Future Shocks?: Transaction Banking and Payments Challenges

The Fundtech Insights EMEA 2015 conference, a two-day event held in London this week, kicked off with Reuven Ben Menachem, Fundtech’s chief executive (CEO) and co-founder, outlining the market dynamics that he sees as prevalent today. These include:

  • Non-banks are entering the payments market, many of which have yet to face the regulatory focus that more established players have undergone.
  • An increase in Europe, the Middle East and Africa (EMEA) cross-border transactions – with volume up 8% year-on-year (YoY) and value up 10% YoY.
  • Local and regional banks are moving into the global banks’ zone. As a result, they need to get up to speed with cash management and regulatory requirements.
  • Multinational corporates (MNCs) and non-bank financial institutions (FIs) are looking to transaction banking technology that they can utilise within their organisation.
  • The global move to faster/more immediate payments – described by Menachem as the main change in the industry.

All of these market dynamics are posing challenges to banks, corporates and technology vendors in a variety of areas, of which transaction banking was the first to be discussed.

The Future of Transaction Banking

A panel discussion on Day One of the conference looked at what the future might hold for transaction banking. Moderated by Fundtech’s executive vice president (EVP) Moti Porath, bankers on the panel began by sharing their thoughts on how customer expectations have changed in terms of scope and priorities.

James Allan, head of UK cash management at Barclays Corporate Banking noted that there has been an increased focus on cost and also on security and risk management from his transaction banking customers. Nick Diamond, head of corporate cash management sales for Standard Chartered added that wholesale global banking clients were now looking at the world differently – both in how best to structure themselves by questioning how far to centralise treasury operations, as well as how best to manage transaction banking requirements in emerging markets (EMs).

A recurring key topic of the discussion centred on innovation, particularly in terms of the added value that banks can bring to their clients. Andrew Pearce, executive general manager from National Australia Bank (NAB) pointed out that a transaction is more than a flow of money, it is also a flow of information. The challenge for banks is how they can use this information to add value to the transaction for the client, as well as gain an advantage over smaller non-bank providers.

Conversation then moved to how technology can help corporates have a consolidated view of their multiple banking relationships. Andrew Reid, who heads Deutsche Bank’s EMEA cash and trade solutions team commented that SWIFT connectivity has become much more visible in requests for proposals (RFPs) over recent years. Non-proprietary global standards are attractive, as they have banks compete on value rather than connectivity. Standard Chartered’s Diamond added that clients are now getting all of their banks in the same room and telling them how they want the integration to work. This shows how corporates can drive the discussion and get the visibility and control that is crucial to running an efficient business.

While the concept of interoperability and choice is positive, Barclays’ Allan noted that no bank today can market itself as the only global bank able to fulfil a corporate’s requirements. It is essential for a bank to pick where it wants to be and perfect how it operates there. This is the way to deliver true customer choice, driven by interoperability. Diamond pointed out that customers require the same experience no matter where in the world they interact with a bank. This can be challenging due to local differences, so a certain level of customer education is required on the part of banks.

That said, the concept of education flows both ways. The panel agreed that transaction banks now need to demonstrate a far greater knowledge of their customer’ business than even a few years ago. Allan said that this is a new space for relationship managers to be involved with and that technology, through the transactional information it can identify, reconcile and report, has an important role to play. All on the panel were in favour of the idea that for success in the transaction space, banks in the future will be those that understand how to enable their customers through the utilisation of transaction data.

Payments Challenges

In the afternoon sessions on Day One, conversation turned to what the payments landscape of the future might look like. Fundtech’s Porath returned to moderate this session and began by outlining his thoughts on the key challenges facing banks in this market.

First there is the competition, with non-banks providing many of the payment services that traditionally existed in the bank domain. Porath noted that even Twitter is moving into this space. The ability to move value on an open network is a huge development. Second, the introduction of faster and immediate payments around the globe has introduced a whole new set of offerings and opportunities. He posed the question as to whether this would make real-time gross settlement (RTGS) systems or cash obsolete. The third challenge Porath identified was around cloud and online ledgers and virtual currencies, in particular the effect these may have on how payment systems and risk management processes are run in financial institutions.

Porath was joined on stage by both Mary Ann Francis, executive business advisor for Indian IT multinational Wipro and Barry Parker, project manager at Barclays, to offer their perspectives on the topic. Francis highlighted that a payment is more than simply the movement of money; the associated data that moves with the money has become just as important. While this could be used to bring visibility to the end-to-end payments process for corporates, it is still common today for a payment to essentially “drop off the radar” for some days before it arrives at the destination account.

If a payment is going through four banks before it gets to the final destination, corporates are going to want to see and track this information, but that is rarely possible. Francis described this as “barcode logic” – how is it that if you ship a package through an international courier you can go online and find out exactly where it is, but that this level of scrutiny is not available with digital payments? This is clearly something that payments systems need to address. Francis cited the blockchain – the transaction database based on the Bitcoin protocol – as a way to move money quickly while also cutting out the risk. You can also move more than currency on the blockchain, any asset of value can be sent.

Barclays’ Parker mentioned that research the bank has carried out found two clear priorities for corporates in the payment space. These were standardised channels – in terms of how they are used, not just where you are when you use them – and consistent accurate reporting. The eXtensible markup language (XML) standard ISO 20022 came up for discussion, with one opinion suggesting that it could already be out of date.

Questions over whether all the remittance information that corporates want can actually be moved over the format were raised, as was whether restricting payments to one format was necessarily a positive move. Parker noted that nuances in interpretations of standards in different countries with different regulatory environments means that expectations of exactly the same experience need to be managed.


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