Commercial Bank of Dubai sheds light on the three key trends emerging in the transaction banking space.
It is evident that the global transaction banking industry is witnessing a paradigm shift by the way technology is being leveraged, radical demographic shifts across the region, and an ever evolving regulatory environment, which are shaping the banking industry today. The global ecosystem is constantly changing and a major contributor to this is the new kid on the block—fintech and payment banks, who are forcing conventional banks, regulators, and even corporates to change the way they think.
Over the past 12 to 18 months, the transaction banking industry has seen ups and downs, both in terms of catching up with new ideas and technologies available—few banks that have adopted change are working towards improving their services. The rest are trying to survive and sustain existing business, the so-called “defensive strategy”. There has been a great amount of success in migrating transactions from cash to cashless. There are three key trends seen changing the transaction banking space—supply chain, partner banks and fintechs.
Supply chain has been talked about by every global, regional and local bank. However, it was hardly part of strategic initiatives run by any bank or invested in until 2015. With recent technology advancements and big data, banks have realised the key to success. Supply chain enables banks to lock in the entire supply chain in the trade, which include SMEs to corporate profile clients. It allows banks to take informed decisions about the client’s credibility, helping banks to take an opportunity to finance or discount their invoices. Very few banks have developed sophisticated data analytics that blend with their clients’ treasury management systems to provide timely information and operational efficiency. With more banks jumping onto the bandwagon, this space is going to become very competitive, very soon.
Correspondent banking is a thing of the past, as it carries sentiments of a very conventional mindset. Banks, predominantly single-country banks have realised the need to have a relationship beyond traditional correspondent banking, ‘Partner Banks or Bank Alliances’ allow them to leverage on the technology of their partner banks, and offer faster processing of payments and bespoke service models to their clients.
Partner banks gain success based on the reciprocal treasury and trade business as well as referral programmes. However, at the end of the day, a better client experience will decide if the relationship will be long term. The end result for a bank will always remain the loyalty of the client and its business.
The most revolutionary idea generators are fintechs. We are surrounded by apps which allow us to perform all kinds of transactions with ease. More importantly, these applications control a major part of lives today and this is just the beginning.
We are in the middle of a digital revolution. Today transaction banking is buzzing with terms such as biometric, bitcoin, API, artificial intelligence and digital wallet, these technologies which are most talked about across the region. Banks who adopt them sooner will be in the game, the rest will perish, as they will not have clients who are tech-savvy and willing to perform transactions using their thumbprint. It is a competitive world out there and fintech are definitely helping banks to get more competitive to win more businesses and achieve better efficiency.
Analysts around the world have always predicted that the transaction banking business would be concentrated with a few global banks. However, post the 2008 recession which affected practically every bank, and with recent technology advancements, banks have been reviewing their businesses and have realised their potential.
According to the recent data on the industry monitor provided by Coalition, the transaction banking business made almost three times the income for banks as compared to other peer products. Cash management accounted for 85 per cent of transaction banking revenues in 2016. There is no doubt that innovations in the transaction banking space will continue and with growth of over 20 per cent in digital payments, banks will continue to invest as they see increasing benefits to the clients and themselves.