Goldman/Japan: transaction banking expansion is a safe bet

It may lack the glamour of its investment banking business, but that will not hinder Goldman Sachs from entering transaction banking in Japan. Even if banking is slow growing there, these services could end up becoming one of Goldman’s most stable sources of income in Asia.

See this as a first step. Goldman will provide multinational companies operating in Japan with treasury services for day-to-day transactions including cash management and worldwide cross-border payments. Japan is the first country in Asia where Goldman Sachs will offer the service. This follows a US version using its cloud platform in 2020.

Goldman will have plenty of rivals there, both from locals and international banks. Its toughest competitor in Asia may be Japanese. Mizuho plans to hire more for transaction banking regionally, including in fast-growing Thailand and Vietnam. It already has 160 specialists. Mizuho’s transaction banking in Asia helped boost group net profit last year.

There is scope for further growth in transaction banking. Revenues globally reached their highest level in more than a decade last year as interest rates climbed, lifting margins on lenders’ liquidity businesses. More recently, the strength of the US dollar has helped the US market lead the way in transaction banking. Record volumes last year resulted in a combined revenue of $16bn for the top 10 banks in the first half. For Goldman, the number of clients in this area has doubled over the past three years.

Yet the Asian portion of the pie remains low at less than a fifth of total revenues made by global lenders. There is room for new entrants, especially those with strong technology tools. The large volumes of transactions in cash management mean digital and automated platforms provide an edge.

The dull can add glitter to any company’s coffers. For Goldman, grabbing market share in Asian transaction banking should help it strengthen relationships with local corporate clients.