State Of The Industry: The View From Sibos

Tired of focusing on trade disputes and Brexit, banks at this year’s Sibos preferred to discuss tech’s potential benefits.

Disruptions and industry tensions have dominated the annual Sibos conference, seemingly for many years—but not this time. The September conference in London, organized by Swift, was primarily about business and innovation; and many participants greeted this as a welcome change.

“For the first time in seven years, at Sibos in London there were no strong new entrants and no threats to the industry,” said Benoit Desserre, head of Global Transaction Banking at Societe Generale. “There was nothing out there that can jeopardize the entire industry, no major disruption: not from banks and not from fintechs. Frankly, without fear, you can do business even better than before.”

The key themes for banks at the moment are open banking, data management and how to make the best use of artificial intelligence, said Erik Zingmark, head of Transaction Banking at Nordea. It is very hard for a bank to tell its investors that they are the shareholders of an IT company with a banking license and a balance sheet—and that must reduce costs and invest in technology to stay relevant, he said. In his view, banks must be much faster agents in realizing their own digital transformations.

Echoing a similar sentiment, Sriram Muthukrishnan, group head of Trade Product Management at DBS Bank, said, “We feel more fintech than bank.” He added, “In an environment where many companies are increasingly digitizing products just for the sake of ticking off a box in their transformation agendas, we are embedding ourselves in our customers’ business processes.”

Muthukrishnan said, for example, that through the use of data and algorithms, DBS has registered strong growth in its trade business, providing trade financing to small to medium-sized e-commerce players in the region. He also pointed to how digital banking in India “offers supply chain traceability for the big players, opens new markets and expands financial inclusion to smaller players in the value chain.”

Geopolitics Persist

Other participants stressed that plenty of geopolitical uncertainty is keeping banks from focusing fully on the opportunities new technologies present, however. “At the moment, trade tensions and Brexit create uncertainty in the markets and inefficiency in the system,” said Mark Evans, managing director of Transaction Banking at ANZ. “Once there is more clarity, we will be able to improve the system and handle the risks.”

Especially challenging is the movement of supply chain out of China due to its trade disputes with the US and others. “Overall, this challenge represents an opportunity as well,” said Evans.“Banks will continue to play a significant role in facilitating economic growth; but in the meantime, treasurers are re-evaluating their strategies,” choosing a wait-and-see attitude as trade issues become clearer, he explained. As for innovation, “Rather than talking of blockchain as an innovation looking for problems [to address], we’re focused on solving real issues using fit-for-purpose technology.”

For much of the globe, too, banks still need to focus on more-fundamental matters than the latest technological tools, argued Chris Hamilton, CEO of BankservAfrica, an automated clearing house based in South Africa and active elsewhere on the Continent. At past Sibos events, “there was nearly too much discussion on blockchain, new technologies and bitcoin,” he said. “Now we are back on track: The challenges of every developing country are in its modernization; in dealing with financial inclusion in regions where cash is still king; and specifically for Africa, in dealing with the diversity and complexity of 54 countries and over 40 currencies.”

The importance of transaction banking within financial institutions is also growing. “At the moment, trade finance is slowing due to regulation,” after years of strong growth, noted Desserre, “while supply chain finance is growing faster. But in the last couple of years, many more banks have understood that transaction banking is one of the three top drivers of the relationship with the client, because it creates resilience in the relationship. Transaction banking is the new El Dorado for us too.”

Going forward, he added, “One of the key challenges for transaction banking is that regulation is not slowing down. We will have to invest in regulation or pay the consequences.” And then there is the push toward global regulatory enhancements known as Basel IV. This “will require more capital from the banks, and this can trim both trade finance and supply chain finance,” Desserre warned.