Growing client demands for speed, transparency and convenience are playing a key role in reshaping the finance industry. As people become increasingly accustomed to technology and its efficiencies in everyday life, they expect these capabilities to be applied to financial services – and this includes the corporate world.
This is driving banks to seek ways to offer improved transaction banking solutions to enhance the client experience.
PSD2 and Open Banking regulations are also driving change, with banks in the European Union – at the request of their clients, for example – required to open their customer account interfaces to new third-party providers at the request of clients.
By enabling fintechs, large technology firms and banks to go head-to-head as payment-service providers, PSD2 aims to help drive lower costs for clients. And – in giving consumers more financial service providers to choose from – it gives them a greater ability to determine their customer experience, thereby potentially significantly altering the existing banking landscape.
Elsewhere, globalization is impacting the transaction banking space. The global integration of international trade and investment has increased the need for better connected services.
Transaction banks, therefore, are looking to introduce enhanced cross-border operations in order to support increasingly global finance.
Enhancing transaction banking with cutting-edge technology
An abundance of technology-based initiatives and fintech developments are being introduced to help transform cash and trade services. One such development is blockchain technology. A blockchain is a digitalized, decentralized public ledger, which records all transaction information chronologically and inviolably, enhancing security and allowing market participants to keep track of transactions without central recordkeeping.
There is a growing need to reform cross-border payments, and many in the industry believe blockchain could ultimately play a role in the solution.
Indeed, central banks across the globe are examining the potential for moving parts of their payments systems onto blockchain technology. BNY Mellon is involved in several projects exploring how blockchain could add value to business models – including the Utility Settlement Coin (USC), which we are working on alongside a number of banking partners.
There is a growing need to reform cross-border payments, and many in the industry believe blockchain could ultimately play a role in the solution
USC is an asset-backed digital cash instrument, implemented on distributed ledger technology, for use within global institutional financial markets.
Throughout the payments process, different parties need to route payments, perform currency conversions and deploy and manage liquidity in different jurisdictions, all subject to heterogeneous regulatory constraints.
Combined, these factors can result in slow payment procedures. Yet, blockchain could help to simplify the process by streamlining payments between those operating under different levels of regulation and security, which has the overall effect of speeding up the entire transaction.
Blockchains could also therefore enhance trade. As blockchain facilitates transactions under one system, ongoing developments aim to support faster trade operations. Currently, however, blockchain is still in the very early stages of development, and there remains uncertainty about its exact application in transaction banking.
Innovations in robotic process automation (RPA) and artificial intelligence (AI) could also deliver real benefits to transaction banking.
Currently, a growing number of banks are exploring the use of RPA and AI to automate certain simple, standard business processes. This could be particularly beneficial in the trade industry, for example, where manual, paper-based tasks currently used throughout the trade process are labour and document intensive, which increases costs while decelerating cash flow.
With the addition of intelligent optical character recognition capabilities, the benefits of RPA in these circumstances are widespread. Such tools can scan documents with speed, resulting in improved efficiency, cost savings, risk reduction, and an overall enhanced trade experience for clients.
And not only do robots eliminate the manual burden of administration – saving time and money – they also improve standards of accuracy as robots aren’t vulnerable to human error. We have used RPA to streamline trade settlement by resolving inconsistencies, perform research on orders, and clear trade transactions. The wider benefits of our application of RPA can be evidenced by the average 88% improvement in our overall processing time.
Not only do robots eliminate the manual burden of administration, they also improve standards of accuracy as robots aren’t vulnerable to human error
But a branch of AI known as ‘machine learning’ could potentially be developed much further. Machine learning applications use statistical techniques and datasets to ‘learn’ how to identify patterns and trends – and apply this knowledge and understanding to ‘think’ in a logical way.
In terms of practical application, a company intending to export to new markets could, for example, be provided with details of trade finance products suitable for those countries, as well as information regarding physical and financial supply chain options.
Elsewhere, application programming interfaces (APIs) could be harnessed to enrich the cash and trade experience. APIs acts as a ‘go-between’, enabling software programs to interact easily and effectively with each other.
While APIs have been prevalent in the IT world since the 1960s, it is only through more recent technology developments – such as web-based capabilities and programming advances – that their functionality has become increasingly widespread. APIs permit streamlined communication between various software components and can be particularly valuable in creating digital ecosystems that are accessible by clients.
Navigating the new digital landscape
The technology initiatives touched upon are just some of those being explored to enhance the cash and trade space. But how can banks navigate this increasingly digital landscape in order to optimize their processes?
At the heart of any banking strategy should be client value: is this development going to enhance the experience of the client? If so, it is then a case of prioritization – indeed, banks cannot be expected to invest in, and deliver, every new capability that arises.
At the heart of any banking strategy should be client value: is this development going to enhance the experience of the client?
They must therefore consider their business proposition and carefully assess their clients’ needs in order to determine which capabilities will best serve them.
It is also important to realize that tools that may support one region may not necessarily be of value elsewhere. Only when banks are armed with such insights, and a clear focus for innovation, should they look to explore new developments, and how to best implement them.
Partnering with fintechs can be a key means of helping banks navigate the new digital landscape. For banks, the relationship provides access to the technological initiatives needed to modernize their services; while fintechs can benefit from the experience, scale, and extended reach of banks.
Yet, the sheer volume of fintechs entering the cash and trade space can make choosing a partner, and knowing which innovation could add real value, complex. Indeed, nearly 3,700 fintechs launched between 2008 and 2016. Selecting who to engage with is therefore a crucial element of any innovation strategy.
A local-global collaborative solution
The rationale behind any collaboration is to bring together different strengths to create something stronger than either entity could provide alone – a concept that can apply to many bank-fintech partnerships.
This collaborative approach also applies to local and global banks. For many smaller banks, investing into cutting-edge technology can pose a significant challenge. It is here that correspondent banking partnerships can play an important role – aligning local and global banks in mutually beneficial relationships. Local banks gain access to technology solutions to enhance their cash and trade services, and global banks gain access to unrivalled, country specific insights and expertise from local banks. Through such alliances, corporate clients can benefit from an experience fuelled by the strengths of both parties.
New technology solutions are presenting the opportunity for banks to deliver enhanced cash and trade capabilities to meet evolving client needs, with the potential for improved speed, efficiency, transparency and cost savings. And it is by working together through bank-fintech and local-global bank partnerships – collaborating to share skillsets and expertise – that banks of all sizes and reach can access innovative services, and deliver a new, value-added experience to clients.
About the author
Daniel Verbruggen is head of relationship management Europe, Treasury Services, BNY Mellon