Global Transaction Banking (GTB) has gained significant momentum in the last five years and is becoming increasingly important for banks as corporates continue to expand their businesses across the globe. Last year, 2014, could be described as the transition year for transaction banking, seeing the recovery from the financial crisis and the promise of a strong future growth. 2014 also saw a convergence of many regulations, including Basel III, the Foreign Account Tax Compliance Act and the Dodd-Frank Act, which all impact this area.
Transaction banking revenue pools have been growing rapidly year-on-year for the last five years. Boston Consulting Group (BCG) expects both volume and value of transactions to increase by about 9% per year reaching about 750 billion transactions valued at $782 trillion by 2020. To cope with this momentum and reap the full benefits, banks are rationalizing their business models and transforming their strategies. Below are some of the key changes which are taking place in the transaction banking space right now. A few banks have already initiated these changes but many are waiting to follow.
There is no doubt that transaction banking is a rising star of financial services. Globally, transaction banking forms 35% of corporate banking revenues. It also provides higher return on risk-weighted assets (RWA) i.e. nearly twice that of the rest of the bank’s operations. So, it is imperative for progressive banks to offer transaction banking services. However, increasingly the customers are becoming very demanding and want most of the activities to be done by the bank. This has put banks under lot of pressure, a) to develop solution delivering capabilities, b) to coordinate within their organizations and even with partners to deliver a comprehensive tailor-made solution. The upside is that tighter the integration of the banks’ services the greater the customer retention or ‘stickiness’ and the more opportunity there is to up-sell and cross-sell.
Today banks have to look beyond their traditional horizons and provide unified platforms with integrated services providing processes and transaction facilities. Future success will require a change in the mindset of banks—siloes must be broken down, focusing on strengths and providing end-to-end solutions along with significantly enhanced analytics capabilities. Those willing to transform themselves and their strategies in the ways described here can expect to reap the benefits of this growth.
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Nucleus Software is a leading provider of transaction banking solutions, which are used by some of the largest global and regional banks in the world. To find out more about our next-generation software product, FinnAxia, see here.
This post is based on an original article published in Banking.com: http://www.banking.com/2015/06/02/4-ways-global-transaction-banking-is-changing/#.VW8RjfnoTZG