Globalising Spanish transaction banking

The following article has been submitted by the US based bank BNY Mellon to the Benche and is an excerpt from a round table discussion hosted by the bank in Madrid earlier this year. Although the focus is very much on the needs of Spanish corporates for their local banks to provide global standard transaction services, the ideas expressed as to how this can be achieved apply to both Spain and beyond.

Globalising Spanish transaction banking

In light of the views expressed by senior transaction banking professionals at a recent roundtable event hosted by BNY Mellon in Madrid, Fiona McBride, the firm’s Vice President, Market Development for Treasury Services EMEA discusses the future of transaction banking in Spain

The transaction banking capabilities of local Spanish banks are coming under increasing scrutiny as domestic corporates expand into foreign markets. Not only are the demands upon them increasing, so is the competition they face from global banks, specialist providers and even mobile telephone companies (telcos). Especially with respect to payments, this is now a sector experiencing both heightened expectations and increasing competition. Within Spanish banking, therefore, transaction banking is very much in the spotlight.

Corporate concerns, however, go beyond the efficiency of cash and working capital management. The overall heightened risk profile combined with the expansion of business into markets with low levels of bank penetration means that global reach and understanding are also major concerns. Overcoming this requires access to global standard transaction processing solutions and international reach, which is an aspect that some domestic banks may have failed to address – especially as they face increasing pressures from regulatory requirements and harmonisation objectives, and increased competition from telcos who are increasingly becoming payment services providers.

The crucial issue for local or regionally focused banks with regards to global reach is that of payment channels, which is where telcos have the competitive advantage. Unlike banks, they are unburdened by regulatory compliance issues, which are weighing ever greater on mid-sized banks. Certainly, local banks are finding they are losing the competitive battle when it comes to transaction and customer acquisition cost.

As a result, the threat of local bank disintermediation, which originally arose as banks struggled to develop supply chain finance solutions in response to the rise of open account trade, looms once again – this time driven by innovation. Local banks who wish to address their corporate clients’ changing requirements, therefore, need to find ways to extend their domestic service internationally. Payment channels, for this reason, are paramount.

“We must consider the channels services users may choose to make their transactions,” said Joaquin Beltran Nunez, Director of Corporate Development Projects at Bankinter. “Are they using the Internet, are they going to bank branches or are they using mobile phones to issue the transaction? What role can banks play in countries where the majority of people are unbanked? Is there an opportunity for banks here, or will it be the telcos who dominate?”

According to Carlos Gutierrez Salan, Managing Director, Global Transaction Banking at Banco Santander, the answer to overcoming this problem for banks lies in extensive networks.
“Our experience in Latin America, in which there is a low level of bank penetration in most of the countries, is that an important way to add value for our corporate clients is to maintain a huge branch network,” he said. “This is particularly critical for the collections business, where extensive reach is necessary to solve corporate clients’ collections and domestic services issues. If you want to add value for your customers and solve their collections issues, the only way to do this – as well as remain competitive – is to acquire the necessary long reach – what we refer to as so-called ‘capillarity’.”

The question for the smaller domestic banks, therefore, is how to extend their reach? Certainly, outsourcing may seem to be the obvious choice, but is increasingly becoming an unattractive option for many smaller institutions. This is because the inherent competitor dangers and disadvantages of most outsourcing offerings means that it may not, in fact, provide local banks with what they are looking for. Local banks need and want ways to address the needs of their local markets, but such offerings rarely cater for specific market concerns.

Indeed, outsourcing frequently shoe-horns local banks into a “one-size-fits-all” system designed for the needs of the international market. This often leaves local banks with little or no flexibility to compete in the markets in which the insourcing bank also operates or address the real and evolving local concerns. Furthermore, with regards to core competencies, many Spanish bankers feel they are ahead of the curve.

“When foreign banks come to Spain, most of them are very impressed,” said Bankinter’s Beltran. “We are using a variety of channels to offer services and products to our clients and we have a very strong corporate relationship management processes in place. Furthermore, our banks also have innovation departments that look and think two-three years ahead.”
What local banks seek, therefore, is not to make a global capability local, but rather to make their local capabilities available globally. A local-global partnership, which can be seen as a “manufacturer-distributor model", could be the answer to this problem.

Under this model, specialist global providers act as “manufacturers” of transaction banking services and products, and local banks fulfil the role of “distributors” of these services and products to their local client base. Far from being at a disadvantage, the distributors’ strength lies in the sound knowledge and understanding they have of their domestic markets and their strong ties with the local corporates.

Certainly, the benefits of this approach stem from its focus on the individual core strengths and capabilities of both local and global banks. Local banks have the necessary client relationships, local expertise and risk management and assessment capabilities, while international banks are better positioned to provide the global reach and infrastructure. This combination could boost the spread of relationships, as well as leverage local banks’ existing capabilities – giving them the necessary agility to adapt their offerings to provide their corporate clients with bespoke solutions while retaining core competencies and generating cost efficiencies.

The views expressed herein are those of the authors only and may not reflect the views of BNY Mellon. This does not constitute treasury services advice, or any other business or legal advice, and it should not be relied upon as such.