Global events have been impacting the operations of the financial sector and its constituency for the past few years. The greatest of these disruptors has of course been the pandemic, which has hindered operations for many banks and corporates who cannot operate as normal due to dependence on on-premise processes.

However, this has brought about increasing integration of technology into financial workflows, particularly by deploying digital methods of processing transactions that would normally take days manually. Faced with the challenge of adjusting to these rapid developments, banks are scrambling for revenue management solutions that will help keep them from losing too much ground to competitors.

To understand the forces at work in transaction banking, here are the factors that are impacting the industry today.

Commodified Banking Services

Clients and partners are concerned that there has not been enough innovation in the field of banking for quite a long time. These concerns are heightened by the ongoing pandemic, during which little has been changed to how most banks have continued operating in response to new problems and unexpected events like COVID-19.

It is because of this approach that transaction banking services and products have turned into a commodity. This includes those that were once commercially successful such as cash management, trade finance, credit and loan, and even processing of checks. These services have become a given rather than a unique offering, and corporates are once again looking for something new.

Competition in the Global Market

Globalization is an undeniable phenomenon that affects all industries, including finance, so local and even national banks are now competing with those outside their country of operations. Given how little has changed in the industry, especially in how they execute their services, corporate clients are becoming more inclined to shop around when it comes to financial services.

After assessing their current bank relationships, many corporates have decided to process their transactions through any available bank or even multiple banks indiscriminately. What this means is that banking products have turned into a commodity around the world, and there is little that differentiates banks anymore that would attract potential clients to one over the others.

Client Insecurities and Expectations

Recent events have resulted in a largely unstable global economy leading everyone to become increasingly conservative and risk-avoidant with their finances. Essentially, people are much more likely to keep their money on hand than to place their money anywhere, whether that be in investments or in banks.

The perceived risks nowadays of placing money anywhere have provoked clients to demand more from what their banks have to offer. At the top of everything is a desire for better transparency on hidden fees, as well as the promise of better benefits that would entice them towards one bank over another.

Resorting to Negative Interest

Corporate entities who do need the help of banks are becoming more concerned with how much their transactions are hindered by today’s tumultuous circumstances. Mandated limitations on on-site operations and overall mobility have placed great restrictions on banks to fulfill their cash management services for partners.

Because of all this, banks have already resorted to extreme measures such as zero-interest rates on their products and services. Some national banks have even resorted to negative-interest monetary policy, effectively levying fines on banks for hanging on to their deposit reserves and encouraging them to lend more, in the hopes of spurring economic growth.

Adapting to the Digital Era

Non-banking institutions are beginning to offer financial services, specifically in the form of the rapidly developing FinTech industry. While FinTech companies are not banks themselves that can hold money, their commitment to pushing financial services forward is placing a lot of pressure on actual banks who insist on following through with many of their methods of operation built on legacy IT systems.

However, the current necessity for contactless transactions has convinced an increasing number of corporates to divert from traditional paper checks, printed out documents, and wet signatures. For them, the efficiency granted by digital transactions is preferable especially as FinTech companies continue to improve security in their systems.

What This Means for Transaction Banking

The trends arising from these factors may not be resolving themselves so easily, but it is not the end of world for transaction banking and banks themselves. In spite of most of the unpredictable circumstances affecting various industries today, those that affect banks have at the very least been made tangible, which means there are ways to address them.

Perhaps what this shows is a louder call for banks to consider dramatic changes in how they operate. In the context of the modern era, this means welcoming further integration of digital banking and software solutions to most of the traditional methods and workflows of banking. It is impossible now to deny that the future of banking products can only develop from digital banking.

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