More industry collaboration definitely was the theme during the opening plenary session of the SWIFT Operations Forum Americas on March 17 in New York. A panel of experts from the payments and securities industry discussed the effects of the financial crisis on the way they operate and all agreed that the industry needed to work together better to manage risks in the financial system.
Neeraj Sahai, managing director, global head of securities and fund services, Citi (New York), said the industry was reminded once more about just how global it has become by the financial crisis. "We're now seeing how a crisis that began in the U.S. housing sector is bringing global companies to their knees."
George Doolittle, managing director, head of global payment services, Wachovia, A Wells Fargo Company (Charlotte, N.C.), said as regulation becomes a core focus for banks, more industry collaboration will be critical for dealing with the new requirements. "The last decade, we weren't [very collaborative]," he stated, citing the transformation of the card associations Visa and MasterCard as an example. "So the industry has to be more collaborative, especially since this is something our new government owners want."
Regulation will be the one place where industry cooperation can shine through, agreed Michael Bodson, the Depository Trust & Clearing Corp.'s (New York) executive managing director, DTCC business management strategy & chairman of Euro CCP. "How do you deal with regulation at a time when profit margins are being squeezed?" Bodson posed to attendees. He said for its part, the DTCC is talking to the regulators to see if they can use some of the organization's existing infrastructure to achieve greater transparency in the industry. "The lack of transparency can cause market dysfunction. So let's use the infrastructure that's already standardized" rather than sending the information to the regulators to collate, which, he said, is less efficient.
"It would be helpful to us as a bank if the infrastructures did cooperate," said Doolittle. "Lowering cost is critical. Costs are piling up in the customer service and compliance departments. I think the industry can collaborate in these areas." More coordination would help eliminate the complexity of moving from one infrastructure to another, according to Doolittle. In the end, this would improve everyone's operational efficiency and service to customers.
"The financial services industry is at the eye of the storm," said Citi's Sahai. "The more we can come together to separate fact from fiction and reduce systemic risk, the better."
Even as banks look to do more with less, good customer service never goes out of style. "The basic fundamentals of success remain the same," noted Sahai. "Be focused on your clients' success in the short- and long-term. Right now, clients will be very cost focused. So you want to create solutions for clients to reduce cost."
For Wachovia's Doolittle, the client relationship is part of his "Four Rs" approach—relationship management, focusing on the real economy, risk management and regulation capital. "Transaction banking is dead where you can just hawk products to customers," he proclaimed. "It's really about relationship banking. One element of this is [managing] liquidity. But it's also about customized solutions." He said focusing on services that fit individual clients' needs will yield the best results and that banks should shift their focus from single platform solutions.
A key to succeeding in the new financial climate will be the continued push by banks to do more with data. Citi's Sahai said one way to better serve customers and help them handle their risk is by packaging information in a manner that will help clients use it to best manage their business.
For Federal Reserve EVP Bill Barouski, this means providing more information on payments for banks and their customers. Assuming that payments activity slows down with the economic situation, said Barouski, providing more information around individual payments will become critical. "This is dictating our product extension ideas," he noted.
In fact, he said payments might become very different as the economic crisis causes banks to take pause in their payments investments. Although technology was the enabler to accelerate the move from paper to electronic payments, Barouski said these technologies required substantial outlays and that some financial institutions may start rethinking their strategy here. "If it's not core to the financial institution and there's no short-term ROI, then there's a threat of a slowdown in the evolution to a full electronic [payments] environment."
Couple that with the greater concern for counterparty risk in payments transactions and the new larger players formed by mega mergers, and the payments landscape may become very different, at least for the foreseeable future.
However, if banks and other players can work with the data, then there is still an opportunity to provide value to clients and improve efficiency. "SWIFT has a lot of data. The more they can mine it and present it to stakeholders, the better these stakeholders can manage risk," noted Citi's Sahai.