“In terms of innovation, the powerful combination of Open Banking and real-time payments provides huge opportunities for us to meet the real needs of clients,” says Recker. He also noted “real commitment from the C-suite to transaction banking as a business line”, citing Deutsche Bank CEO Christian Sewing's speech at the Annual General Meeting in May, in which he heralded the business as core to the wider bank’s growth strategy, as a recent example.
All in all, transaction banking is in relatively good health: growth exists (it doesn’t always in other areas of banking) and payments volumes continue on an upwards trajectory. Yet Recker was not oblivious to the sizeable challenges ahead: the industry must address the still sluggish pace of technological change and upgrades, it must resolve issues around standardisation (especially with respect to API development) and it must find new revenue models in the face of falling margins on payments transactions.
The first live poll of the day – asking what key issues keep bankers awake at night – placed increased competition level-pegging with falling margins as the number one worry. Five years ago, competition would have meant FinTechs. It’s fair to say this has changed, with FinTechs being warmly welcomed into the banking fold: this year’s event was notable for the vast number exhibiting (with fraud prevention solution Bleckwen scooping the event’s prize for the most cutting-edge start-up).
Some of the shift in rhetoric around FinTechs from competition to collaboration can perhaps be attributed to a shared threat: the emergence of BigTechs in the world of financial services. EBAday was awash with buzz around Facebook’s first foray into the world of payments, announced on the morning of the first day.
Recker, talking about the emergence of BigTechs in financial service provision more generally, noted the lack of a level regulatory playing field between them and more traditional financial service providers as a concern – and something he believes the industry should be lobbying regulators about.
The dual threat of slimming margins and swelling competition has no easy solution – banks will need to think outside of the box to arrive at innovative answers. Take note of the telecoms industry, urged JP Morgan’s Global Head of Clearing, John Hunter: “Forty years ago, selling long-distance services was the industry’s cash cow, but now that business has been marginalised and most provide it for free. Telecoms companies, however, had the foresight to completely rethink how they run their businesses, and it worked. I have six children and now pay a $400 monthly cell phone bill – a large expense I would never have considered paying for long-distance services!”
Hunter and Recker concurred that the payments industry will similarly have to figure out where revenue pools will sit in the future and innovate around them, providing value-added services that wrap around the payment itself. This will require insight, skill and a willingness to be bold (hence the art of the possible).