BankingCorporate to Bank RelationshipsWhen the Going Gets Tough, the Tough Innovate

When the Going Gets Tough, the Tough Innovate

Advances in financial services are constantly in the news: new and clever ways of providing credit to large corporations, non-bank entrepreneurs entering the payments market to offer radical options for paying bills, or retail outlets selling financial products directly to consumers. But innovation does not have to be sensational to be significant. Countless new ideas, products and approaches are implemented every year in all areas of financial services. They may not immediately grab everyone’s attention, but they are, nonetheless, important.

Transaction banking is one of the more understated areas of finance. It operates largely behind the scenes: familiar to those who work in it, or who directly use its services, but not to many others. Yet it is a huge activity, central to the safe and efficient movement of cash and securities around the global financial system.

Transaction banks provide three broad services: cash and liquidity management; trade services and finance; and securities and fund services. Their clients are large corporations, public sector bodies and financial institutions. Whether it is a local authority that needs to improve its cash management and working capital position, a multinational that wants to provide finance to its SME suppliers, or a financial intermediary that needs innovative post-trade solutions to seize new opportunities and navigate alternative execution venues – all need the services of a transaction bank.

In difficult times, the strongest organisations confront their problems with innovation, which can be either in complex transaction banking solutions or simpler/less visible technological or process innovations that, when implemented by clients on a large-scale commercial basis, can significantly boost performance and profitability. Customers rely on their transaction banks to take on these challenges.

Moving cash between group companies, making benefit payments to claimants, outsourcing fund administration – all of these processes may seem to be standard functions and inherent to a business and its logic, but all at some stage have required an element of innovation, followed by investment in processes, people and infrastructure to ensure they work quickly, securely and cost-effectively.

Ideas in Action

Examples of innovation can be found across in all areas of transaction banking. One such example is the intermediation of international investment and trade flows. In the past decade, China’s relations with Africa have grown exponentially. Banks have played an important role in facilitating the increasing two-way flow of capital, cash and payments.

A second example would be the strategic focus in the Gulf region. For example, Citi is now building out its issuer, investor and intermediary services in the region to provide a range of capabilities similar to what it offers in the developed markets, such as custody and clearing services.These services are based on skills and technology developed in Europe and elsewhere, but have been adapted to suit local market participants.

Another area that has seen innovation is international workers’ remittances. The flow of these remittances from the Middle East through banks, money transfer agencies and other formal channels is estimated to be more than US$300bn today and is set to grow to more than US$450bn by next year. Improving the processing infrastructure by creating partnerships with telecom operators and white-labeling options for other banks, as well as working with companies employing these migrant workers, would enable these flows to enter the official channels.

Finally, mobile payments are evolving. With the rapid growth in the number of mobile phone users in Africa, payments through this channel, especially between individuals, but also customer-to-business and business-to-customer, have grown considerably. Transaction banks are now starting to partner with telecommunication companies to provide mobile payment services. Citi is chairing a mobile payments strategy committee in South Africa, set up by the country’s payments association and Central Bank, to formulate a national strategic plan.

Partnership in Action

As well as services and products, innovation in relationships is key. Banks are partnering with large companies based in developing countries with aspirations to operate on a regional or global scale to help them realise their ambitions. Global banks can offer a network providing local and regional access for global companies and global access for local and regional companies.

Success in transaction banking is based prioritising clients’ needs by reacting to structural shifts in the business environment. It is rooted in a readiness to capitalise on new opportunities and it requires a willingness to innovate.

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