The way large corporations and institutional entities manage their finances has changed dramatically over the last decade and transaction banking has played a very important role in this transformation, as a result of both the boost given to the activity and the improvement of the relationship model with customers. The transformation was also affected by the recent financial crisis and has been enabled, to a large extent, by the use of new technologies.
Building a better, broader and more sophisticated product portfolio, clearly focused on offering actual solutions to customer needs, has helped optimize the control of liquidity that large corporations and institutions demanded and, in this process, boost the efficiency of the short-term financing chain.
In turn, due to the decline in demand in traditional markets and the need to look for new sources of revenue, companies were forced to resort to Trade Finance products. Companies adopted centralized systems to optimize their cash flow management and control processes and improve their treasury position, which they previously left unattended.One of the first consequences of the recent global financial crisis was the shortage of liquidity in the market. As result, companies had a very hard time accessing traditional capital markets. In this context, transaction banking became absolutely strategic for both financial entities – as it allowed them to obtain short-term liquidity - and companies – which were able to secure their payroll and supplier payments. Transaction banking helped companies ensure the continuity of their daily operations through short-term generic or specific financing.
On the other hand, due to their short-term and commercial nature, many risk transactions are subject to less restrictive regulatory pressure in terms of capital. Therefore, banks traditionally more focused on investment banking have significantly increased their investments to boost their transaction banking models.
The landscape, on the other hand, has become extraordinarily demanding and competitive. The greater digitization capacity of transactional products, the liberalization of supply as a result of the impact of PSD2 in the sector, and a responsive 'fintech' ecosystem to the shift toward transaction banking models, have resulted in an increase in the number of solutions and competitors in the market, driving the overall expansion and improvement of the product and service offering.
An extraordinarily demanding and competitive environment has driven the overall expansion and improvement of the product and service offering.
The transaction banking segment is currently undergoing a period of unprecedented innovation, with projects seeking to leverage new technologies such as blockchain, which will enable new functionalities such as real-time international payments; Big Data, which offers a greater knowledge of customer behavior; APIs (Application Programming Interface), which allow banks and businesses to engage in different ways; and process automation.
Transactional products are, therefore, becoming key levers of the digital change that is taking place, not only in the retail world, but also in companies. In many cases, the digital transformation of large customers depends on solutions that appear in the market, allowing them to improve, for example, their ability to accept payments from customers beyond their regular area of business, thus expanding their potential market.