Transaction banking is becoming increasingly important for banks as corporates continue to expand their businesses across the globe. As corporates demand these services, banks must rise to deliver. There are numerous factors that are responsible for businesses expanding their scope of activity beyond their home turf. We have seen new trade routes develop (i.e. the China-Africa corridor) and technology progressed rapidly and become more cost effective.

As corporates seek to capitalize on this new trade infrastructure, banks recognize the value in providing services to address corporate needs. Banks and corporates alike are now regionalizing their trade and cash management services. Banks see an opportunity to provide region-specific products and services to drive greater customer loyalty and the ability to attract and retain a larger share of the transaction banking business. They see the benefits of providing comprehensive system solutions for trade finance, payments and cash management, in addition to working capital and inventory finance propositions.

At the same time, the expansion of business boundaries has led to new requirements for Corporate Treasurers. Most corporates now require improved visibility into cash balances across locations, so that they can better manage their balance sheets. The increased risk management, regulatory and compliance requirements across the globe are a big reason behind the specific need for a consolidated viewing capability. Banks have responded by providing integrated solutions that not only span cash management, trade finance and treasury, but also include multi-currency and multi-language functionality services.

Banks must customize their offerings to suit various types of corporate clients. Corporates mostly need specific products that can be implemented quickly. Most standard product solutions are cost-effective which have a quick time-to-market capability as detailed customization is not required. It is when customizations are required that the time and the cost variables increase. Here are a few pointers that can help banks manage this dichotomy in the best possible manner:

•  Provide high quality standardized products that can be used by a majority of their client base. The key is to be able to customize these products at short notice to suit the needs of large clients
• Deepen the customer relationship and loyalty by systematically managing varied client needs and providing holistic solutions. This way the corporate is likely to give the bank a larger share of the transaction banking wallet
• Balance local/regional/global perspectives at all times. While corporates are moving towards regionalization and globalization, their local requirements must still need to be met. The regionalization of transaction banking will need to consider multifarious requirements associated with different regions
• Corporates are adopting technology more rapidly than in the past, and therefore mobile and cloud technologies have already made their mark. Newer technologies will come to the fore and banks will need to adapt to these in a more agile manner

Of course, while the banks deliver services, it is the corporate that is really driving regionalization. Factors including the following are the impetus behind corporates’ desire to regionalize:

•  Better operational efficiency is possible when the treasury is regionalized. The Treasurer will have better visibility of cash and account balances
• The costs of operations are likely to improve because of better liquidity management and the related reduction of interest costs. Meanwhile, collections can be accelerated and payments managed accordingly
• The management of tax implications can be assessed and handled more effectively when there is regional oversight
• Risk management requirements have been constantly rising, so having a regional overview can be beneficial
• Regionalization of accounts will also mean a certain degree of standardization of processes and related operations

Despite the benefits, there are clear issues and challenges associated with regionalization that must be considered:

•  Regionalization will mean centralization of a number of functions and that can result in the other locations becoming disassociated with the operations. This can have a bearing on employee morale and company loyalty
• There will be different time zones and cut-off requirements, and regionalization efforts will need to cater to these diverse schedules
• Data security requirements should be robust to mitigate the threat of data theft or  hacking

Conclusion

There are numerous moving parts in the evolving transaction banking industry. The trade routes are changing and emerging markets are gaining more prominence than before, and the technologies supporting the businesses are also seeing rapid growth giving way to newer ways and means of concluding transactions across the world. The time-to-market is a key requirement for banks and corporates to remain relevant in the businesses they are engaged in. Stringent controls that are being enforced across the globe are witness to the fact that businesses can no longer operate in silos, and need to collaborate to ensure success. Regionalization of transaction banking should be done in a fashion that allows for local flexibility, as well as regional and global visibility. The good news is that this is possible by using a prudent mix of technology and operating controls. The case for regionalization is therefore bound to meet with positive uptake given the nature of the accruing benefits.