Exploring the benefits of transactional banking for small businesses

Pulak Jain

Transactional banking refers to a range of financial services that are designed to facilitate day-to-day transactions for businesses. These services typically include cash management services, trade financing, Payment’s product (wire transfers, online bill payments, Point of sale services etc), among others.

Transactional banking services are typically focused on providing businesses with efficient and reliable tools for managing their cash flow, streamlining their financial operations, and optimising their working capital. This can help businesses to save time and money, improve their financial performance, and better manage risks.

In contrast to traditional retail banking, which is focused on providing services to individual consumers, transactional banking is oriented towards the needs of businesses, corporations, and other institutional clients. As such, transactional banking services are often more complex and specialized, and may involve more sophisticated financial instruments and techniques.

Transactional banking can be highly beneficial for small businesses in many ways. Here are some of the key advantages:

  1. Simplified transactions: Transactional banking offers a range of financial services designed to simplify day-to-day transactions, including deposit and withdrawal services, wire transfers, and online bill payments. This can save small businesses a significant amount of time and money.

2. Increased efficiency: By streamlining financial transactions, transactional banking can help small businesses operate more efficiently. This is especially important for businesses with limited resources, as it frees up time and resources that can be allocated to other areas of the business.

3. Improved cash flow management: Transactional banking provides businesses with real-time access to their financial information, allowing them to track incoming and outgoing cash flow. This enables businesses to make informed decisions about spending and investments, which can help improve their financial performance.

4. Reduced Costs: Transactional banking services are often offered at a lower cost than traditional banking services, which can be beneficial for small businesses with limited budgets. This can also help small businesses to avoid unnecessary fees and charges, reducing their overall operating costs.

5. Access to Financing: Many transactional banking services, such as lines of credit against collection and payment proceeds (Sales/Purchase discounting), can provide small businesses with access to financing that they may not be able to secure through other means and that too on a lesser rate of interest. This can be crucial for businesses looking to expand or invest in new opportunities.

In the current scheme of things, Fintech and banks are increasingly focused on transaction banking space, because it represents a significant growth opportunity in the financial services industry.

Increased focus from non-bank financial players (Fintech’s) in transaction banking domain, players such as SAAS platform provider, technical service providers, payment processors and digital wallet providers, are increasingly making transaction banking services more accessible to small business. This has made traditional banks more comfortable in providing the Transaction banking service to smaller business as it helps in reducing the customer acquisition cost for banks and more value to small businesses.

Moreover, Small business do not have the expertise in handling complex transactions, with help of specialist and experts guidance for processing these transactions brings a systematic change for small business transaction banking services are used as an entry point for banks to sell other products and services to business (Opportunities for cross-selling and upselling), By providing transaction banking services, banks can deepen their relationships with customers and increase their revenue streams, which results in win-win situation for all the players and businesses.

With the growing demand for digital financial services and with the rise of e-commerce and online business, there is a growing demand for digital financial services that can facilitate fast and efficient transactions. Transaction banking services such as online payments, mobile banking, real-time fund transfers, UPI services have become increasingly popular, and are expected to continue growing in popularity in the coming years.

Views expressed by Pulak Jain, Co-founder, Chief Business Officer and Head Strategy, TransBnk

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