Welcome to Zawya Markets. Each Sunday we will be featuring an interview with a different analyst or markets expert from around the region.
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1) What is transaction banking? And what does Deutsche Bank look to achieve with its global transaction banking (GTB) unit?
It is the business where we support our clients in their day-to-day financial operations. GTB comprises of cash management, trade finance and securities services. This business is key for Deutsche Bank as it not only provides a great platform for regular, close, content-driven interaction with our clients but also a stable, projectable source of income. Deutsche Bank’s founders saw the bank’s main purpose as being to finance Germany’s foreign trade, therefore our trade finance business was - and remains - the backbone of this institution since it was founded in 1870.
2) Who are your clients and what type of services do you offer?
Our clients include corporates, financial institutions, government bodies and supranational agencies. The services we offer aim to mirror our clients’ operational needs to successfully run their businesses. They include domestic and cross-border payments, risk management and financing of international trade but also trust, agency and depositary, custody and related services.
3) What is the business line within GTB that most interests you in the MENA region? Is it securities services, payments, trade finance, or treasury services?
We pride ourselves on our “client-centric” approach to our business focus. In that sense, instead of selling our product set to as many clients as possible in any given market, we aim to connect with and really understand the needs of our defined target clients. Today, our clients often require our support with trade finance structures; be it accounts receivable solutions or local guarantees for multinational subsidiaries, international guarantees in connection with one of the many large infrastructure projects in the region or complete financing packages, often commodity-related or with export credit agency (mostly government-backed) cover.
4) What is your view on open banking? What has it achieved so far? Do banks see it as a compliance exercise or an opportunity to innovate?
We’re excited about the new opportunities. Last year in fact, Deutsche Bank announced the acquisition of Mumbai-based fintech start-up Quantiguous Solutions, a software company that specialises in the development of application programming interfaces, to accelerate the development of our open banking platform. This platform will become the core of the development of Deutsche Bank’s innovative client applications.
5) Are MENA banks, more specifically GCC banks, making much progress in implementing open banking? Why/why not?
This is a question that should rather go to the respective banks, but what we’ve seen so far in terms of engineering is really impressive. As soon as this market opens up in the region, I am sure we will see some very smart ideas.
6) How important is regulation to transaction banking?
If we stick to our previous example: the European PSD2 directive is the fundamental tenet underpinning all open banking activities within the eurozone. The Arab regional payment system will transform the whole treasury landscape in this region. These are just two of many very positive examples for influence from policy makers and regulators enabling the implementation of more innovative solutions. At the same time, regulators keep the banking system clean from participants that don’t obey the rules or fail to fulfill minimum requirements, thus causing a potential threat to clients and the system.
7) Many hedge funds and private credit funds have moved into the trade finance business in recent years citing an underserved market. Why is that?
I think the most important reason for this trend is that the trade finance business is a very attractive one. We’re talking about real economy, often pre-sold goods being part of a whole value chain where the control through other members of this chain regulates who sits in front of you as a potential client. The instruments used often appear very formalistic and old fashioned, mostly because they are. Letters of Credit, for example, often serve at the same time as financing and risk management instruments for the seller and the buyer, plus their respective banks. On top of that, they serve as an instrument for currency import or export controls for the respective regulators. That’s a lot for an instrument that is already a couple of hundred years old and still heavily paper-based.
8) What are the latest developments in the cash management space?
Real time information and instant payments are certainly the most transformational developments in the cash management space. They will a) continue to spread and b) enable and drive further innovation. Treasury will more and more transform into a real-time function and will have to find answers to brand new questions.
9) What will be the most important trends for the finance industry in the next two years?
I think ApplePay and its competitors will transform the way people settle payments - especially their small bills. We might finally see a victory of the card over the cash payment.
AI will be the next big differentiator in the finance industry. It will advise clients, take care of processes like onboarding, help with day-to-day service requests and support credit decisions. Better technology will lead to better decisions, better customer experience, less “repair” costs and more business.
(Editing by Gerard Aoun and Michael Fahy)
Any opinions expressed here are the author’s own.
© Opinion 2019