Successful Transaction Banking

By Brian Wilkinson, Head of Faculty and Development, Alpha Development

A good transaction banking relationship is the foundation of the primary client relationship. It should be solid enough to withstand disruption. Securing the primary relationship with clients through transaction banking creates opportunities for the relationship manager as well as implementation and client support team members to deep sell other services and products.

Transaction Banking is Crucial for Clients 

If transaction banking is only about faster payments and a better payments and collections user experience, then the industry is in a tech arms race to zero fees. Clients rely on their transaction banks to provide services for payments, collections, working capital, and liquidity. The critical pivot that transaction banks must make is the ability to use data and implement technology that supports client business processes. Such primary relationships succeed and endure because of a combination of 3 non-replicable factors:

1. Infrastructure – that is aligned with the client’s management and accounting framework
2. Advocacy – a skill set that gives all members of the CST the conviction and confidence to interact with clients to sell and implement solutions
3. Capability – an ability to catalyse lead or be members of multifunctional teams that implement with success

The Client Transaction Banking Value Proposition 

Transaction banking supports the operational processes of a client’s financial supply chain, often across multiple jurisdictions, through a range of solutions, including:

• Balance sheet management, by providing lending when required
• Payment services, to enable clients to pay and collect funds
• Bank account management, by providing access to and information for
• Reconciliation
  • Accounting
  • Liquidity (in some cases, via real-time data exchange)
  • Financial risk mitigation (FX, interest rates and commodity prices)

This helps clients manage their profitability and provides seamless access to all bank services in an on demand ecosystem that is fully aligned to the clients’ own management control frameworks.

The Bank’s Transaction Banking Value Proposition  

From the bank’s perspective, client transaction banking accounts represent one of the most important and stable sources of funding for the bank’s own balance sheet. Moreover, by offering data analytic tools and meeting clients’ payments and risk management requirements in real time, banks themselves have good visibility over client balances, can optimise their own liability management and use transaction data to drive asset growth and mitigate risk.

For banks, transaction banking is valuable because it is:

• A source of stable deposits that enable them to achieve their own financial objectives, without being over-reliant on low quality funding from capital markets and wholesale deposits
• A channel providing a continuous cause of interaction with their clients, enabling the cross-sale and integration of other services into a permanent infrastructure and process map
• Less capital intensive and more profitable than balance sheet finance resulting in ROTE 2 – 3 times higher than average banking ROTE

Invest to Develop a Successful Transaction Bank

The importance of transaction banking means it is critical to invest in:

• Technology, whether independently or in partnership, to ensure bankers can offer cutting edge solutions to their corporate clients in real-time and in a cyber-secure manner
• People, so they can develop existing client relationships into true advisory partnerships on which their clients primarily rely
• Service: “Right-Servicing” the client means having the capability to support some clients to adopt cost-effective self-service, and for other clients the capability to develop and support a complex global treasury. Eliminating “costly over-servicing” of clients raises bank ROE

Success Factors

Notably, transaction bankers need and rely on high level enquiry and advocacy skills. Tomorrow’s transaction bankers will be problem-solvers; they will harness their knowledge of financial systems and technology to a clear understanding of the client’s business model, business data, commercial processes and business strategy. Only then can a transaction banking team advocate solutions that create value for clients and bank stakeholders alike.

Alpha Development has created a full suite of training for transaction banking teams to:

• Inspire young talented interns to enter transaction banking
• Train graduates for their first positions in transaction banking, preparing them for client service team leadership
• Upskill your professionals to create more cross-sell, win more RFPs and gain wallet share of your primary customer relationships

Take a look at a selection of our transaction banking courses such as Introduction to Transaction Banking, Banking Cash Management, Transaction Banking: Trade Finance & Bank Guarantees or contact us straight away to schedule a course for your team.