Transaction Banking: Evolution of the way the money flows!

Treasury and Cash Management, Corporate Payments, Trade Finance, Asset Servicing, and Prime Brokerage business are some of the standard steady sources of revenue and profits for banks traditionally. A treasurer’s job in a corporate is complex and multidimensional and Banks can help enterprises navigate this space.

  1. Transforming Trade Finance: The trade finance gap stood at USD 1.7 trillion in 2020 and has since been exaggerated due to the Covid-19 challenges. A globally concerted effort is needed to enhance trade finance resources, digitalization, and implementation of common standards to close trade finance gaps and promote sustainable economic recovery. Enhancing the participation of SMEs and MSMEs in global value chains is crucial to unlocking new productivity and inclusive growth. The Banking industry needs to work with startups and innovators to fill this gap and meet one of the glaring gaps in fulfilling their inclusive growth mandate. 2023 could well be the year when banks and techs come to work together more closely to bridge this gap.
  2. Payment Innovations: Speed, immediacy, and convenience have become the defining elements of the digital payments experience. Based on TDB Insights, the B2B X-Border transaction values are projected to grow at a CAGR of 5% over the next five years. The ravenous appetite for new payment experiences requires that banks be agile enough to offer or facilitate innovations, such as payments-as-a-service (PaaS), embedded finance, digital wallets, buy now/pay later, cryptocurrencies, and emerging central bank digital currencies (CBDCs). Payment innovation has become foundational to the growth of banks’ relationships with their Transaction Banking clients and is expected to gather further pace in 2023.
  3. Digital Asset Custody: There’s a need for new capabilities to minimize the risks around custody and counterparty services related to digital assets. While 2022 has been a cruel year for crypto assets, interest in digital assets is unlikely to wane in the coming years. Digital asset custody opens up a huge opportunity. Banks need to assess what blockchains they support. While assets like BTC and Ether are commonly in use, more chains like NFTs are beginning to grow as well. Custodians will also have to offer clients different wallet capability types. The options of wallet decide the level of security, recoverability, seamlessness, and compatibility with various blockchains. Banks can bring a high level of trust and stability to these asset classes and develop new relationships and revenue streams by offering these services.

*A recent BIS survey suggests that 60% of central banks are considering CBDCs (Central Bank’s Digital Currencies) ,  and 14% are actively conducting pilot tests.

Author: Nishtha Asthana

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