Harnessing Innovation for Clients
An Executive Interview with Andrew England, Head of Transaction Banking, Lloyds Bank Commercial Banking
In the first edition of 2014, Helen Sanders, Editor, talks to Andrew England, Head of Transaction Banking, Lloyds Bank Commercial Banking about the trends and challenges in transaction banking, and how these are likely to evolve in the future.
What changes in transaction banking have you seen over the past year or two?
Banks are thinking more about what they do for their clients and how they focus their investment to meet client priorities. This involves a deeper dialogue to understand more fully clients’ needs, constraints and strategic vision. In practical terms, banks are motivated to deliver a broader suite of capabilities, not simply in areas such as trade and cash, but solutions that meet core lending needs and short-term access to finance.
At Lloyds Bank, we have recognised and responded to clients’ evolving needs. Initially following the crisis, clients prioritised security and liquidity, but as market stability is slowly being restored, considerations such as yield and cost are becoming more relevant. Supply chain finance (SCF) continues to play an important role, and treasurers are becoming more aware of its potential to support small and medium-sized suppliers as well as improving their own working capital position. Data journeys and the ability to visualise these, as well as key trends, has been a hotspot for us in recent times. We are continuing to invest in evolutionary technology that helps understand clients’ challenges and helps them ask the right questions.
How do you see these trends developing in the future?
As companies of all sizes move from consolidation to growth, transaction banking has a major role to play in facilitating international expansion, and this is an area Lloyds is focusing on. We help clients to explore their risks and liquidity requirements thoroughly as they explore new markets, maximising the potential for success. As globalisation continues, and clients’ international ambitions expand, it is no longer sufficient for a bank to cover a handful of markets: there are now 28 or so key import and export markets for UK domiciled clients which require transaction banking support. Few banks can offer a consistent level of support and market expertise on this scale alone. At Lloyds, we have established strong alliances with leading local banks in key markets to offer integrated solutions that also comply with local requirements in each market and are supported with local expertise.
Although international growth is an imperative amongst many corporate clients, there are specific trends amongst clients of different profiles. Larger corporate customers have become increasingly cash-rich over recent years as they have held off making major investment decisions. These companies approach the management of these growing cash balances in different ways, however. Some, for example, still do not have a well-defined risk framework in which to manage their cash, while others take a more rigorous approach. As business confidence increases, the dilemma of how best to manage large balances is likely to decline, resulting in higher levels of investment.
Larger mid-cap companies are often focused more on working capital and are turning to banks such as Lloyds to offer fact-based comparisons and insights into their industry sector, such as comparing working capital metrics and techniques with peer companies. We are therefore helping these clients to expand their analytical capabilities, providing peer comparisons and identifying best practices. Most of this is being delivered through our continuing investment in people capabilities and insights that they bring. We put the client at the heart of everything we do and we are aware these clients want to manage their business online 24/7. It is our role to support them through whatever device they wish to interact with us on and we have some exciting plans in place to really deliver to this promise.
How is SEPA influencing the priorities and attitudes of your clients?
SEPA is not necessarily a major priority for our UK-headquartered clients, but it undoubtedly creates a more level playing field for doing business in Europe. We are supporting clients with significant activities in Europe to explore their transaction banking needs and revise their cash and liquidity management structures and processes to take advantage of the potential for synergy and standardisation that SEPA offers.
SEPA is not only affecting priorities and behaviour amongst the corporate community: there is also a significant impact on banks. In the past, banks had to have a physical presence in each country in Europe in order to provide transaction banking services, resulting in considerable overheads. Today, this is no longer a requirement, so we would expect to see a shift in the banking community as they explore new ways of supporting clients on a pan-European basis. With SEPA on one hand providing greater consistency in euro processing, but ongoing concerns about the stability of the euro and the Eurozone on the other, we also anticipate that London is likely to emerge as a stronger centre for Euro capabilities just as it is for US dollars and more exotic currencies.
What would you identify as likely priorities for your clients over the coming year?
Clients will still require financing, but it will become increasingly important to find new financing techniques e.g., that bring in other investors, rather than relying solely on the bank’s balance sheet. This will typically involve longer-term financing in order to meet investors’ needs. We therefore see the role of banks changing to become facilitators and conduits for financing, packaging solutions to meet both borrowers’ and investors’ needs.
As the banking environment continues to be competitive, clients’ expectations of their banks will increase. This will require banks to continue expanding skills and expertise and engaging in deeper dialogue with clients to explore how the bank meets the full spectrum of their operating needs, both now and in the future. While this level of engagement may be familiar to the largest corporations, we see it becoming more prevalent across a far wider range of clients.
As I mentioned earlier, supporting clients’ international growth objectives is an essential element of our strategy, one of the outcomes of which is a growing emphasis on commitment to trade in the organisation. Trade is, and will continue to be, complex, involving not only products and solutions, but defining the way in which risk awareness is embedded within the business. Banks should be providing solutions, but also asking the right questions to develop this awareness.
We also envisage more scrutiny by the government about how banks help their clients to grow. Supporting international business is one element of this, but leveraging a wider range of payment and collection methods, both within the UK and internationally is an essential related requirement, such as card processing and eCommerce. Clients’ own data often provides insight but many do not have the tools to maximise this. Where banks can provide additional data such as invoice and payment trends or currency movements and logistics this will allow them to differentiate themselves. We certainly believe that at Lloyds and we are working on some really different digital tools. One of the most recent trends in transaction banking has been the much stronger alignment of technology into businesses, organisationally, to reflect the critical path of IT development and value for money execution for clients.
Banks are no longer simply financiers and transaction processors, but their role as technology innovators will become increasingly important.