Financial Institutions newsletter

Contents 3 David’s Viewpoint

6 “Of century champions and unicorns”: four principles of enduring success

9 Millennials: a lead indicator of future performance for financial services companies

14 Transaction banking in focus

18 Navigating uncertainty

20 Brexit: negotiations, domestic politics and the transition period

David’s Viewpoint

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An introduction from DavidWe’re nearing the end of Q3 and there’s still a lot to deliver before the year is out. For those of us in the UK, the structural reform programme (i.e. “ringfencing”) has kept us busy these last few months, but the end is in sight. In my introduction this quarter, I touch on Barclays’ upcoming events, including our presence at Sibos next month, as well as SWIFT’s Customer Security Programme.

Conference season in full swing

Conference season is upon us again, and we’ll soon be heading out to Toronto for Sibos. Before this, we’ve hosted a few key client events – our product, economic and politics experts visited Frankfurt and Paris to update clients on what’s impacting financial services, including Brexit, SWIFT gpi and blockchain. We also hosted our London FIG Symposium, where this year’s theme was ‘navigating uncertainty’, with two panels focusing on geopolitical uncertainty and operational uncertainty. You can see the key takeaways from that event in this quarter’s newsletter.

Barclays at Sibos 2017

This year’s Sibos will be held from 16 to 19 October. Senior representatives from across our Product and Relationship teams will be attending – including Alistair Currie, the new COO of our Corporate Bank – and will be delighted to meet with your institution at our exhibition stand (H24). The Barclays booth will have four separate client meeting rooms, plus four open seating areas and our popular coffee bar and barista. If you’d like to book a meeting, contact the team at: Sibos2017@barclays.com

I’ll be part of a panel session alongside Bank of New York Mellon and HSBC, exploring “The evolving banking sector in Latin America: how can we manage change?” Join the session to hear their views on how banks can remain secure and resilient in a highly competitive market that is constantly demanding fresh innovation and changes in business models.

They will also discuss what can be done in Latin America to ensure that the future of banking and payments stays secure and competitive amidst the ever-evolving regional landscape. It’s on Tuesday 17 October, 3:30 to 4:30 pm, in Conference Room 3.

To find out more about our attendance at Sibos, visit ourSibos webpage.

Reinforcing the security of the global banking system

It sometimes feels like a week doesn’t go by without news of another cyber attack – and anyone can be the target. It’s a challenge for the entire financial industry and a key priority for us at Barclays. We’ve developed a fraud hub on our website with a number of useful articles and links available. The number of fraud incidents occurring – as well as the fact that the techniques and approaches of fraudsters are continually evolving – demonstrates the need for the banking community to collaborate and fight against these threats and stay one step ahead.

SWIFT has recently launched a Customer Security Programme (CSP) to support institutions in the fight against cyber attacks. The programme is based around:

• Inf ormation sharing on cyber threats, as well as preventive and detective measures

• Enhancing SWIFT-r elated, customer-managed software and tools, and monitoring capabilities

• Guidelines and assur ance frameworks, including new audit frameworks and certification processes so that banks’ own internal procedures meet certain security and operational benchmarks.

The CSP centres around three key areas:

1. Institutions who need to protect and secure their local environment (You)

2. Preventing and detecting fraud in commercial relationships (Your Counterparts)

3. Continuously sharing information and preparing to defend against future cyber threats (Your Community).

I’m sure this will be a key talking point at this year’s Sibos, so I look forward to seeing you there and discussing this topic and many more.

As ever, if you have any feedback or questions on the content of the newsletter, please speak to your Relationship team.

You

Your Counterparts

Prevent and Detect

Secure and protect

Share and Prepare

Customer Security

ProgrammeYour Community

David Scola Head of Financial Institutions

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“Of century champions and unicorns”: four principles of enduring success

Four principles of enduring successAs established financial services companies strive to stay relevant in an increasingly disruptive world, and with corporate lifespans becoming ever shorter, new FinTech start-ups can perhaps draw on the histories of long-lived corporations as they look to build a business that lasts.

In this article, Christian Stadler, Professor of Strategic Management at Warwick Business School, shares some insights from his research into today’s unicorns and the century champions of the past, looking at what these companies can teach us about achieving success in both the short and long term.

“Charismatic leaders can take you to places you wouldn’t otherwise go.”Christian Stadler, Professor of Strategic Management at Warwick Business School

Recent research by Richard Foster of Yale University found that the average lifespan of an S&P 500 company has dropped from around 60 years at the start of the 1960s to just 15 years today, and it will have fallen to 12 by 2020. The message is stark: corporate longevity – and the ability of companies to deliver success to shareholders in the long run as well as the short term – can no longer be taken for granted.

I have conducted research into long-lived corporations as well as into highly successful start-ups. One of my aims was to identify qualities shared both by ‘century champions’ – i.e. European companies over 100 years old that have outperformed stock market peers by a factor of 100 during their lifetime – and unicorns, the small but fast-growing entrepreneurial entities worth at least US$1bn.

Through my research, I have identified four principles for enduring success, illustrating them with examples that could apply by analogy both to FinTechs and to established players in the financial industry.

1. Master both innovation and execution

2. Fight bureaucracy

3. Passion for the frontline

4. Be a great boss – but not necessarily a charismatic one

1. Master both innovation and execution

Apple has a famously innovative culture, with a reputation for hiring people who have a deep understanding of new trends and technology. This culture is also reflected in its ‘one campus’ policy and acquisition strategy. But perhaps more importantly, it is also strong in execution, with an R&D intensity of 2.7 (compared with IBM’s score of 6.1 for instance), and an emphasis on simplicity and focus when it comes to internal reporting lines and products.

Glaxo, a century champion from the pharmaceuticals sector, is another case in point. Its best-selling stomach ulcer medication Zantac was a me-too product rather than an innovation, but Glaxo turned its second-mover status into an advantage by executing an ingenious sales and pricing strategy.

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2. Fight bureaucracy

To illustrate the value of avoiding red tape, I often cite the example of Jack Abraham, a development team leader at eBay, who assembled a group of fellow developers from across the world and took them to Australia to fast-track a project to overhaul the company’s website. He was able to present a prototype to CEO Jack Donahoe just two weeks later: an impressive example of taking initiatives outside the usual structures.

3. Passion for the frontline

Frank Wang-Tao is the CEO and founder of DJI, the world’s largest consumer drone company. It is a business based on a personal obsession with remote-controlled helicopters that goes back to his childhood. Wang’s fierce passion for his company’s products remains undimmed, and he has used it to drive the growth of an operation that earns revenues of US$1bn and is valued at US$8bn.

4. Be a great boss – but not necessarily a charismatic one

Edzard Reuter became CEO of the flagship German car manufacturer Daimler in 1987. Eight years later he was forced to resign, with the company having suffered significant damage to its reputation. Reuter’s mistake was to attempt to turn Daimler into an integrated technology conglomerate. This was unchartered territory for the company, but Reuter had used his personal charisma to persuade the board that the strategy was the right one.

The moral of the story, from my perspective, is that charismatic leaders do not necessarily make the best bosses, and can take businesses to places they would not otherwise go. If you contrast Reuter with Cor Herkströter, former chairman of Royal Dutch Shell, he was an accountant by background, and a solid but unspectacular leader with a knack of finding compromises that worked – showing that cultural change and innovation sometimes need to be handled sensitively and taken at the right pace.

Christian Stadler

Professor of Strategic ManagementWarwick Business School

For the past decade, Christian has devoted his energy to the investigation of long-living corporations – how they grow, adapt and consistently beat their competitors.

He has shared his ideas with executives and students across the globe as well as through articles and interviews for CNN, BBC, Al Jazeera, the Harvard Business Review, Sloan Management Review, New York Times, Wall Street Journal, Financial Times, Bloomberg Business Week, Fast Company and a blog for Forbes.

His book, Enduring Success: What we can learn from the history of outstanding corporations, is the first one with a non-US perspective on long-range success. Thinkers50 – the premier ranking of the most influential living management of thinkers in the world – listed him as a future thinker in 2013.

www.christianstadler.org

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Millennials: a lead indicator of future performance for financial services companies

Millennials: a lead indicator of future performanceAs established financial services companies strive to stay relevant in an increasingly disruptive world, they face a crucial challenge: to compete for the wallets of the key millennials demographic and make the transition from the linear growth model of the past to a new, exponential trajectory.

In this article, Rocky Scopelliti, Telstra’s Global Industry Executive for Financial Services, gives his vision of the industry’s future: the programmable enterprise that can tap the combined potential of millennials and mobile technology to achieve exponential growth.

It is the demographic known as millennials that provides the starting point for my vision of how the financial services sector will evolve in the next decade and beyond. This forms the basis of Telstra’s newly published global report, Exponential Performance – In a Millennial, Mobile and Programmatic World (www.telstra.com/3MI).

Millennials, their use of apps and what they invest in a financial relationship, are lead indicators of performance and disruption. Broadly aged between 18 –34 years, this consumer group now makes up one third of the world’s population. And in the countries included in our study, on average 70% of millennials use mobile devices as their primary means of engaging with financial institutions.

The combination of mobile technology and millennials will be the key driver of exponential growth in the decades ahead. In short, millennials matter most for the future profitability and performance of your organisation.

Telstra’s research found that UK millennials’ average wallet size has now overtaken all other demographic segments by the largest margin compared to other countries studied, making millennials more lucrative to the financial services

sector than ever before. As digital challengers continue their relentless growth in the UK market, leveraging programmable disruptive technologies to transform and compete against new breeds of organisations is an imperative for traditional institutions.

“Millennials, their consumption of mobile digital and wallet size have undoubtedly become lead indicators of performance for financial institutions.”

“The combination of mobile technology and millennials will be the key driver of exponential growth in the decades ahead.”

Millennials will become (and remain) a main source of profit

Millennials are the only demographic on an exponential trajectory

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TSYS analysis of the U.S. Census bureau population projections released December 2014

#BarclaysFinTech

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Millennials will become (and remain) a main source of profit

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Millennials are the only demographic on an exponential trajectory

Programmable software-defined network

Digital platform

-as-a-service

Intelligent real-time

orchestration

Artificial intelligence on demand Behavioural analytics

Natural language services Cognitive services

Machine learning services

Programmable intelligence Continuous:

Operation analytics

Customer analytics Market analytics

Product analytics

Programmable infrastructure on demand

Tablet

Online

Mobile

Chatbot

Voice

Intelligent virtual assistant

Next big thing!

Enterprise systems, mainframes, etc. Email, spreadsheets,

Reports, documents

Legacy systems and processes

Robotic process automation

API gateway

APIs

Data services on demand

Security and validation services Identity

Data scrubbing and matching Blockchain distributed ledger

Operational data

Customer context data Product and market data

Customer experience data

In-network intelligent security

End-to-end security monitoring and management

Continuous incremental demand-driven investment model

3rd Party data and services

Banking functions on demand Transactions

Risk Management Financing

Investment

At present, it is customers in their mid-50s – so-called Generation X – who represent the primary source of profit for financial institutions (see graph: “Millennials will become (and remain) a main source of profit”). But as the graph shows, within 10 years they will have been overtaken by millennials, who will remain the most profitable customer segment for the two decades that follow.

The future profitability of a financial institution can be determined by the proportion of millennials it has in its customer base – and its propensity to acquire them. There has never been a more important time for companies to think about this demographic.

Digital transformation for exponential growth

If established financial industry players are to make the transition from traditional linear growth models to an exponential trajectory in the years ahead, they will need to compete against a new generation of challenger companies that are able to acquire and service this crucial customer demographic at near-zero marginal cost. This means transforming expensive and inefficient legacy processes.

At present, established financial services organisations typically allocate as much as 51% of their investment budget to infrastructure maintenance and regulatory compliance. In the UK, traditional banks have a cost-to-income ratio of more than 60% on average, compared with less than 30% typically for a digital challenger organisation.

In terms of operating expenses as a percentage of loans outstanding, digital challengers enjoy a cost advantage of two to three times; they can then feed this into their pricing and thus boost their customer acquisition.

Vision

Distributed, software-controlled, data-driven, autonomous, real-time, programmable financial services enterprise

“The future profitability of a financial institution can be determined by the proportion of millennials it has in its customer base – and its propensity to acquire them.” Rocky Scopelliti, Telstra’s Global Industry Executive for Financial Services

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Vision Distributed, software-controlled, data-driven, autonomous, real-time, programmable

financial services enterprise

Exponential models External and internal characteristics and attributes leveraged to achieve exponential growth

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Disruption

Exponential

Social technologies

Interfaces and scalable processes

Autonomy and decentralisation

Real-time dashboards

Experimentation and risk taking

Staff on demand

Community and crowd

Data and algorithms

Leveraged assets

Community engagement

Massive transformational purpose

Programmable technologies are the answer – but innovation culture is holding companies back

Programmable technologies, such as infrastructure processes, artificial intelligence, digital platforms and application programming interfaces (APIs), are the key to meeting this challenge. The use of software-defined networks, for instance, will enable organisations to transform what is currently a very fixed infrastructure approach. Robotic process automation will help reduce the labour-intensity associated with legacy business models, while programmable intelligence will give organisations the predictive capability to monitor the business across an array of different use cases.

However, there is still a long way to go to encourage the financial industry to be more progressive when it comes to innovation. We’re still too risk-averse, and risk-taking is often punished – Telstra’s research found that 93% of executives said that experimentation was perceived to be career-limiting.

The enterprise of the future: meeting supply with a demand-driven investment model

Finally, new investment decision-making strategies are needed in order to achieve a radical reduction in the marginal cost of acquiring customers. At the moment, there is a significant mismatch between exponential players and traditional organisations when it comes to making invest-ment decisions. Companies following linear growth models are investing much too late – long after the horse has bolted.

“There is a significant mismatch between exponential players and traditional organisations when it comes to making investment decisions.”

When it comes to investing in financial technology, current thinking is too skewed towards simply responding to supply. It is more important to anticipate where demand is coming from, and my vision is for a continuous incremental demand-driven model (see chart: “Vision: distributed, software-controlled, data-driven, autonomous, real-time, programmable financial services enterprise”).

If we think about the future of a financial institution, it is what we call a ‘programmable enterprise’: one that strikes that balance between demand and supply.

Exponential models

External and internal characteristics and attributes leveraged to achieve exponential growth

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UK financial services market in a unique position – with Barclays leading the way

The Telstra 3MI™ (Millennial, Mobile, Money Index) – developed to show the relationship between the proportion of millennials in a country’s population, the extent to which they engage financial institutions using mobile devices and apps, and the average size of their ‘wallet’ (the sum of their assets and liabilities) – reveals that the UK market is currently in a unique position. The millennial wallet in the UK is 40% bigger on average than that of the population as a whole. In other words, in the UK the banking relationship of a millennial is on average more valuable than the relationship of the total population.

What is the exponential organisation?

The exponential organisation is one that outperforms its peers by a factor of 10 in terms of growth – typically by using new organisational techniques and accelerating technologies, allowing them to acquire and service customers at virtually zero marginal cost. Research by Singularity University suggests that such companies share 11 key common attributes, including “massive transformational purpose”, “experimentation and risk- taking” and “interfaces and scalable processes” (see chart: “Exponential models: external and internal characteristics and attributes leveraged to achieve exponential growth”).

Key takeaways

• Millennials will have become the main source of profit for financial services institutions by 2028 – and over 70% of them on average use their mobiles to engage with their providers

• Established financial industry players will need to transform digitally if they are to compete with challengers on costs

• Programmable infrastructure, processes and intelligence can help companies achieve this transformation by driving friction out of operations, products and services

• By encouraging risk-taking, companies can facilitate the innovation and culture change required

• Radical change in the investment decision-making process will open the way for a drastic reduction in the marginal cost of acquiring customers.

To find out more about Telstra’s report, review the report, an eBook, videos, infographic and other assets, visit: www.telstra.com/3MI

Rocky Scopelliti

Global Industry Executive Banking, Finance and Insurance, Telstra

Rocky Scopelliti is Telstra’s global strategy and thought leader in financial technology services. He is also a non-executive director on the board of Community First Credit Union. Rocky has more than 20 years’ senior management experiences in the information technology and financial services sectors.

A distinguished strategist, author and international speaker, Rocky has contributed to the World Economic Forum’s Disruptive Innovation in Financial Services programme, delivered key note addresses at events, such as Mobile World Congress, and published 12 thought leadership research reports on digital disruption that have become internationally recognised.

Educated in Australia and trained in the US at Sydney and Stanford Universities respectively, he has a Graduate Diploma in Corporate Management and an MBA. He is also a graduate and member of the Australian Institute of Company Directors (AICD).

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Transaction banking in focus

Transaction banking in focusThe financial services landscape continues to be impacted by change – macro-economic trends, innovation and regulation. In this article David Scola gives his views on these key issues and more.

Is the cost of compliance still hampering activity in transaction banking, or is there light at the end of the tunnel? How can technology such as artificial intelligence or industry-led utility-style services, such as those on offer for KYC, ease the pressure?

Compliance activity now forms part of the day-to-day role for client-facing bankers, whether that is through KYC, transaction monitoring or keeping up-to-date with regulatory changes. As banks have scaled up through systems and resources to accommodate the increased requirements in this space, we have seen the increasing cost of managing the AML agenda change the focus of how we manage our client profile; however, now the pendulum is swinging so that, increasingly, the regulatory focus is changing to a more risk-based approach based on client and activity risks.

Banks have rightly needed to enhance their controls in high-risk sectors – correspondent banking, for example – and with the EU Fourth Anti-Money Laundering Directive (the most comprehensive AML legislation in recent years) placing greater emphasis on ultimate beneficial ownership and enhanced customer due diligence (CDD), this enhanced risk-based approach is coming to the fore.

Combined with this risk-based approach, we’re seeing greater consistency of information being gathered with initiatives like the SWIFT KYC registry and the revised Wolfsberg Questionnaire. By driving consistency across CDD and EDD, and streamlining the common process,

this should help reduce the demands put on banks so that, ultimately, instead of a ‘one size fits all’ approach to KYC, banks can assess and recognise the level of risk in their partners based on their activity levels. And while it’s true that central utilities do help cement a consistent approach to KYC, the adoption rates are still relatively low and, in my view, need to be higher to reduce KYC demands, maintain a cost-effective approach and, in some cases, actually remove the outreach to the client.

I think there is light at the end of the tunnel, but there’s some work to do. By driving adoption and streamlining the common elements of KYC process through central utilities, in conjunction with the Wolfsberg Review, banks will be able to focus on the risks and quantify them, bespoke, to each client. This should move us away from a ‘one size fits all approach’, allowing us to adopt a more risk-based approach and reducing some of the activity that can increase costs in this space.

To what extent are transaction banks transforming into digital service providers? What does it take to stay competitive and satisfy increasing corporate and FI demands around user experience when they interact with their banking partners?

To answer this question, it’s helpful to define what digital means, which is essentially to send and receive digits of data. We are already expert at elements of this through connections such as SWIFT, File Gateway etc.

We haven’t always focused on the efficiency and ease of use of the products that we deliver digitally, essentially pushing old products through new connections. Now, though, the infrastructure is changing and systems are being upgraded to become more efficient. The best transaction banks are also now looking to provide context with data, thus turning data into actionable information and intelligence for our FI and corporate clients.

Banks can assess and recognise the level of risk in their partners based on their activity levels.

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As we now look at PSD2 and open APIs, banks will become even more digital to ensure that they can remain competitive and provide quicker payments through seamless connections. There’s also the potential under open banking for banks to ‘stitch together’ products to make it even simpler and easier for customers and clients to bank with us, despite products being provided to our clients by competitors. We need to work hard to make sure that we are still relevant for our clients.

How are banks coping with the increased competition from non-bank payment providers? Do banks need to partner with FinTech firms in order to thrive? To what extent does the move towards open banking threaten the traditional business model?

Banks have been working with FinTech firms for years, and it’s a business we know well. Traditionally, this has been simply providing these companies with banking services, but I think it’s too simple to say that partnership is needed to enable banks to thrive. Increasingly, we’re exploring opportunities to collaborate, and this brings dual benefits: it enables the FinTech to scale their business, and allows us as banks to improve the competitiveness of our offering.

More and more, we’re seeing the talent culture and business models of small to mid-market businesses making their way up to the corporate and FI sector. At Barclays, we see this as a key segment for us, so we’ve invested in our start-up and scale-up propositions, developing the Rise programme, as well as a high growth and entrepreneur team.

I also think it’s naïve to say that open banking threatens the traditional banking business model. Clearly it causes disruption and creates change, but I think this change creates an opportunity for us to reset our perception in the market, as well as how we engage and support our clients. We’re excited about the future where we can use the technology to build more competitive products and better support our clients.

How are banks helping corporates and FIs into new geographies?

Banks have long been familiar with operating across geographies and navigating the complexities of dealing with myriad regulatory regimes, business practices and customs. This expertise has become increasingly valuable to our clients as they broaden their reach across borders and time zones.

Helping our clients operate in a global environment is the core value proposition for any Global Transaction Banking franchise and has been for some time. What I think has changed is the regulatory onus on doing so. To that end, banks have had to not only increase their internal controls, as I referenced earlier, but they are also having to work more closely with their clients to understand the nature of their business and the objectives of the relationship at a much deeper level than before. In doing so, we often identify new products and services we can offer our clients to help them achieve and deliver against their strategies.

How are banks ensuring that cyber security remains robust around their systems?

With customers and clients increasingly going online to do their banking, banks remain an attractive target for criminals. Every day we experience hundreds of attempts to breach our security, and there are a number of tools and techniques that can leave the bank – as well as our clients and customers – vulnerable, including social media, social engineering, ransomware and phishing. And the list is growing. Staying ahead of those trying to hack financial systems requires resources, expertise and vigilance, but we have a responsibility to protect our customers, clients and employees, so we are continually investing in and implementing a number of measures working with other financial institutions, as well as law enforcement agencies. The three main ways we are responding to the threat are: protecting information wherever it is stored; developing the best possible products for our customers and clients; and innovating to take security to the next level

Fraudsters improve their methods all the time, so we have even established teams to hack our computer systems, emulating how criminals will try to get into the bank, to find flaws and fix them before thieves, vandals or terrorists can exploit them, thereby stopping cyber attacks and protecting customers. For our corporate clients, we utilise a layered security model on our systems to educate (preventing users from becoming infected); provide a secure login (only the correct user can access their banking); maintain banking controls (so the right people have the right access levels); detect fraud (using tools to identify trojans, malware and suspicious behaviour); monitor payment traffic (checking for suspicious payments); and finally, in the case of a fraud, recover funds. This is a long-term strategy for us; as criminals react to the measures we put in place, we need to develop even more sophisticated controls.

Staying ahead of those trying to hack financial systems requires resources and vigilance.

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How will the advent of real-time payments benefit clients? Are the banks prepared for the move?

Real-time payments continue to be of interest for transaction banking. As I see it, the use case is clear for retail customers, as well as the corporates dealing with those individual consumers – for example, where consumers are paying for tickets or shopping online. However, the business case is less clear for B2B where, at this time, there is less need for instant payments.

In some respects, this feels a little bit like a solution looking for a problem. It’s unclear what problems currently exist with B2B payments, although, undoubtedly, in the future, use cases will emerge where the capability becomes available. You’d question why we would use Bacs if we can use faster payments, which consequently threatens Direct Debits. Arguably, with the advent of real-time payments, we’d see a growth in the market, and therefore more volume to be shared between cash, card and instant payments. We’re starting to see real-time payments being rolled out in the euro space, with the possibility of SEPA Credit Transfers being replaced (currently they have a 24-hour turnaround).

To summarise the benefits of real-time payments: they put control back in the hands of the consumers while also giving them flexibility and choice, and at the same time they satisfy the corporate’s need to reconcile. But are the banks prepared? With real-time payments, there is a requirement to move back office and processing from batch or periodic to

real-time (24/7/365), which can cause a challenge for banks, where the mainframes have been developed with a batch model in mind. However, UK banks have, in fact, been doing it for years to accommodate FPS. For international/cross-border payments (e.g. SEPA), it creates more of an issue, where sanctions checking will also need to be brought to an instant level, which causes yet more of a challenge.

What is the potential for distributed ledger technology such as blockchain to revolutionise the transaction banking space? Where do you see the opportunities for its adoption?

At Barclays, we see the potential for blockchain not as a digital currency, but more so through distributed ledgers and the coordinated exchange of assets, with consensus. It’s a revolutionary technology, but we expect it to be embedded in five years, with success contingent on the network effect, where all the banks work together – through the R3 Consortium specifically. The pools of value will be deepest where inefficiency is greatest. We’ve identified the deepest pool as trade finance, evidenced through the recent blockchain transaction we carried out with Wave, enabling the move to paperless trade, reducing costs and enabling faster execution.

There are DLT applications for payments, but we see it more as a revolution in trade, and an evolution in payments – including FX. We can also see some benefit for debt and syndicated loans, but we believe the smart money is on trade.

What will be the greatest challenge or opportunity for the transaction banking industry over the next 12 months?

The greatest challenge over the next 12 months will be for banks to meet the growing demands of their clients against a backdrop of increasing demands for transparency and efficiency. Much of this pressure is emanating from the FinTech and retail sides of the business, where clients are experiencing rapid innovation and are rightly questioning why those same services and efficiencies cannot be brought to bear against their institutional business. In order to meet this challenge, banks will increasingly need to collaborate with FinTechs, who are more nimble and able to direct a greater proportion of their capital towards the innovation agenda. Herein lies the opportunity as well.

With the advent of real-time payments, we’d see a growth in the market, and therefore more volume to be shared between cash, card and instant payments.

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David Scola Head of Financial Institutions

Navigating uncertainty

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Navigating uncertainty: ScriberiaAt our recent UK FIG Symposium, our speakers explored the theme of navigating uncertainty in the geopolitical environment, and in operations. The below Scriberia is a visual representation of the key takeouts.

Brexit: negotiations, domestic politics and the transition period

Brexit: negotiations, domestic politics and the transition period When it comes to the Brexit negotiations, you should commit these three issues to memory. These are the phase 1 issues on which the EU wants to see “progress” before we can move to the more substantive issues around the future relationship in phase 2.

The Commission and the UK are hopeful that we can move to phase 2 following a European Council summit on the 19th October. But there is a high possibility that this timetable might slip because, despite the UK pumping out position papers on a future customs union and Ireland this week, there are no plans for a position paper on the Brexit bill. This will deeply frustrate Michel Barnier and his team, who are bound to feel that it is impossible to make progress on phase 1 by October without a UK position on the financial settlement.

For the UK’s part, they know that the financial settlement is their trump card and are therefore deliberately holding back on a set of proposals as they try to extract concessions on other negotiation issues. So, process-wise, be prepared for some tough rhetoric over the next couple of weeks and around the third round of negotiations, which begins in the week of the 28th August. Barnier has also been warming up EU ambassadors to the idea that they may need to cancel the third round in protest at the lack of a UK position on the bill. Should that happen, as dramatic as it may sound, it doesn’t mean the whole thing collapses; it just delays an already tight timetable.

On the substance of the customs union paper, the key takeaway is that the UK wants a transition period that looks much like the current arrangement. But it won’t be exactly the same because the UK is still leaving the customs union in March 2019. The UK also wants the future relationship to look very similar, if not identical, to the current arrangement – but outside the customs union. The joys of Brexit negotiations. Timetable wise, the political ding-dong will be over how long any transition deal lasts for. Politically, the red line is spring 2022, when the next (planned!) general election will be.

On Ireland, the UK wants a frictionless border between north and south and more or less maintains all aspects of the unique relationship between the UK and Ireland. The tricky aspect of this will be the EU accepting such an arrangement, as well as a potential UK political backlash around the concept of zero border checks.

Finally, on the broader question of UK politics and the dynamics in the UK cabinet, Theresa May returned from her summer walking holiday this week. One hopes, for her sake, that she came up with a great idea for a speech when she was away. The next few weeks will seal her political fate. We know she is planning to make a keynote speech and possibly a huge ‘mea culpa’ at some point in September (details as yet unknown) but her big test will be the Conservative Party conference in Manchester from 1st – 4th October. If she gets through both these events with a broadly positive press, she survives. However, a weak performance will likely be the end of her premiership, with a leadership campaign to follow.

It will not be a dull autumn.

As ever, please contact your Relationship Director with any thoughts or questions.

Be prepared for some tough rhetoric over the next couple of weeks and around the third round of negotiations

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Peter Gordon Head of Corporate & Investment Bank Government Relations

As Head of Government Relations for Corporate and Investment Banking, Peter represents Barclays in discussions with policymakers and politicians at international and national levels and advises the firm’s senior management on the potential impact of legislation and public policy.

Peter joined Barclays in 2010 from the UK Financial Services Authority (FSA) where he undertook a variety of roles including supervision, policy formation and Executive Assistant to the Head of the Risk Business Unit. Whilst at the FSA he was seconded for eight months to HM Treasury in the Private Office of the Economic Secretary to the Treasury. He graduated with an MSc in Finance from Queen’s University Belfast and a BA (Hons) in Economics & Government from the University of Ulster.

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Every attempt has been made to ensure that the information provided is accurate. However, neither Barclays Bank PLC (“Barclays”) nor any of its employees makes any representation or warranty (express or implied) in relation to the accuracy, reliability or completeness of any information or assumptions on which this document may be based and cannot be held responsible for any errors. No liability is accepted by Barclays (or any of its affiliates) for any loss (whether direct or indirect) arising from the use of the information provided.

Barclays is a trading name of Barclays Bank PLC and its subsidiaries. Barclays Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register No. 122702). Registered in England. Registered number is 1026167 with registered office at 1 Churchill Place, London E14 5HP.

September 2017. BD06213.

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