Transaction Banking: the catalysts for growth

The lifeblood of any business is its working capital. From procurement to manufacturing, through storage, sales and finally debt collection, a business is only as efficient as managing its working capital. This is where a bank’s transaction banking team can step in to support customers.

In my 18 years of experience in transaction banking, I have seen how properly structured and digital solutions help clients manage their day-to-day cash, trade and working capital operations and increase their profitability. Having witnessed first-hand how an ideal banking transaction team can drive customer growth, I share my insights here, so businesses and banks can benefit from my experience as well.

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An ideal transaction banking team should include experts and specialists who develop, implement, sell and manage a wide range of products and solutions, including cash management, international and domestic trade services, supply chain, consulting and structuring of working capital and cash. Clients can then use these products and tools to make their overall working capital process more efficient.

The future of trading and cash management holds vast opportunities. The role of transaction banking is to take advantage of these opportunities. A good transaction banking team can catalyze future customer growth

Managing cash, payments and collection is an essential business activity. It often becomes cumbersome for large companies to collect receivables, make multiple payments and reconcile balances at the end of each day. A good cash management team at a bank can help any business carry out these activities. If we look at debt collections, a customer can sell goods across the country.

Whenever the customer’s distributor or wholesaler initiates a payment on the customer’s sales, it is expected to be reflected in the customer’s account in near real time, as very often the delivery of goods from a customer depends on the payment by the distributor.

Another core activity of clients is to pay their suppliers, tax authorities and various other government entities. The expectation here is that the banking system should be able to make multiparty payments at the click of a button.

There are also organizations in the microfinance industry, which may need to disburse multiple loans to various borrowers. In an efficient environment, all of these payments should be initiated from the bank’s online platform, or even from the client’s own ERP system, via host-to-host integration.

Finally, customers should be able to reconcile all payments and receipts made throughout the day and obtain personalized reconciliation reports at the frequency of their choice.

If we talk about trade, the main objective for customers is to ensure that the process, from procurement to debt collection, is the fastest and most efficient. The transaction banking team can support this objective by working closely with clients to structure commercial transactions and play an advisory role for them in their daily international and domestic flows. An important aspect of commercial product design is that it should ensure transparency.

We find that the general practice is to provide customers with simple overdrafts or short-term loans for the majority of their credit needs. Usually there is no control over the end use of the funds, no supporting documents are submitted to document the movement of goods. This creates a risk of money laundering and also increases the risks of embezzlement and non-repayment of these loans.

Commercial loans, on the other hand, are backed by proper documentation. These specific-purpose loans facilitate end-use control and limit any hosting business. Being self-liquidating in nature, commercial products attract a lower risk weighting, which makes them favorable for capital allocation, while protecting the bank from losses and guaranteeing higher returns.

Offering the right trade products ensures transparency in clients’ trade flows and improves their risk ranking. Ultimately, as transactions become more financially disciplined and transparent, its aids in the growth of the economy as well.

As the world strives to achieve the Sustainable Development Goals, the transaction bank supports its clients with products that recognize sustainable practices at the client’s level.

Bangladesh is one of the leading exporters of Ready Made Garments (RMG) in the world. This makes our apparel industry a strategic playground for promoting sustainable cotton sourcing. At Standard Chartered, we were able to capitalize on this opportunity and execute the first-ever sustainable trade finance transaction in the country, between two of our RMG clients, further enhancing the sustainability of the client finance supply chain.

Another key driver of job and income creation in the country is the growth of small and medium enterprises. Transaction banking contributes to increasing the participation of this priority sector by banking the ecosystem of large customers.

At Standard Chartered, we offer fully automated, collateral-free lending to our customers’ distributors and suppliers. These are mostly small and medium-sized businesses, who not only enjoy the benefits of low-cost, collateral-free financing, but also learn financial discipline, proper record keeping, and reconciliation through their experience with us.

Over the past decade, we have introduced many digital solutions to our customers, who saw the benefits of these solutions and gradually moved towards digitalization. We have seen a spike in interest in digitized services during the Covid-19 lockdown situation. Customers appreciated our availability to serve via our online platform.

In the current scenario, clients know that to stay competitive, they need to streamline their working capital operations to minimize turnaround times and increase profitability. It has become imperative for commercial banks in the country to develop a robust transaction banking service that can support this goal.

We are seeing fundamental changes in technology that will reshape the financial and banking industry. Customers have an increased demand for real-time trading. Banking operating systems must be ready to support real-time transactions, and this can only be done through digital initiation.

Application Programming Interfaces (APIs) are becoming a standard method of exchanging information between different applications/systems in real time. While we pioneered the simpler Host-to-Host integration formats in Cash Management from 2010 and have seen it gain immense popularity over the past decade, customers are now more inclined to More secure and much more personalized API connectivity for transaction initiation and reconciliation.

We are seeing fintech companies providing new services and marketplace platforms. Transaction banking teams must be prepared to collaborate with fintechs to capitalize on the innovations introduced to the industry by these companies. We work with different fintechs around the world. Thanks to such a partnership, we were able to transmit the very first letter of credit on blockchain in Bangladesh.

The culminating impact of these practices can bring several accolades to banks, as evidenced by our recent wins as the nation’s top transaction banking providers by Global Finance magazine, Euromoney, Asiamoney and Assets Awards surveys.

The future of trading and cash management holds vast opportunities. The role of transaction banking is to take advantage of these opportunities. A good transaction banking team can catalyze future customer growth.

This team works as digital working capital optimizers for clients. Transaction Banking acts as deep and proactive risk managers, strategic business partners and financial technologists for their clients to ensure a thriving future and shared prosperity.

The author is the National Transaction Banking Manager at Standard Chartered Bangladesh