TRANSACTION BANKING Tapping into digitisation


Can the banks take control of transaction banking from the clutches of technology and aspirational millennials?


Senior Editor Bill Boyle


IBS Journal February 2018


33


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t’s a new world for Transaction banking. A combination of gradually rising interest rates, a relaxed regulatory environment, some tax cuts, a healthy stock index and rising


general optimism among business owners has produced a much- needed profit boost for banks. This will also help them offset rapidly rising technology expenses and enable banks to go faster with their – often late – digitisation programmes.


There are some major trends to watch for in the coming year and beyond in Transaction banking. C.A.R.L. (Compliance, Audit, Risk, and Legal) costs will start to go down. Research outfit Greenwich Associates says it expects to see a regulatory environment that is less zealous in enforcement and more measured in levelling fines. This change means it will provide banks with the confidence to increase focus on client-facing activities. It will also allow banks to examine and potentially curtail some of the massive infrastructure and costs put in place over the last few years to address C.A.R.L.


SMEs become more important


According to Nordea bank’s Transaction banking Insights report, SMEs matter to everyone now. SMEs, it says, are the engine of the global economy, particularly in emerging markets. In extended globalised supply chains, at some point, every business will be selling to or buying from an SME, whether it’s a retailer in India, a Brazilian manufacturer or a Kenyan farmer. In fact, there is a growing awareness that SME transactions may account for the majority of a company’s revenue and costs and have a potentially disruptive effect on a company’s cash position. SMEs increasingly matter because they are taking up a bigger portion of the global trade.


“A focus on small business banking is a key strategic priority for banks of all sizes,” says Rob Lee, chief product officer at FIS. “The key to serving small businesses appropriately is a combination of providing great value for money in the services they offer and in scaling the kind of services that have traditionally been profitable business areas offered to corporates – areas such as treasury services, commercial lending and trade finance. Flexible, cost-


effective service delivery in these areas will be needed to beat off the non-traditional competition from shadow banking and peer to peer services.”


Transforming into hi-tech companies


In the short term, midsize and larger banks are making massive investments to transform their businesses into digital service providers. This transformative process is affecting not only legacy systems, but also decisions about which firms – including fintech vendors – they invest in to partner with, or purchase.


Banks that do not boldly take this leap could get a boost from underinvesting in technology and maintaining a robust traditional franchise. However, major research outfits say that at some point shortly they will not have the money to efficiently and successfully compete in critical segments without digital competencies. There are many basic aspects of trade finance that remain anchored to the past. Documentation practices, for example, remain firmly stuck in bygone days. Is this going to change or are the banks just going to sit quietly until they are disrupted?


Lee adds: “The practice of trade finance remains a very paper- intensive process. Letters of credit have existed for several hundred years, and many practices remain centred around their usage – some estimates still maintain that 60-75% of import and export trade finance deals today rely on this type of documentation.”


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