Regional US Transaction Banks Walk A Fine Line

US regional banks face significant challenges. Along with those that transaction banks of all sizes are dealing with—increasing regulation and globalization, competition from technology vendors, heightened expectations from clients regarding the technology they can offer—they are also feeling pressure from community banks and the large, global banks. Even so, some regional corporate banks are not only surviving but thriving. They are investing in systems, providing expertise and developing networks and relationships that allow their business clients to succeed around the globe.

Among the more noteworthy obstacles regional banks must tackle is heightened competition from their global banking counterparts. As some multinational companies have turned to the capital markets for more of their financing needs, many global banks—the institutions that traditionally would serve these clients—have become more adept at servicing smaller corporate clients, says Alan Thompson, managing partner with consulting firm Bank Solutions Group. 

“As the global banks move down-market in terms of the size corporates they are targeting, regional banks are having to respond,” says Gareth Lodge, senior analyst with Celent’s banking practice. Lodge points to many regional banks’ investment in payment hubs—a solution global banks offer—as one indication of this.

At the same time, many community banks can tout their ability to make decisions on the spot and to arrange meetings between business owners and their bank presidents. These are promises few regional banks can offer.

The upshot? “Regional banks are getting squeezed on both sides,” Thompson says. Competition is also appearing from new institutions and technologies, he adds. “Today almost every product line has a significant” nonregulated financial institution competitor, such as Apple Pay or Square. Moreover, it’s not yet clear how much regulation will be brought to bear on these new market entrants, he says.

REGULATORY SQUEEZE

In contrast, the regulatory environment in which all banks operate is becoming increasingly onerous. “Government policy and regulatory policy in general is affecting the industry more than normal,” says Bill Isaacs, senior managing director with FTI Consulting, a global business advisory firm.

And banks face regualtory challenges in their operations outside the US, as well. A number of countries either have adopted or are in the process of adopting Basel III, which sets new, higher capital requirements for many banks. In addition, many countries, such as the United Kingdom, are beefing up other regulatory efforts. “What happened in 2007 and 2008 scared everyone,” Thompson says.

Another shift is the increasingly global aspirations of many small and midsize companies. “We’re definitely seeing more activity with many companies from an international perspective,” notes Jeff Jones, executive vice president, global treasury management, U.S. Bank. Even companies that don’t have operations in other countries often work with clients or suppliers located outside the US.

While regional banks, like their smaller and larger competitors, face myriad challenges, many are nonetheless succeeding. They’re attracting more clients of all sizes by providing the expertise, tools and networks that can help them conduct business in multiple regions of the world.

Many midsize companies look to their banks for knowledge and insight, says Yaminah Sattarian, vice president, treasury and international services, with Keybank. In addition to working with clients one-on-one—say, advising on the documentation that will reduce the risk that a transaction fails—Keybank hosts boot camps in various cities on such subjects as global trade and foreign exchange, Sattarian explains. “We’ve actually doubled our revenue in global trade in the past year and expect that to continue.”

Many regional banks are also investing heavily in their technology offerings. For instance, SinglePoint, U.S. Bank’s primary cash management portal, lets treasurers and CFOs see the cash in- and out-flows not only at their U.S. Bank accounts, but also at those with their other banks, Jones says. “They have visibility into what’s taking place in all accounts.”