01 May 2005 Product Reviews

 

Tracking the changes

Over 28 years in the business, Steve Groppi, business executive for JPMorgan Treasury Services in EMEA and Asia, has seen many changes. He tells David Bannister why that’s the way he likes it.

The old Chinese saying about change being both an opportunity and a threat is something that Steve Groppi is familiar and comfortable with. “Change is good: if you like constancy, you shouldn’t really be in business,” he says.

This is probably just as well, since there has been plenty of change in his time in the industry. “I’m pretty lucky because I started in electronic banking in 1977, at Chemical Bank, and so I’ve seen the whole business develop from being an adjunct to an $80 billion plus industry.”

Since then, he worked for Manufacturers Hanover, which later merged with Chemical Bank in one of the early large mergers before ending up moving to Asia for JPMorgan, where he spent five years. He has been in Europe for the past three years, and it is a move that fits with his ideas of where things are interesting.

“Europe, from an industry standpoint, represents the most exciting region in the entire world,” he says. “The opportunities — and challenges — that Europe presents for our corporate, and banking, customers is really to re-engineer the whole network. Europe, to my mind, is the place to be right now.”

Europe also represents one of the areas where there are profound changes going on in the relationships between banks as the very large players — Citibank JPMorgan, Deutsche Bank, ABM Amro, HSBC and a select few more — and both their corporate customers and banking relationships.

Groppi uses the analogy of the alliances that have been forged by the airlines, where large international carriers have a range of relationships with smaller regional players under the likes of their Star Alliance and Oneworld schemes. “Major carriers like BA or United or Lufthansa will never have the regional routes systems of the likes of Thai Airlines or Cathy Pacific, but you can tie them together with technology and with marketing,” he says. “Whoever does that successfully has a great advantage in the market.”

It is this space that JP Morgan is in, he says. “We don’t compete with the locals: we’re the bankers’ bank and deal with the top end of the corporates, and we have partner bank structures.” He also says that there is a lot of lip service paid to the concept of partnership banking, but often the substance is different. “People talk about partnerships in a one-sided way: it’s often ‘you give me your money, and now you’re my partner,’” he says. “A partnership should be when you’re serving my customer and I’m serving yours: that way you both have a lot of skin in the game.”

“Our belief is that the local, in-country banks, with the proper partnerships, provide a much more powerful proposition for the short or medium term than any global bank can, because they have the branch network,” he says. “It’s about bolting that local knowledge to the global infrastructure.”

While these alliances are being sorted out, and new forces emerge, there are other aspects of the structure of Europe’s financial services industries that are attractive to anyone looking for change. Not only is consolidation among banks lagging some way behind the US experience, but the fragmented European market that is in part responsible for that, is also reflected in the payments systems and many of the other infrastructure components. Both of which Groppi thinks are about to change. Primarily, he believes that the political and economic infrastructure in Europe is undergoing a major shift towards the development of a single market. This means opportunities for players who are not tied to bricks and mortar.

“We have high-value cross border payments systems in Europe, and we will have a common low-value system, when it will start to resemble the US system, and the differential advantage of geographic placement will no longer be a factor,” he says.

Similarly, the inefficiencies in the clearing and settlement systems could lead to some very fundamental changes, with non-bank competition hovering at the edges. “Clearly, non-bank competitors are something I think about,” he says. “Given the state of the clearing systems that we have at the moment — we, as an industry, are not world class when you compare and contrast with the retail networks of credit cards and ATMs. Is there a play for another vendor, a non-bank to come in and service that market? That’s one thing we are always looking at.”

But in the end, it’s all about change, and that’s what Groppi says he’s attracted to. “The thing that’s really exciting about this industry is that it never ceases to change, and with change there’s always a lot of opportunity.”