Corporate Transaction Banking: Three Essentials for Success

The success of the relationship between a corporate and their transaction bank hinges on the following three key dependencies:

  1.  The role of the corporate treasurer.
  2.  Transaction banking expertise.
  3.  Technology’s role in the future of corporate transaction banking.

The Role of the Corporate Treasurer

Since the liquidity crisis in 2008, the role of the corporate treasurer has been transformed. In an era of heightened counterparty risk, low interest rates and tight liquidity and credit, an effective treasurer has increasingly become a determining factor in the success of a business.

Transaction banking is well placed to help corporate treasurers and the transaction banker’s role cannot be underestimated. As the role of the treasury becomes more visible and increasingly strategic, the influence the corporate treasurer has on the organisation has similarly expanded.

Treasurers are more accountable for the regulatory compliance and cash positions of their organisations. Chief financial officers (CFOs), and increasingly boards, rely on their insights to help companies make the right decisions at the right times. The traditional roles of the treasurer still exist. Corporates continue to need effective payments mechanisms, cash flow forecasting and productive relationships with their banks.

The rapidly evolving payments landscape is driving innovation to enhance efficiency and operational reliability. This has given many companies the unique opportunity to re-engineer how they manage global cash flows. With the goal of gaining greater control over domestic and foreign currency payments, the answer for many is to move these processes out of the operating units and into centralised structures that promote efficiency, introduce standardisation and deliver economies of scale. Thanks to the insights delivered by these innovations, treasurers are better equipped to meet the heightened expectations of their boards.

Transaction Banking Expertise

Both banks and their corporate banking customers increasingly recognise the importance of cash management and treasury efficiency. Customers look to their bank as a partner who can help them and implement best practice treasury solutions, from cross-border sweeping to rationalising their treasury management systems (TMSs), and to improve their earnings per share (EPS). At the same time, banks are recognising transaction banking services as valuable, because of the long-term nature of the relationship and the customer insights it can provide.

Providing transaction banking services to a customer can deliver a rich source of data, and with it a unique opportunity to attain a deeper understanding of their business. Leveraging this intelligence enables the bank to tailor its solutions to the customer’s needs and deliver an unparalleled customer experience. Being a customer’s transaction banking provider can create opportunities for banks to develop a deeper relationship, rather than simply providing a specific product or products.

Corporate banking customers look at a broad range of factors when they choose a transaction banking partner: counterparty strength; the ability to provide a full suite of products; geographic coverage; connectivity; reliable technology; and the ability to apply that technology to develop bespoke solutions for customers’ needs – all are common factors. Increasingly, corporate banking customers are looking for banks that can provide them with cross-border functionality using standardised systems. One of the areas where the bank can add value is in understanding the local payments landscape and regulatory environment, and partnering with customers to help them achieve their growth ambitions.

Corporate banking customers are increasingly recognising the value of getting the basics of cash management right. Collecting cash on the due date, ensuring that invoices are paid on time and managing stock tightly will often yield far bigger benefits to a business than a few cents off the unit costs of supplies. As corporate customers seek to expand internationally – widening their supply chains and moving into new markets – the potential for inefficiencies in the cash management system grows, which in turn impacts on efficient working capital management. Having a strong relationship with a transaction banking provider can help corporate banking customers to maintain their focus on working capital management.

Transaction banking partners also have a range of powerful liquidity management tools at their disposal, to help treasurers in reducing their corporate borrowing. Active controls of balances in different markets and different currencies will yield significant benefits to a customer’s bottom line. The old barrier to this, often known as ‘trapped cash’, is coming down: even China, which has a legacy of capital controls, is now allowing international companies to move currency in, and out of the country as part of their global treasury management operations.

Technology’s Role in the Future of Corporate Transaction Banking

To a large extent, the thread that ties these developments together is technology, which provides a new level of transparency and speed that has transformed cash management and transaction banking. Centralised treasury and financial process operations, which give businesses a transparent real-time view of their position and the ability to optimise cash deployment, were once the preserve of large multinationals. However, in recent years technology has extended effective global cash management to companies of all sizes.

Borderless online corporate banking systems allow treasurers and CFOs to see cash movements as they happen, allowing underperforming cash and expensive liabilities to be off set against each other, even if they are in different currencies on opposite sides of the world.

Technology will continue to be an essential theme over the coming years. Customer behaviour is accelerating towards digital media, with real-time expectations. Increasingly, corporate customers demand access to their banking and related services via mobile devices. In HSBC’s case, the bank has responded to the demand with an accelerated roll-out of the HSBCnet mobile platform and by introducing the HSBCnet mobile app.

In parallel, we are seeing increasing competition from credible, new non-bank payments providers. While the regulation of these firms is also increasing, providing challenges to some business models, the challenge from new entrants is expected to increase over the coming months and years. It is imperative that banks continue to innovate and partner with these new providers to ensure that the industry continues to meet its customers’ needs.

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