From geopolitical pressures to the increasing prevalence of subscription models, the business landscape is being reshaped by a number of pressures. At the same time, the role played by global transaction banks is continuing to evolve, driven by everything from the rise of AI to concerns about counterparty risk in the wake of some notable bank failures earlier this year.

In the wake of the pandemic, corporate treasurers are increasingly looking at how to move forward and thrive, rather than simply focusing on survival, says Bruce Meuli, Treasury Advisory Executive, Global Transaction Services at Bank of America (BofA). “They are asking more questions about how they can evolve, and which factors they need to take into account,” he notes.

Competition, meanwhile, is ramping up. According to Celent’s recent Corporate Banking Technology Insight and Strategy Survey (CTISS) of more than 214 banks globally, Tier 1 and 2 banks continue to experience increasing competition, with more than 60% reporting that it is more challenging to win and retain business than only one year ago.

In this environment, global transaction banks cannot afford to stand still. So, to what extent have banks already adapted to the changing landscape? How are treasurers’ needs and expectations shifting in the current environment? And what could the future hold for transaction banking?

Drivers of change

Few would disagree that the world of transaction banking is undergoing something of a transformation. Christine Barry, Head of Banking and Payments Insights and Advisory at Datos Insights, notes that key drivers of change include:

• More demanding and tech-savvy clients who expect greater speed, automation, personalisation and integration.

• The continued emergence of fintech companies.

• A challenging economic environment requiring more data transparency, insights, forecasting and liquidity management capabilities.

• Unexpected events like the global pandemic and regional bank failures.

Naturally, the rise of new and emerging technology is an important catalyst. “The quest for ‘intelligent banking’ has driven a strong focus on advanced analytics and machine learning (ML) to the top of the priority list, along with process automation and open finance initiatives,” says Patricia Hines, Head of Corporate Banking Research at Celent.

Fintechs, in particular, have much to offer with their ability to harness new technologies and develop new solutions quickly – and banks need to take note. “Banks are at risk of disintermediation if they don’t partner with fintech companies,” says Barry. “They must view fintechs as partners, rather than competitors, and position themselves as a central hub from which corporate treasurers can perform transactions, get advice and export data to external systems.” As such, she notes that bank systems must be tightly integrated with fintech capabilities to create a seamless experience across platforms.

Meuli says that BofA’s GTS business is increasingly adopting a partnership model that encompasses technology vendors and fintechs. For example, BofA’s Pay by Bank online payment solution was launched in 2022 in conjunction with UK fintech Banked Ltd. The solution enables customers of e-commerce companies to make payments directly from their bank accounts.

“There’s been a change around the role of a global transaction bank and how they partner and deliver aspects of a service or operational execution,” says Meuli.

As he explains, this has increased the complexity of the bank’s internal delivery model – “It’s not just GTS, it’s GTS collaborating with different partners.” This, in turn, requires banks to build up their own digital acumen – although as Meuli points out, there is a growing need for banks to provide not just product specialists, but also people who can “sit in the middle, understand the client business, and then communicate that back into product delivery.”

Enabling commerce

On another note, Manish Kohli, Head of Global Payments Solutions at HSBC, argues that transaction banking is “a shining example of where the banking industry adds value to how customers do business. It’s also at the intersection of true banking and technology.”

In the last few years, says Kohli, the role that transaction banks play in their clients’ organisations has changed tremendously. “A few years ago, we were looked at as the fulfilment arm of payments, settlement and commerce, as well as enabling liquidity to be managed,” he recalls. “But now, when I have conversations with clients, the focus is more on how we can enable commerce for those businesses and help them grow and become more global. So that’s a very different type of conversation.”

Likewise, says Kohli, the bank now interacts with a broader selection of stakeholders across the organisation: while the treasurer remains the “landing point”, the bank also engages with CFOs, commercial teams, payment engineering people, procurement and HR. “Related to that, clients also look to us in an advisory capacity to find out how they compare to their peers, and where they should focus on making improvements.”

Meeting treasurers’ expectations

When it comes to selecting a banking partner, many of the priorities that treasurers focus on are longstanding. Citing internal research by BofA, Meuli notes that the top three RFP selection criteria continue to be customer service, pricing and ease of doing business.

A bank’s ability to advise corporate clients is another important differentiator: “I have found that treasurers respond very positively to receiving impartial advice – not just based around what you as a bank can do, but actually providing market and industry advice,” says Meuli. Recently, he adds, treasurers have also been asking a lot of questions about the impact and risks of generative AI in response to greater levels of interest from the CFO and the board.

In this environment, it’s no surprise that treasurers’ expectations of their transaction banks are somewhat shifting. “Treasurers increasingly expect a hybrid high-tech and high-touch approach,” comments Hines. “The largest banks offer a cadre of former treasury and finance professionals as advisors to treasurers, helping them to develop strategic plans and overcome operational hurdles.”

Datos Insights’ Barry adds that as global transaction banks evolve from transaction providers to advisors and deeper partners, “corporate treasurers are increasingly looking to their banks for more than simply loans and the ability to make payments. They expect their banks to understand their specific needs and provide a personalised experience.”

As Barry notes, treasurers also expect more tools to help them effectively manage their businesses and succeed in a challenging environment. “For example, they require liquidity management tools as well as real-time payments and integrated receivables,” she says. “Further, they expect tight integration of products and data not only across the bank but also with any external systems they may be using.” Barry says banks should respond not only by broadening their capabilities and partnering with fintech providers, “but also by opening their platforms and leveraging analytics for greater insights to better position themselves to provide data-based advice.”

Future role of transaction banks

So, what could the future hold for transaction banks? Hines predicts that “transaction bank winners will leverage their treasury and technology expertise to help their corporate clients to create new business propositions, whether to offer real-time insurance payouts to consumers, support crypto payments in the metaverse, or enable buy-now pay-later financing to equipment dealers.”

Addressing competitive pressures is also likely to be a priority. As Hines notes, “The CTISS survey found that whether via open banking, embedded finance, or Banking-as-a-Service, 75% of corporate banking respondents stated that they have a clear strategy with engaging in the open ecosystem.”

Kohli argues that the biggest mega trend is the continued move towards a world in which economies are becoming more digitised. Ten years ago, he points out, getting a taxi typically involved handing cash to a cab driver – in other words, a single, analogue transaction. With the rise of ride hailing apps, however, “this has become multiple digital transactions. Your account is debited electronically; the platform keeps a certain percentage, and then sends the driver the remainder.”

In an increasingly digitised world, Kohli predicts that clients will increasingly look for new digital connectivity tools including APIs and real-time payment solutions. “Payments will become a greater competitive differentiator,” he says. “And as that happens, the whole infrastructure that banks provide will change tremendously. We’re talking about 24/7 real-time, always-on, always connected systems that are processing microtransactions, at scale, instantaneously.”

Meuli, meanwhile, says treasurers increasingly see transaction banks as part of their end-to-end business execution. As a result, there is a greater need for banks to provide relevant data back to their corporate customers. “It’s also about corporates seeing the bank as part of their extended organisational delivery model, and as a partner,” he adds. For corporates, knowing that transaction banks will take on that role “de-risks their business and their deployment of technology.”

Barriers to progress

While the future may be bright for transaction banks, there are nevertheless a number of obstacles banks will need to address. For example, Barry cites ageing technical infrastructures, the need for a more tech-based versus product-based sales strategy, the speed at which technology is evolving, and the growing presence of fintech companies.

As Hines warns, “Large corporates and multinationals with tens of banks and hundreds of bank accounts often turn to well-funded third-party treasury technology firms, whether for treasury management systems, payables automation, receivables automation, cash forecasting, payment factories, etc.” She argues that this could leave bank partners “solely as a distribution channel for bank statement and balance data, and a connectivity partner to payment rails.”

Meuli says banks will need to continuously invest and keep focusing on the right solution models to bring to market. He points out that continually improving technology delivery for clients “is always a major focus – leveraging internal technology capabilities, partnering with strategic technology providers and delivering seamlessly to clients.”

Regulation, meanwhile, is likely to continue to be a significant pressure point for transaction banks. “In many cases, regulators will ask for the localisation of data and processes. This can run counter to how global banks operate, with consistent global platforms and shared service centres,” says Kohli. “So, when countries have more nationalistic requirements – all for good reasons – it can put pressure on banks, and on their multinational clients.” Finally, as business models increasingly focus on direct-to-consumer, always-on models, “The challenge will be to keep up with our infrastructure that has historically been built for batch-based systems, with large value, low volume transactions,” says Kohli. “We’re now moving towards 24/7, high volume, low value transactions.”

To support this shift, it’s essential that banks invest in their infrastructure and resiliency, Kohli concludes. “With clients’ demands changing so rapidly, the challenge for banks is to keep up and make sure that we’re bringing new solutions to market that can solve our clients’ global needs.”