Innovations in Transaction Banking: Transforming Financial Operations Across Diverse Sectors for Enhanced Performance and Competitiveness

In the digital age, hyper-globalisation has seen commerce thrive exponentially, with large-scale transactions being conducted online between organisations every day for varied purposes, including trade financial deals, M&A, and other cross-border transactions. Given the complexity of each industry and the intricate terms and conditions to be met by either party involved in deals of varied nature, the large cash flow across industries needs to be safeguarded to alleviate discrepancies and potential loss to scams.

Hence, transaction banking, a set of comprehensive banking services, plays a cardinal role in ensuring the smooth functioning of corporations by being a watchdog of cash flows for them through added layers of security at varied touchpoints during diverse deals. Given the rise in potential threats of online fraud and other cross-border compliance-related teething issues, transaction banking has been undergoing notable innovations in a bid to improve performance and competitiveness across diverse sectors. These innovations are driven by advancements in technology, growing customer demands, and the need for improved security in financial operations. Let’s shed light on key innovations that are enhancing transaction banking.

Also Read | Exploring the benefits of transactional banking for small businesses

Blockchain Technology: Encryption of sensitive information and tamper-proof records of details throughout the timeline of transactions have remained timeless needs in the finance sector. Blockchain technology has the potential to revolutionise transaction banking by providing secure, transparent, and concrete record-keeping. Through transaction banking, smart contracts built on blockchain platforms can help automate the execution of transactions, reducing the need for mediators and streamlining processes, including trade finance and cross-border payments.

APIs and Open Banking: Application Programming Interfaces (APIs) enable hassle-free integration and data sharing in a safe environment between banks and third-party service providers. Open Banking initiatives help the sharing of customer data (with their consent) to create new financial products and services, improve immersive customer experience, and develop innovation in areas like cash management and liquidity prediction.

Real-Time Payments: Real-time payment systems allow prompt transfer of funds between accounts, providing businesses with the added advantage of greater liquidity and quicker settlement of transactions. These systems are known for their characteristics including a boost in cash flow management, bringing down payment processing costs, and supporting quick decision-making in sectors – retail, e-commerce, and supply chain finance.

Artificial Intelligence (AI) and Machine Learning (ML): AI and ML technologies are seeing applications almost everywhere and transaction banking is no exception. Here AI and ML are required to automate routine tasks, detect fraud, and provide personalised insights to clients. In transaction banking, AI-powered solutions are used for credit scoring, risk assessment, and predictive analytics, enabling banks to offer personalised financial solutions and improve working capital management for businesses throughout sectors.

Digital Identity Verification: Adding yet another unique security layer for transactions, digital identity verification solutions leverage biometric authentication, cryptographic techniques, and distributed ledger technology to beef up security and ease onboarding processes for corporate clients. These solutions help prevent identity theft, decrease compliance costs, and advance the efficiency of account opening and KYC (Know Your Customer) procedures.

Supply Chain Finance Platforms: Transaction banking also offers supply chain finance platforms that help businesses optimise cash flow by leveraging their trade relationships and inventory data. These platforms use blockchain, AI, and data analytics to facilitate early payment to suppliers, improve working capital efficiency, and lessen supply chain risks, which in turn benefits sectors like manufacturing, retail, and logistics.

Regulatory Technology (Regtech): Regtech solutions help banks and financial institutions comply with regulatory requirements more efficiently and cost-effectively. Automated compliance monitoring, reporting, and risk management tools allow banks to acclimatise to continuously changing regulatory settings while abating compliance-related risks and operational overhead.

Environmental, Social, and Governance (ESG) Integration: As sustainability and responsible investing take centre stage globally, transaction banks are integrating ESG criteria into their product offerings and risk assessments. ESG-linked financing solutions, like green bonds and sustainability-linked loans, empower businesses to align their financial activities with environmental and social objectives while accessing capital at favourable terms.

To sum it up, these innovations in transaction banking are transforming financial operations across diverse sectors by improving efficiency, transparency, security and consciousness to adapt to evolving market dynamics.

By Pulak Jain, Co-founder, Chief Business Officer and Head of Strategy, TransBnk