In late 2008 the global economy entered into a financial crisis that became the catalyst for a shift in the way transactional banking was viewed by corporate clients and their bankers all over the world. The credit crunch was triggered by the end of a benign credit environment and irrational exuberance.
The message that it was time to get back to basics resonated in the industry and it meant sound transactional banking principles – like the management of payments, receivables, reconciliation and trade risk instruments – found their place on the corporate clients business agenda. This shift in focus meant that clients’ expectations from transactional banks also increased and this in turn engendered competition in the market for better product offerings.
The visibility of information became critical and clients wanted real time access to their global cash positions in order to manage their working capital requirements and liquidity carefully. In addition, clients wanted the ability to manage risk in their business through the use of international trade products. Banks in turn, desired more annuity-based revenue with lower capital costs and less capital consumption. Regulators drafted a raft of compliance and regulatory changes in a bid to clean up the financial sector and bring about more stability and prevent another collapse.
The response to this change in business environment did not exclude Africa and both corporate clients and banks alike on the continent have had to make significant investments in both technology and operations to align to the move towards centralisation of treasury functions and the need to deliver integrated standardised end-to-end solutions for transaction management.
An additional force that is disrupting the industry is some of the major technological innovations that are also coming to the fore, many of these being provided by non-banks in the form of “FinTech” companies. Physical cash is still considered king in most parts of Africa, however, with the rise of technology solutions such as Mobile Money coupled with regulatory moves in some markets towards moving cash into electronic forms, this will be a key area in which banks need to very carefully manage their response, whether it is competing head on, partnering or simply monitoring developments.
Industry forums, meanwhile, are driving standardisation of client interactions with their banks and how regions clear payments in real time across borders.
Banks face the challenge of balancing these new dynamics at a time when Africa’s fortunes have turned.
Africa was, until recently, one of the fastest growing regions in the world as it benefitted from a rapidly expanding and resource-hungry Chinese economy. However, the high commodity prices, low interest rates in the West and an appetite to invest in emerging markets that underpinned much of the growth are beginning to reverse, which is placing tremendous pressure on transactional flows in Africa.
The plunge in internationally traded Brent crude, from US$115 a barrel in June 2014 to below US$30 in January 2015, has coincided with a number of factors weakening the gains made by certain regions in the African continent.
Declining commodity prices and a lack of liquidity have placed pressure on trade flows in many African countries and regions. Challenges such as the lack of infrastructure, access to power still exist; however, with this comes opportunity.
The facilitation of intra-African trade will help boost economic growth and assist in alleviating some of these continental challenges.
There are still exceptional growth stories, especially in non-resource sectors. In fact, Africa is expected to be the second-fastest growing continent within 10 years, behind emerging Asia but ahead of the Middle East, with more than 50% of countries growing in excess of 5% annually until 2025.
As this growth takes shape clients will increasingly look to their bank to deliver specialist solutions for African conditions to manage associated risks through the right level of product capability across cash, trade, custody and securities.
Winning a client relationship in Africa and delivering on the commitments made earns a bank a flow business that grows as the client grows; this is why getting it right in Africa for corporate clients is crucial. This essentially means becoming a trusted advisory partner. Placing clients at the centre of what we do is our number one priority as the above trends unfold.
As a bank that has more than 150 years’ experience of banking across the continent, Standard Bank has the knowledge, skill and relationships to assist clients negotiate the complex financial and regulatory cross-border environments in Africa and beyond.
In addition to a strong footprint spanning 20 countries, it is able to harness a powerful strategic partnership with the Industrial and Commercial Bank of China (ICBC). The ICBC, the world’s largest bank, is a 20% shareholder in Standard Bank Group, and this partnership serves to connect Standard Bank to the world’s fastest growing economy and provide ICBC’s clients with an experienced and capable banking partner.
Harnessing our network, which links in to the main financial centres of the world, combined with our transactional banking expertise that delivers from a client centric perspective within key markets across Africa will all combine to foster economic activity and ensure the continent we call home achieves its true growth potential.
As the largest lender by assets in Africa, Standard Bank remains resolute on its Africa strategy and will continue to play a leading role in facilitating trade and capital flows in multiple currencies between African countries themselves, as well as between Africa and prominent international trade corridors.
While many still think the banking sector is characterised by legacy systems and lack of innovation, this could not be further from the truth. 2018 marks the year when a multitude of external factors will shake up the industry once and for all and reinvent the way people bank. Inevitably, this presents a threat, but also an opportunity.
The Indo-US trade corridor is expected to grow to $500 billion by 2025. Currently, the two-way merchandise trade between these two countries is at $66.7 billion.
The global economy has seen about eight years of growth, but we are starting to see the end of this which is triggering some volatility in global markets, Stefan Bielmeier, DZ Bank, argued in his keynote speech at the Bellin annual 1TC conference. Other speakers discussed blockchain, cyber crime and netting.
A series of governments are now very worried about the idea of bitcoin and these currencies because customers would be able to make sustainable ongoing transactions and payments without having to ever introduce the use of a typical financial model or banking system. To combat this potential threat, several countries including major central banks like the Bank of England and the Bank of Israel will be launching their own version of a cryptocurrency. This could bring big advantages to customers.