate attention. E-invoicing does add efficiency – but it is more of a nice thing to have.”
However, here, Raza also pointed out that, although demand for e-invoicing is picking up in western Europe and the US, there is less demand from MENA region corporates.
“Companies in emerging markets are often doing business with multiple players in other emerging markets, and to gain real efficiencies from the use of e-invoicing at least 80 per cent of their counterparties would need to be using the same solution,” he said.
“However, global standardisation will help to facilitate the growth of e-invoicing. This has been evidenced in other areas such as trade risk participation agreements, the use of which was greatly facilitated and driven forward by the introduction of common global standards for these agreements.”.