February 2018

Future growth means embracing disruption, and running with a new order when it comes to moving money in the digital world, agree trade finance delegates at the BAFT Global Annual Meeting 2018

Transaction banking’s brave new world formed the backdrop at the Bankers Association for Finance and Trade (BAFT) Global Annual Meeting 2018 closing panel on 17 January, where more than 300 participants discussed the way forward in a world where data, rather than cash, seemed to be king. “Jam tomorrow”, to use the language of the Red Queen in Lewis Carroll’s Through the Looking Glass, comes to those who know what to do with this asset.

The event, entitled “Confronting today’s paradoxes” wove the paradoxes into a range of sessions, including the juxtaposition of regulators seeking banking sector insights to help them broaden the competitive landscape, and fintech/technology “competitors” becoming partners. 

In addition, as part of its initiative to invest in the next generation of banking leadership and create a pipeline of talent that will contribute to industry issues, BAFT introduced its Future Leaders Class of 2018 that includes Deutsche Bank’s Kerim Florian Yebari from the Trade Finance Financial Institutions team. Launched in 2015, each “class”, tackles a range of projects to solve common industry challenges.

About BAFT

BAFT was set up to influence regulation and legislation through global advocacy for organisations engaged in international transaction banking – key areas being de-risking and trade policy. It serves as the industry’s voice before multilateral agencies, export credit agencies, finance ministries, central banks and legislative bodies, and collaborates with other industry groups and trade associations around the world. Members are headquartered in 52 countries and while 70% of the membership is banks, there is an increasing presence from solution providers – now up to 23%.

BAFT also develops international standards such as the Master Risk Participation Agreement for trade risk and it published its Guiding Principles for Sanctions related to shipping and financial products in February 2017 to positive member response.

Client-centricity, cooperation and diversity

Chaired by McKinsey partner Alessio Botta, observations from Deutsche Bank’s Head of Global Transaction Banking John Gibbons, Citi’s Head of Treasury and Tarde Solutions EMEA Ebru Pakcan, and Lloyds Banking Group’s Head of Global Transaction Banking Edward Thurman had a common theme: transactional closeness to clients, longstanding habits of cooperating with competitors, and diversity of staff lie at the heart of transaction banking’s resilience and steady growth through feast and famine, including the Global Financial Crisis of 2009–11.

Unlocking new revenue sources with digitalisation

“I cannot think of a period when we were not challenged by some sort of half-full, half-empty dynamic” said John Gibbons. Industrialising operations with digital development will be key for future success, and working with the right fintech partner makes it possible for a global bank to access new sources of revenues previously out of reach.  He said “the actual movement of the money and exchange of information” is becoming a “tremendous enabler of our customers’ business models.”

What does this mean? “We used to think that business enablement was wrapped in financing. But a customer told me that while they can have a client anywhere in the world, that isn’t always where we can collect the money. So it is here that GTB can play a very important role,” said Gibbons. This ties in with what McKinsey predicts as a time when “banks will offer a range of services, reach a vastly larger customer base, and succeed at their digital rivals’ game.”

To do this, a bank has to fully deploy “the vast digital tool kit that is now available” and harness what McKinsey calls “the new power of data-driven marketing” as well as all the elements of the digital workbench such as application programming interfaces and apps, the cloud and robotic process automation.

Customer need

All panellists agreed that the uniquely close relationship that GTB has with its customers through its product and service provision puts it in a strong strategic position within the financial institution. “While technology does drive some interesting thinking, the fundamentals are based on customer need” said Edward Thurman.

“Safe and efficient transmission of money from A to B, a safe harbour for client money and a return on their cash, and cross-border trade support is the heart of what we offer.” Citi’s Ebru Pakcan took this further and made the point that many of the emerging economy industrial giants are not actually present in the geographies where they service their clients, but have very immediate needs to collect payments and set up accounts so they can do business – echoing John Gibbons’ earlier emphasis on being there for a client in their chosen geography with the right solution. And that means being agile, and having the means to scale up fast.

Other themes of the conference

This transaction banking leaders' panel was preceded by a thought-provoking series of sessions that had grasped the nettle of how technologies will change the future of banks and their business models.

Earlier discussions looked at how banks needed to freshen up and perhaps look to the music industry – an example of how digital disruption was turned into an opportunity. Half of the industry’s US$15bn revenues are digital and in 2016 they grew at 5.9%, according to the IFPI.

Supply chain finance, said another panel, also continues to evolve, with provision of logistics and financing converging (a theme picked up in the Deutsche Bank white paper: Payables Finance: A guide to working capital optimisation). Delegates heard from DHL Inventory Finance Services how they were adding value to their physical supply chain services, by covering the “grey zone” – from the moment the goods or raw materials enter the control of the client up to where the PO is issued – which has no receivables attached to it. It was also interesting to learn how SCF fintech Taulia’s humble beginnings in e-invoicing grew to its current suite of supplier finance and management offerings, and how one bank was trying to add e-invoicing to an established SCF platform.

With the event’s London location, it was no surprise that Brexit reared its head, along with the stark reality that financial institutions have to prepare for a hard Brexit – in other words being out of the single market and the Customs Union – in line with communications to the financial services industry from the Bank of England. The general agreement among delegates was that the whole business was a huge distraction from getting on with the business of growing and that Amsterdam, Frankfurt and Dublin would grow as financial centres.

Increased cooperation

In closing, it was agreed that to be truly global banks would have to cooperate even more with other banks and other sectors. “It’s about operational efficiency,” reflected one speaker.
BAFT Senior leadership panel
Left to right: Alessio Botta, Partner, Digital McKinsey; Ebru Pakcan, Head of Treasury and Trade Solutions, Citi; John Gibbons, Head of Global Transaction Banking, Deutsche Bank; Edward Thurman, Managing Director, Head of Global Transaction Banking, Lloyds Banking Group

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