GTR and BNY Mellon have collaborated to produce a major attitudes survey of both the buy and sell sides of transaction banking.


Talk to anyone across the transaction banking universe – including both the trade finance and cash management areas – and the notion of change is likely to be uppermost in their minds,” says David Cruikshank, CEO of treasury services at BNY Mellon.

“Many feel that the 2008 crisis and its aftermath have ushered in an era of unprecedented change. The cards have been thrown in the air, opine practitioners: with them yet to land and settle in any discernible pattern. This is obviously disconcerting for many participants in this arena – not least because, not only did transaction banking not cause the crisis, the disciplines involved have always been cautiously structured to calculate and mitigate risk.

“So what does our market really think of all the change viewed as a seemingly certain future prospect? And how is it responding? Rather than go on anecdotal evidence, GTR and BNY Mellon decided to gather some empirical data on both the mood changes, and the actual changes, underway in our industry.

“The Attitudes to Transaction Banking Survey was conducted during September and October this year with the sole aim of gauging industry thinking on the trends and concerns currently having an impact on our sector. Banks, non-bank financial institutions (NBFI), major corporates and small and medium-sized enterprises (SMEs) – as well as government and multilateral bodies – were canvassed for their views on a range of subjects including regulation, liquidity, risk, technology and cash optimisation.

“Our aim is to gel those anecdotal thoughts and opinions into solid data. But we also hope to spark dialogue and debate, with the objective of moving the industry forward.”

Negative impact of regulation

When the word “change” is mentioned, the word “regulation” is usually close behind. Perhaps unsurprisingly then, the majority of respondents held a negative view of the slew of tabled regulatory proposals, and especially of Basel III, which will have undoubtedly the greatest impact on the trade and transaction banking space. 68% of respondents believe that planned regulations will have a negative impact on their business, while 70% believe that Basel III’s implementation will result in “additional costs”.

Another area where the survey was able to confirm anecdotal evidence from market participants was with regards to the availability of funding. Over the past 12 months, some 45% of respondents feel there has been a decrease in funding availability, while 66% feel that banking terms have tightened. Of course, the eurozone crisis, as well as geopolitical events such as the Arab Spring, may have exacerbated this. Yet these events have simply entrenched a trend that can be traced back to the beginnings of the crisis in 2007.

Forfaiting more popular

Focusing on trade finance, similar percentages felt that pricing had increased over the past year – with 43% of banks, 40% of major corporations and 40% of intermediaries and introducers all reporting an uptick in pricing. Meanwhile, 62% of respondents are reporting an increase (either “greatly” or “somewhat”) in the use of forfaiting or discounting, suggesting that supply chain finance is becoming ever-more popular as a form of corporate funding – perhaps given the continued constraints in bank lending.

Indeed, given these constraints, many respondents are succeeding in sourcing funding from alternative sources: some 41% are funding themselves from internal resources, for instance. This is an important figure as it suggests significant growth in internal cash optimisation, which relies on strong processes and excellent transparency to make possible. Meanwhile 18% were being funded from major corporations, which suggests the beginning of another potentially-important trend – the entry of major corporates as financiers of their own supply chain, or ‘ecosystem’.

Yet caution pervades the entire survey. For cash optimisation, some 50% opted for “security of cash position” as their primary focus, compared to 34% focusing on “return on investment”. That said, things are at least not getting markedly worse: some 69% said that their sense of caution has not changed from last year, although 24% said they were “more cautious”, with only 7% opting to be “less cautious”.

1. Nervousness about regulation

In part one of the survey, participants were asked two questions on banking regulations in general and Basel III in particular. 68% of all respondents think the planned banking regulations will have a negative impact, 29% believe the impact will be positive and 3% don’t think they will have any effect.

In regards to Basel III, 70% of respondents believe this regulation will result in additional costs for their business, while just 3% say it could be positive.

In terms of the market’s view of the regulators’ proposals, some 65% of respondents thought it is either “overly” or “somewhat conservative”, while only 12% thought it is either “overly” or “somewhat liberal”. Meanwhile, 23% thought the regulators’ approach is “neutral”.

2. Funding under pressure

Another major concern is liquidity. Undoubtedly, there is less of it about – a situation that became acute after 2008 but one that has been further deteriorating in the past year, as the survey demonstrated.

45% of total respondents have seen a decrease in available funding in the last 12 months, while only 28% have seen an increase, and 27% have seen approximately the same levels of funding from the previous year.

When looking at the results of this question based on company type, the percentages differ only slightly. For example, of the 155 banks who responded to this question, 69 (45%) have seen a decrease in the availability of external funding, while 47 (30%) have seen an increase, and 39 (25%) have seen the same levels.

Of the 14 multinational corporations to respond, five (36%) have seen a decrease, while a further five (36%) have
seen an increase, and the remaining four (28%) have seen the same levels.

With respect to funding terms (tenors, security, pricing etc), 66% of total respondents believe the banking terms for funding have tightened, while 22% have seen them remain about the same and just 12% have seen a loosening of lending terms.

3. New sources of liquidity being found out of necessity

Yet this is a resourceful sector, which means the liquidity squeeze has forced the market to become increasingly creative in how it sources funding. With cheap finance no longer available, the sector is being innovative in how it taps both internal and external alternative funding sources.

In total, funding (other than from the banking market) was found via internal sources for 41% of those that responded.

Other sources of funding included: corporations 18%, government-sponsored schemes 18%, boutique financiers or specialist funds 10%, forfaiters 3% and 10% stated “other” sources.

4. Still cautious

Despite the increasing variety of funding solutions however, nervousness persists. That said, feelings of caution have not intensified dramatically in the past year. 69% have not changed their view, while 24% are more cautious, and 7% are less cautious.

5. Technology and its motives

Of course, transaction banking is predicated on technology – probably even more so in recent years. In such straightened times, technology spend has to be justified as an investment, so what are the primary motives for companies in this space when investing in technology?

When investing in technology, 29% of companies said that their prime motivations were related to driving down “costs”, 23% cared more for “control oversight”, 21% “accuracy”, and 20% “reduced turnaround time”.

A reasonably even split, in other words, as was the case in terms of the areas winning the technology spend. That said – and perhaps unsurprisingly – risk management wins as the most acute spending need for the moment.

When deciding where to invest, some 30% chose the “risk management” function, 29% “cash management”, 21% “trade and supply finance” and 15% “foreign exchange needs”.

The importance of technology is, most obviously, underlined by the amount companies are prepared to spend. Indeed, despite budgetary constraints the technology spend appears to be holding up, with only 10% of respondents stating that their current system is “adequate” and therefore no spend is envisaged. Indeed, around 41% are planning to spend between US$1mn and US$10mn in the next year, and 14% over US$10mn.

41% of respondents said their technology spend in the year ahead will be US$1-10mn, ahead of 23% expecting to spend less than US$1mn. Some 14% expected to spend between US$10-50mn and 12% over US$50mn.

6. Improving the treasury function

When asked what could improve the overall treasury function, the importance of technology spending becomes clear: “automation” (32%) is a nose ahead of “enhanced access to information” (30%) – both of which are obvious technology plays. In fact, nearly all the answers have a technology bent to them, which proves how technology-dependent transaction banking has become.

7. Focusing on cash optimisation

The ghosts of 2008 have yet to be exorcised with respect to cash optimisation, or so it seems. The primary concern of respondents is in “securing the position of their cash”, which suggests risk is still uppermost in many minds. That said, a healthy 34% of respondents are keenest on “a return on their investment” – so some sense of normal service being resumed is permeating the market.

50% of respondents said that their focus was on the “security of cash positions”, while 34% are more concerned with the “return on the investment”, and only 16% said they focused on “time to revenue”.

That said, a cashflow-positive scenario somewhat changes the response – with “maximising income from cash” the most popular aim for cash optimisation. This beats both paying-down debt and investing in expansion. Of course, this is perhaps a middle-way option, suggesting that the critical phase of the crisis, at least, may be over.

Given positive cashflow, the majority of respondents said their primary aim would be to maximise income from cash (40%), while the second most popular aim would be to invest in the expansion of acquiring new revenue streams (32%), whereas around a quarter of respondents would choose to reduce their debt instead (26%).

8. Response to market volatility

Volatility has become the new normal, so how has the treasury sector responded? By focusing on transactional risk mitigation, it seems. Other than that – those wanting to “increase the number of service providers” were just beaten by those “looking to decrease” the number, which suggests that neither response has gained as much traction as an improved awareness and diligence when it comes to risk mitigation.

Given current market volatility, 44% of responding companies said they are “looking to mitigate transactional risk”, 24% want to “reduce the number of providers”, 21% want to “increase the number of providers”, and 6% are “considering changing their providers”.

9. Operational differentiators evenly spread

When it comes to choosing a cash management provider, 30% of respondents believe the key differentiator to be “quality of service”, 22% pointed to “counterparty risk”, 20% believe “pricing” is the most important, while 17% said an “understanding of their business” was the most important factor. Some 11% highlighted “technology” as the key differentiator.

When it comes to choosing a cash management provider, 30% of respondents believe the key differentiator to be “quality of service”, 22% pointed to “counterparty risk”, 20% believe “pricing” is the most important, while 17% said an “understanding of their business” was the most important factor. Some 11% highlighted “technology” as the key differentiator.

The individual percentages based on company type mostly mirrored the total percentages. For instance, of the 244 banks that responded to this question, 55 (23%) said “counterparty risk” was an important differentiator, and 53 (22%) preferred to compare “pricing”, while 75 (31%) pointed to “service quality”. Some 37 (15%) said an “understanding of their business” was vital and 24 (9%) thought “technology” was a key differentiator. This broadly mirrors the overall percentage quota, as seen above.

However, financial institutions other than banks produced slightly different results. Of the 30 who responded, eight (27%) placed most importance on “understanding of their business”, seven (23%) pointed to “counterparty risk”, six (20%) said “service quality”, five (17%) said “technology”, and four (13%) said “pricing”. This suggests that needs-based solutions remain a priority for NBFIs.

10. Trade finance and forfaiting

Here is a clear trend – 62% saying forfaiting or receivables discounting has “increased”, proving that alternative sources of financing are becoming increasingly popular (or necessary).

Nearly half of the total respondents (48%) believe that the appetite for discounting/forfaiting has “increased somewhat”, with a further 14% stating that it has “increased greatly”. Meanwhile, 34% believe it has “not increased at all”, and 4% think there is “a decline” in interest.

Meanwhile, trade finance pricing has been edging up – or at least not decreasing – again, perhaps encouraging receivables or supply-chain responses such as forfaiting.

Some 35% of respondents felt that pricing had increased, while 46% felt it had stayed around the same level. 19%, meanwhile, thought it had decreased.

Finally, on trade finance – and another confirmation of the caution pervading the market – is the opinion that more respondents (31%) feel there is a “move towards letters of credit” than “towards open account” (23%).

That said, the fact 46% feel the balance between the two remains “around the same” may suggest that, again, the level of caution has not significantly deepened in the last year.

11. Caution towards new markets

Perhaps surprisingly for a transaction banking survey, caution persists when assessing the opportunities posed by the emerging markets; including the high-growth Bric countries (Brazil, Russia, India and China). This is the case for both MNCs and the banks – showing that, despite the noise, the enthusiasm for new markets is perhaps not as great as it is for retaining the old.

Asked about their attitudes towards new markets (including Brics), 40% of all companies are “somewhat cautious” – in comparison to 16% being “very cautious”, 34% being “somewhat enthusiastic”, and 10% “very enthusiastic”.

The individual statistics mirror this total average:

Of the 99 banks that responded, 45 (46%) are “somewhat cautious”, 34 (34%) “somewhat enthusiastic”, 14 (14%) are “very cautious”, and 6 (6%) “very enthusiastic”. Data from other business segments was similarly aligned.

12. Expectations and concerns

Finally the survey was keen to establish – generally – what three things were of most concern to those involved in transaction banking (in whatever capacity) and what were their three greatest expectations from a transaction banking services provider.

Of the concerns, “working capital management” came top, followed by “liquidity optimisation” and “compliance and regulation”. As interesting are the concerns that they beat, which include “market volatility” and “supply chain security”. When broken down both banks and major corporations agreed with this ranking, while NBFIs opted for “liquidity optimisation” as their greatest concern, as did intermediaries.

As for expectations, “strong and timely client service” was a clear winner among the financial institutions (both bank and non-bank) while, for major corporates, “access to liquidity” was equally important. “Deep knowledge of the client” came third across all respondent categories, although, for major corporates, the “global reach” of a provider was also important.


So what can be concluded from the survey, other than the fact that five years after the start of the “credit crunch”, caution persists, mixed with a degree of optimism towards the future? The first conclusion is that the regulatory response to the crisis is unloved – assuming that it will add to the cost burden and is something of an over-reaction (or at least too conservative in its approach). That said, respondents do seem to have developed a greater emphasis towards, and desire for, operational security.

“Two other conclusions can be drawn from the survey findings, in my opinion,” says Cruikshank. “The first is a drum BNY Mellon has been beating for a while now; that of a greater mutual reliance on the participants within a ‘value chain’ or ‘ecosystem’. Funding constraints have put pressure on the supply chain, which has responded by becoming more mutually-dependent and by sourcing internal efficiencies. A leaner machine in this respect is no bad thing, and nor is the second trend: the increasing focus on service quality. While reducing costs remains important, technology is seen as the way to drive them down, and that leaves service as the key differentiator between providers. When times are tough, transaction banks’ clients tend to look to their suppliers to increase the level of comfort, by being both available and responsive – not simply by cutting its costs.”

“If we therefore emerge from the crisis with a leaner machine focused on service, although with a platform that allows new players (and especially new funding sources) to thrive – we may have come through the past few years in good shape.”