Steady revenue streams make transaction banking attractive during times of volatility. But tech and upstart competitors are remaking the business.

Author: Anita Hawser

Global transaction banking provides what you might call the “plumbing” of international business. It ensures that salaries get paid, money for goods and services gets delivered, investment returns are credited where they belong, and the wheels of world trade keep turning. But despite its links with the real economy, transaction banking has historically commanded less attention from C-suite executives than investment banking, which delivers richer, more volatile revenue streams. That changed during the financial crisis, when investment banking revenues went south—and they have yet to return to their pre-crisis levels. Major global banks found respite in the steady, predictable income that transaction banking provided.

England, iGTB: Challenger banks are making inroads as global giants shift markets.

Now, global transaction banking (or GTS, as some banks call it, for global transaction services) is a more clearly delineated division within global corporate and institutional banks, and senior executives view it more strategically. “GTS was out of vogue for most of the 2000s, but it has now returned to favor with commercial banks,” notes Dominic Broom, head of treasury services, Europe, Middle East and Africa, at BNY Mellon. “GTS represents the core of most companies’ banking needs, and compared with other aspects of banking, the capital requirements are relatively favorable; hence its return to fashion.”

Not only is GTB in vogue, but confluent factors are contributing to one of the biggest shake-ups the transaction banking industry has seen for decades. These forces include nonbank tech disruptors like bitcoin and the blockchain, the eastward shift in global economic power, low-interest earnings in developed markets, the emergence of so-called challenger banks, and regulatory pressure to reduce risk and inefficiency in payment-clearing infrastructure. A clear geographical divide has opened up between banks that started investing seriously in GTB only after 2009 and are still growing the business, and the better-established transaction banks in developed markets that are now consolidating and cutting costs, largely driven by regulatory changes following the financial crisis.


Not so long ago, analysts were predicting that the transaction banking business would be concentrated in the hands of a few global players. But now some of the global giants are reviewing where they want to play, says Andrew England, a director at financial technology provider Intellect Design Arena, UK, and head of strategy for iGTB, its GTB division. That allows challenger banks to rush into the transaction-banking vacuum the big banks leave behind.

England, former head of GTB for Central and Eastern Europe at Italian bank UniCredit, says global banks are casting a cold eye on their market positions. If they are not among the top three banks in a given market, they either withdraw or retrench, he says. The most extreme example is Royal Bank of Scotland, which in early 2015 announced it would reduce its global footprint from 38 to 13 countries. Other global banks, including HSBC and Deutsche Bank, have scaled back their activities in certain markets in an effort to deliver higher shareholder returns, squeezed by a low-interest-rate environment, regulatory changes and cost-cutting pressures.

Digitization … has become strategic for the corporates, and they expect a lot more from their banks.

Elliott Limb, Misys

The upstarts taking advantage of such retreats are domestic or regional players that have poached GTS talent from larger rivals. One such challenger is DBS Bank in Singapore. DBS began investing in transaction banking just six years ago but is already giving the global giants a run for their money in Asia, having successfully leveraged its regional franchise and investment in digital services to meet growing demand for intra-Asia transaction banking.

John Laurens, head of GTS at DBS Bank, says the bank has benefited from the trend among corporate treasurers to diversify their portfolio of transaction banks. The shift in global economic activity from West to East has helped too. “Corporate boards are looking strategically at their banking group looks to ensure it aligns with their economic activity around the world—particularly in Asia, given its growth dynamic,” says Laurens. “That plays to DBS’s strengths and our focus on delivering Asia to corporates globally.”

The renminbi’s growing internationalization means Chinese companies with “redbacks” in their pockets are looking to invest them globally, including on acquisitions. “We’re well placed to benefit from that trend,” says Laurens, “being headquartered in Singapore and with extensive experience supporting Chinese companies.” Meanwhile, an increase in intra-Asian trade is also benefiting DBS, he says, particularly in the open-account trade space and supply chain finance—the fastest-growing part of its transaction banking business. Indeed, according to McKinsey, Asia is the world’s largest transaction banking market, representing 53% of the global opportunity, with total revenues in the region predicted to reach $578 billion by 2017. And research firm Greenwich Associates estimates that foreign banks’ share of domestic cash management in Asia fell from 75% in 2005 to 60% in 2012.


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