Paul Baram, Director, Actualize Consulting
“With the march of technology gathering pace, will traditional transaction banking still have a role to play in the longer-term future of treasury?”
Technology advances are undoubtedly key to the changes we see in how services that were once exclusively performed by a bank’s transaction banking division are increasingly available from other sources. Two examples beyond the broader list of fintechs in the market are illustrated below.
Trade finance is a great example of where the bank’s offering can be taken entirely in-house by a corporate to directly offer its customers trade finance solutions. In many respects this was always a better option than going through a third party (the bank). The corporate would already have collateral in terms of goods from the supplier and access to key data from that supplier such as payment history and trading pattern. Several treasury management systems (TMS) now have trade finance solutions as an additional module, and when integrated with the main cash management functionality allows a complete view of liquidity in one place.
As globalisation continues for corporates, so does the need for foreign exchange transactions. Although the banks still ultimately execute the trades (for the most part), today’s rise of dealing platforms means banks are forced to compete more acutely for business that used to come directly on a relationship basis. Again, technology advances, in this case via integration from TMS systems, means corporates are able to streamline a process and capture better pricing to such an extent that the savings from just a few months of transactions can recoup the project cost to implement.
In fact, to some extent, the vast technical infrastructure that most of the global transaction banks have developed is actually a disadvantage to their progress in this new world. The commitment to build systems to run at a massive scale with efficiency developed through siloed processes runs contra to the way smaller and nimbler fintechs are able to develop.
Extrapolating from this point leads us to conclude that the one-stop-shop model of traditional transaction banking cannot be the most cost-effective solution for a treasury. The key to exploiting these new options is to pick the right solution for each specific business process, as part of an overall treasury strategy rather than a set of individual disconnected choices. Investing in developing such a strategy for corporates takes expertise, time, and commitment. In that sense, one can see where for some corporates the traditional transaction banking model offered by one financial institution may still be of benefit for now.
This response and additional responses were originally published in Treasury Today. To read the full article, visit http://bit.ly/PLTrBk.
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