Levelling Up: The Digital Future of Transaction Banking
By Eleanor Hill, Editor
Treasurers the world over rely on their transaction banks to provide robust services that cater to their daily financial needs – but the space has long been seen as somewhat ‘vanilla’. Now, however, technological developments and solution-driven innovations are starting to push traditional boundaries. In this Executive Interview, Daniel Verbruggen, BNY Mellon’s Head of Relationship Management Europe, Treasury Services, reveals his vision for the future of transaction banking and explains the potential benefits for corporate treasurers.
What is driving the current level of innovation within the wider financial industry, and the transaction banking space?
In terms of technological innovation, the global financial industry, including the non-bank sector, has historically been a little behind the curve compared to other sectors. The automotive industry, for example, has been using robotics for several decades, and yet, in banking we are only now starting to embrace the possibilities that such technologies offer, by adopting robotic process automation (RPA).
This in part is due to the transformation of the financial sector which resulted in large part from the global financial crisis of 2008/9. As a result, the industry has become much more focused on metrics such as Return on Equity (ROE). Digital transformation projects have also risen up the agenda as banks invest in technology to drive efficiencies, manage evolving risks and market expectations – including new regulations – and benefit from growth opportunities such as big data.
Furthermore, the globalisation and democratisation of technology have given rise to the fintech phenomenon. This new breed of partners can now nourish the industry with innovative solutions, as they are already doing in the retail banking space. We see great opportunities for similar innovation in the transaction banking sphere too, and positive change is under way.
What do you consider to be the key benefits that new technology can bring to existing processes in the transaction banking space?
Top of my list of benefits would be potential cost savings. Paper-based processing creates a repetitive, non-standardised approach; technology can help address that. The emergence of mainstream cloud adoption is also enabling users to substantially reduce their IT costs. Moreover, the right technology, combined with an enhanced customer experience, can offer all stakeholders increased speed, efficiency and transparency.
The move towards digital processes has also put the focus firmly onto security. One could argue that paper-based processing has an advantage over digital in this context because digitisation clearly exposes documentation to a wider ‘audience’. But then paper is only as secure as the processes that underpin it. Of course, the same principle applies to digital, but in an era of rising cybercrime and increased regulation around the protection of data, banks are continually scrutinising, testing and reinforcing their electronic platforms and processes. Can the same be said of paper flows? I doubt it.
The industry is abuzz with new tech-based ideas and concepts such as artificial intelligence (AI). What makes AI so appealing and how could AI-related innovations enhance the industry?
There is a tendency to view AI through a ‘science fiction’ lens – but this is a world away from the reality seen in the financial services context. We have only just seen the beginning of what AI can and could do within banking. Today, it can be leveraged to automate repetitive, low-value tasks, and is often used in a retail banking context. For example, basic customer queries can be handled without the need for human intervention because data made available to, and accessible by, AI technology, can deliver a structured, albeit ‘emotionless’, response. Think about online chat-bots and voice recognition software interpreting an enquiry using simple keywords, for example.
Bank employees, such as frontline teams, can also use AI to improve their own research and the speed with which they can respond to more in-depth customer enquiries. Imagine trying to determine the 50 best-performing funds from a global universe in order to advise a client about the current fund landscape, for instance. Leveraging AI, a relationship manager can be furnished with a response from a rapid background search across multiple data sources in a matter of minutes; certainly quicker than any human could manage.
Corporate banking enquiries will be more complex, however. This is due to the nature of corporate business models - with multiple entities, banks, accounts, currencies and so on. Automatic handling of these types of enquiries will require more sophisticated AI, which is yet to be created – or at least deployed – in this context.
As such, the conversation transaction banks are currently having around AI is more about handling big data and how digitisation and standardisation are creating platforms to deliver cost and process efficiencies for both banks and clients. That said, the future of AI within transaction banking looks bright, especially its application as an intelligent advisory tool, where it could, for example, build complex plans for customers based on multiple data sources, and this independently through machine-learning.
A company wanting to export to another market could, for instance, be provided not only with information pertaining to trade finance products suitable for the country in which it intends to do business, but also with detail about different export routes and physical and financial supply chain options. Machine-learning could tailor the experience to the corporate’s needs, without any human intervention.
This is just one example of how AI could be deployed within the corporate world, but it demonstrates that AI has the potential to positively impact the value chain, linking service providers, banks and corporates in an automated and more integrated way. Moreover, human interaction will become more prized, and more valuable, with front line teams freed up to deliver genuine insight and expertise.