Setting the Context
The last 5 years in the banking world seem truly extraordinary, even to the most casual observer. In this dynamic banking business world, transaction banking is set to become one of the rising stars. Global transaction banking (GTB) provides a wide array of commercial banking solutions and services, targeted mainly at business banking clients including financial institutions. Traditionally, transaction banking included payments, receivables, liquidity management and trade finance. Transaction banking gurus have extended this definition to include value-added mix of these services bundled with risk management, securities, FX and other subsidiary services that spill over to include custody, advisory and supply chain financing realms.
The key question is no longer whether or even how transaction banking has been transformed, but how to re-engage with customers, how to respond to their changing needs, how to generate sufficient returns in this new business environment, cut costs and increase business agility. In their efforts to ‘deliver for performance’, BFSI IT vendors look at what different customers’ most value and how banks can make the most of the resulting opportunities and value potential.
Transactional Services & Payment Systems market is in a growth trajectory and continue to provide a stable stream of capital light revenues for banks, generating low cost deposits (clients’ operating accounts balances), requires less capital lending and creates stickier customer relationships than any other product or service. Banks are at a cusp, realizing that transaction banking is becoming increasingly competitive, with a growing focus on fee based revenues, mounting pressure to reduce OPEX, and the need for agility to respond to industry and regulatory initiatives. These changes, including dynamics of globalization and ever changing technology, is disrupting business processes and procedures in traditional banking.
Adversity Breeds Opportunity
In the current times, it is no longer important to know how transaction banking is revolutionizing commercial banking, but how to deliver value to customers, being agile enough to cater to the changing market needs, looking beyond the obvious and how to keep the business afloat by generating optimum returns. Needless to say, today, customers implicitly expect and demand efficiency, reliability, standardization, personalization, flexibility and easy access to working capital, no matter what product or service they are using and in what geography.
So, it is imperative that banks invest in understanding customer attitude, behavior, psyche and financial needs for retaining their competitive positioning. The challenges faced by banks today revolve around breaking down traditional product silos and offering structured & personalized products/services over multiple channels. Today regulations (like Basel III, SEPA, PSD, AML etc.) demand banks to provide and track lot of compliance related data/statistics, needed both by customers and the regulators; simultaneously increasing the cost of doing business in global markets. This is not possible without having a holistic and finer view of both their customers’ needs/preferences and bank’s in-house operations. An increasing need is being felt for tools and techniques to enable and facilitate banks to have a 360 degree view of customers business and provide one perspective of their operations, thus significantly reducing the effort to consolidate regulatory data across different internal teams and provide business intelligence to create customer centric business models for an increasingly diverse and integrated customer-bank financial value chain.
All this is not possible without technology. Markets are becoming increasingly commoditized so innovation in the form of value added services is the only differentiator. Increasingly, the pressure is on Banks to offer integrated transaction banking solutions that meet existing and future customer needs by providing seamless, integrated, real-time and consistent experience across multiple channels. Banks are looking beyond run-of-the-mill transaction banking products and services flanked by payments, payroll, receivables and other singular processes and focus on offering personalized and wholesome working capital management solutions revolving around customer’s operating working capital cycle; gone are the days of “ one size fit all” approach.
Customers need to view and manage their total financial position; anywhere and anytime, with increased focus on STP, personalization, interoperability and standardization. IT product players like Nucleus Software are working closely with banks to meet and exceed client requirements and be able to offer innovative solutions for corporate customers to have total transparency, freedom and greater control, allowing them to manage their corporate finances as easily and conveniently as private customers. Gartner has very rightfully opined, from the customer perspective, a more appropriate name for transaction banking should be “commercial process banking,” since commercial customers view bank transaction services as part of a process continuum for managing the commercial financial supply chain.
When it comes to channel accessibility, the impact of mobility on individual consumers and commercial customers can’t be negated. Mobile has created a new channel through which banks can provide the convenience of anytime, anywhere banking to their customers. Some of the key factors driving banks to roll out mobile banking to their corporate customer base as indicated by Aite Group in their Corporate Mobile Banking, 2011 report are: demand from corporate treasurers, enhancement of the customer experience, the ability to accelerate fee-generating activities, and the potential for fee-based revenue. Most of the banks today offer payment authorization, alerts, account balance aggregation and statement reporting as some of the staple features on mobile for corporate customers; payment initiation on mobiles is something that corporates are cautious off.
Transaction banking as a global business has largely remained under-leveraged though it was one of the most resilient businesses during financial crisis despite plunging trade volumes. Despite shrinking margins, significant revenue growth of approximately 170 percent or a compounded annual growth rate of roughly 11 percent is expected from 2011 to 2021 (Source: BCG, Transaction Banking advantage, 2012). With the right focus, proper positioning and alignment with customer preferences, transaction banking will continue to deliver value and be a front runner – being the shining and guiding star for banks.
-By Dinesh Verma, Head- Product Management , Global Transaction Banking, Nucleus Software