New But Not Yet Normal: Can Agility Make the Difference?

New opportunities for economic growth are taking center-stage across the globe. Burgeoning regulations like BASEL III, individual liquidity adequacy assessment etc. and corresponding liquidity pressures, which were aimed at making the banking system shock-proof are indicating an erosion of growth in many high potential markets. This could be due to the not-so-easy availability of credit and high credit cost. Corporations need support in working capital optimization and banks are at the cusp of seizing this opportunity by demonstrating the agility to change the trade landscape. This is possible through offering scalable and bolt on product & services thereby gaining increased corporate wallet share and mindset. Every day, surmounting pressure to increase business, cutting costs, retaining customers, complying with regulations are posing huge sets of challenges and gargantuan tasks for corporate banking and financial institution leadership to stay afloat. One way to deal with this challenge is to anticipate the change and show agility to do course correction.

The global transaction banking market is constantly evolving and is playing an increasingly significant role at an international level. With transaction banking offering capital light revenue streams (increased fee and fund based revenue), it is rightly positioned to exploit unfolding opportunities. But the big question is: Are banks appropriately positioned to take advantage of these growth avenues? Some roadblocks that banks may face are standard product/services, individual technology solutions, non-standardized processes, inadequate understanding of customer psyche/attitude, intense competition, disjointed operating model and a lack of global perspective resulting in missed opportunities which are already very small and intensely competitive. It’s a sprint and the banks need to show agility and foresightedness in their strategic positioning, operational planning and customer handling. Global transaction banking business will need a strong push to support multiple revenue streams, agile- operating technology and product management models.

Know what’s ‘inside the box’ but ‘think outside’

Today, corporates need business solutions more than products. With prolonged trade cycles, increasingly complex supply chains involving multiple levels of suppliers/dealers and high cost of capital, efficient working capital management is the need of the hour. Efficiency in working capital management is a key pillar for a customer’s competitive differentiation and corporates are leaving no stone unturned to reduce bank funding costs and free up the trapped internal cash. The move is towards corporates generating more cash internally through automation and process efficiencies than relying on borrowing funds from banks. This is possible only if one has an end-to-end view of the trade cycle. Gone are the days of standard products and services, as corporates today demand comprehensive working capital management solutions at every stage of the transaction lifecycle to optimize costs, increase automation and efficiency.

While this unquestionably necessitates technical sophistication on the banks’ part, it also requires agility as transaction banking needs depend largely on the unique demands of extended supply chain of the corporate i.e. its suppliers and dealers. Banks today are expected to have a broad global perspective to serve the changing needs of the corporates in cash management and payment arena in a multi-currency and multi time zone environment.

Increasing convergence of trade and cash is making way for tailor-made and personalized solutions as corporates now look forward to being served as privileged customers. If banks have an extended view of corporates’ trade cycle, it can proactively do cash flow forecasting and create avenues for foreign exchange deals, offering tailor-made cash- credit services and offer account payable and receivables management solutions. This would help enable the corporate treasurer in having a 360 degree view of account positions and make intelligent funding and investment decisions.

Transaction banking is at the forefront to cross the chasm from paper to digital. Electronic invoicing/billing solutions are rightly poised to facilitate seamless and automated processing of trade transactions. This is creating increased opportunities for the banks to serve working capital needs of the supplier’s and dealers through their supply chain financing solutions. With corporates keen on value based models through centralization and standardization, banking solutions around shared services centers/payment factories facilitating centralized control over group-wide working capital as transformational themes are increasingly being pushed to banks as a hygiene requirement than something customized. POBO & ROBO (Payment On behalf of & Receipt of behalf of) are some of the staple products in this direction where the parent company manages all payments and receipts on behalf of their subsidiaries thereby maintaining central control.

Concluding Thoughts

There are new revenue streams waiting to be unlocked and tapped by banks in order to ensure their sustained competitive positioning and differentiation. It is an open game and only the tough and agile ones would survive and thrive. Working through the “New Normal” for transaction banking is the order of the day where managing risks and uncertainty is business as usual. How do we increase corporates’ equity in the business? By increased cross selling, getting more customers onboard or looking at reducing the cost to serve ratio for non-profitable customers. These are some measures that would be the key to banks’ survival to remain ahead in the game. It is imperative for banks to have an honest and transparent introspection to understand where exactly the value exists across various transaction banking products and services that customers use and how best and fast they can serve the future needs.

Dinesh Verma heads Product Management and Domain Consulting function for the Global Transaction Banking solution from Nucleus Software Exports Ltd. He brings with him over 18 years of hands on experience in banking (retail & wholesale) and IT consulting in areas of Product Management (Core Banking, Transaction Banking & Internet Banking solutions), Domain Consulting, Banking Operations, Trade & Treasury.

 

Written by Dinesh Verma