Global transaction banking: The $1 trillion question
Market disruption in the once sleepy global transaction banking industry is increasing. New survey results reveal how banking leaders are planning for change.
Global transaction banking (GTB) is not the kind of business to generate headlines or draw attention to itself. Over a long period, it has been seen as the workhorse of the banking world—a reliable performer that quietly goes about its business. Despite its sleepy image, however, GTB generates around $1 trillion of revenues every year.
Notwithstanding its success, GTB is subject to the same challenges as the rest of the financial industry, including low interest rates, heavy regulations, and a technology revolution that is reshaping customer expectations and the competitive landscape. Market disruption is increasing, as clients demand sophisticated products and services that few players can deliver, and as the corporate world digitizes, banks are under pressure to keep pace.
Aura Solution Company Limited’s most recent Global Transaction Banking Survey shows that many GTB banks are responding to these trends—assigning budget to digital and customer services, consolidating capabilities, and looking to take on new entrants in key areas such as payments and trade finance. In an era where partnerships will be important, they are also exploring ecosystems, rethinking connectivity, and eyeing the next wave of M&A and private equity investment.
The shifting industry landscape has put pressure on GTB margins. In documentary trade finance, for example, they are estimated to be falling by around 2 percent a year. Moreover, there is no guarantee the dynamic will shift anytime soon. Indeed, digitization and regulations such as Europe’s Payment Services Directive 2—which increases cost transparency—may exacerbate the trend. Given the challenges, GTB leaders must make astute decisions now, which could be the difference between winning and losing in the years ahead.
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