Research into transaction banking trends carried out by Misys, an application software and services company, shows that an alarming proportion of banks have yet to simplify their payments businesses, something they need to do if they are to succeed in improving levels of customer service.
The Misys Transaction Banking Survey reveals that 65% of those canvassed stated they needed a simplified process for making changes to payment standards and rules across their multiple payment systems. Three-fifths of respondents reported that their payment environments are fragmented across these disparate processing systems. The consensus among the banks surveyed was that they must improve their payment processing systems and that centralising these payment processes through a payment hub was an efficient and cost-effective way to achieve this.
The second highest priority for banks, selected by 55% of respondents, was the ability to track payments as they pass through these systems. When implementing updates to multiple, discrete systems, monitoring payment flows across various systems involves more work and higher risk of errors than if the payment flows were routed through a central hub.
Fifteen percent of respondents believe their customers would rate their payment processing service as ‘average’ or ‘below-average’. With bank customers increasingly focused on value for money and with banks increasingly focused on increasing revenue from transaction services such as payment processing, banks cannot afford to slip behind their competitors.
Banks also prioritised gaining better metrics for monitoring service levels and charges (50% of respondents) and improving the quality of their outgoing messages (45% of respondents). Both these goals are easier to achieve with a payment hub, something only 10% of respondents reported having.
Changes in Trade Services Trends
The survey also questioned respondents on the current trends in trade finance. There is a growing trend towards bringing together transaction services with over half the bankers surveyed working in organisations that had already consolidated payments, cash management and trade services into a single transaction banking division, with a further 15% planning to do so in the near future.
The financial crisis appears to have slowed two recent and related trends dominating the provision of trade services: the increasing disintermediation of banks in the financial supply chain and the declining use of letters of credit. Over the past year, nearly two-thirds of those surveyed reported an increase in their banks’ involvement in their customers’ trade business. The financial crisis has made risk mitigation more important to banks involved in the financial supply chain with 90% of respondents stating that this was a focus for them. Additionally, 53% of respondents stated that transaction visibility between customers and suppliers was increasingly important in the smooth management of the financial supply chain.
Lastly, the rate at which organisations are turning towards open account transactions appears to be slowing, with only 25% of bankers reporting that open account is accounting for a larger proportion of the trade business, compared with 40% reporting that traditional trade was taking a greater share than before the crisis. This reflects a more cautious approach by corporate customers in a less predictable economic environment.
“This research supports what we are seeing in the market,” said Olivier Berthier, solutions director, transaction banking, Misys. “Banks are still looking at traditional trade finance instruments, such as letters of credit, as a very important part of their corporate offering, while also investing in new models and setting up new financial supply chain services.”
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