“A payment, is a payment, is a payment.” This sums up how many have traditionally viewed transaction banking products – largely undifferentiated and commoditised. Today, despite the not-insignificant investment in product development across the industry, a strong sense of commoditisation still remains.
In a recent industry study “Striking the right note: building resonant propositions for transaction banking” conducted by our firm, Ideas and Action, CFOs and treasurers noted that pricing is still their most important driver when selecting a transaction banking partner. One of the corporate treasurers participating in the research noted that this price sensitivity is reflective of a commoditised market, saying “Pricing is obviously very important because it’s a pretty undifferentiated product”.1
The onus, therefore, has been on transaction banks to drive the client conversation away from pricing by creating additional value for their corporate customers. This has resulted in a strong history of leveraging technology to develop new, differentiating services for their clients. From online banking to real-time, trackable payments, and APIs offering open banking, the solutions offered by banks continue to evolve.
Our research suggests that these developments are not unappreciated. Digital capabilities such as the ability to process transactions in real-time or near real-time, user-friendly and accessible banking systems and platforms, and mobile banking capabilities are already among corporates’ most often-cited minimum requirements of their banks.
However, this is just the beginning, and banks are also conscious that more needs to be done, as customer expectations on the impact of technology go beyond creating operational efficiency to enhancing business performance.
At HSBC, for example, there has been a concerted focus on digital transformation. Lance Kawaguchi, Managing Director, Global Head – Corporates, Global Liquidity and Cash Management, commented “HSBC is investing heavily in digital transformation over the next three years, and exploring new technologies to provide efficiencies and enhance the customer experience.”
Corporates are banking on innovation investment to continue. Seventy-one percent of the corporates we surveyed noted that their expectations of banks will change in the next five years, with almost half expecting that a bank’s ability to innovate will become one of their most important requirements.
But innovation for the sake of innovation will not be enough. Nor will it be about just technology deployment. Rather, it will be about a bank’s ability to apply innovation in ways that clearly solve specific pain points or create new commercial opportunities.
As corporates navigate a changing business landscape, CFOs and treasurers will need innovative banking solutions that enable them to develop new business and revenue models, access new markets, and support corporate strategy.
The challenge here is that while corporates recognise that technology presents opportunities, they are also uncertain of what their businesses will need in the future. Interviewees further noted that while the technological tools are becoming more readily available, they are still unclear how these can be deployed for real commercial impact. It is likely because of this that CFOs and treasurers have expressed the need to work more collaboratively with their banks to define and deploy transformative technologies. One interviewee noted, “As technology changes the landscape and the needs of our own business, we will have to work with our banks to find the best solutions”.
Transaction banks that are able to institutionalise co-creating with their clients will therefore be in the best position to respond to this expectation of closer collaboration. HSBC’s Kawaguchi shared how the bank has been responding, “We’re setting up a truly collaborative environment in which real business solutions are developed in response to real commercial pain points”.
Transaction banking is clearly approaching a watershed moment. While our survey suggests that articulating a singular, differentiated proposition today can be challenging, changing corporate expectations driven by technological innovation opens up opportunities for the future. A Hong Kong-based finance director summed it up, “Innovation is the big one. There’s a lot more cooperation that could happen between banks and companies in defining how we would transact.”
For more details on corporates’ expectations of their transaction banks, download the full research report ‘Striking the right note: building resonant propositions for transaction banking’ from www.ideasandaction.com.
 Ideas and Action, Striking the Right Note, Building Resonant Propositions for Transaction Banking, 2019