Transaction banking - Role of a Payments Product

Transaction banking is one of the most valuable services provided by any bank to its customers. It generates a good chunk of revenue for banks and has a lot of growth potential if projected and nurtured with quality and efficiency. Services provided in transaction banking include fund transfers (both international and cross border), cash visibility by providing quality and timely reporting, cash management by providing services like zero balancing and notional accounts, forecasting tools, swaps, exposure to range of currencies and many more related facilities. Add to these core services, the global reach of a bank and excellent customer care service and one can expect a bank to gain a good traction and trust of large corporate and other customers.

But if the core transaction banking services, as mentioned above, are not ameliorated with an excellent quality, capacity, flexibility, scale and speed, banks can face a lot of challenges and may lose many of its customers in no time. SWIFT connectivity and its exposure play an important role here as it can really help banks to offer international financial messaging, trade execution, reporting and plethora of services to their customers. And better the quality of these services, better would be the trust and hence revenue for banks.

Now at the heart of these services provided by any bank, is the payments product or payments factory or payments enterprise or financial messaging product or cash management product, whatever one may call it. And these payments products play the most important role in determining the success of transaction banking services offered by any bank.

Having gained an exposure considerably on these payments product, both from the banking and corporate treasury standpoint, it would be a good idea to discuss the qualities of a payments product which a bank should aim at while offering transaction banking services to its customers.

Broadly speaking, a good payments product would offer:

1. Ability to handle and process a large volume of transactions 
2. Provide extremely secure, reliable and speedy payments flow as provided by SWIFT. Only SWIFT certified product should be considered
3. Easy integration with the  ERP, TMS or/and banking departments of a bank
4. Up to date availability of reference data and ability to update itself automatically
5. High level of STP for the payments processed
6. Easy integration with a third party service for compliance validation like OFAC etc
7. Should be scalable to connect with large number of banks, and to maintain large number of bank accounts
8. Excellent liquidity management services for itself and to its customer
9. High quality reporting for both intra day and prior day transactions in the format as desired by customers or compliance
10. Flexibility to adopt variety of message formats as and when required
11. For stable and seamless operation, disaster management processes should be as advanced as possible
12. Since banks operate in a dynamic environment , most of the product functionalities should be easily configurable by the user
13. The interface should be extremely user friendly and should be customizable to cover all the important features as required by the users
14. Customer care, trainings and technical support should be readily available by the product company
15. User access and account administration must be well structured not complicated
16. To maintain the history of actions, an excellent audit trail feature must be available for all the steps
17. Should have adequate cash management processes in place like automated zero balancing movement, direct debits, time based transactions
18. Product should have the capability to handle a lot of currencies and should be able to be integrated to live market rates and information
19. Interface should maintain the consistency to an extent that user at multiple locations throughout the globe should experience the same environment throughout
20. Product should be able to offer banks, various Cash management tools like liquidity management, swaps, forecasting etc which they can offer to their customers and generate value added revenues

There are many more requirements which could be explored as we dig into the technicalities.

However, working for a corporate treasury’s cash management product of one of the top 10 organizations of the US, gives you a lot of perspectives with regards to the transaction banking services offered by the banks and also their limitations.

There was a time when organizations used to consider banks for their preferred or partner banking based on the global reach of any bank. But we are seeing a lot of expectations shift from the corporate point of view and the kind of services, support, infrastructure, technology and issues resolution are playing determining roles for corporate giants to select their partner banks. Performance in score cards of firms have a lot of parameters to score and banks really have to be technically competent to be able to survive as the partner bank.

Moreover as we are seeing a lot of consolidation and harmonization in the payments landscape, particularly in Europe because of SEPA, it becomes increasingly important banks to be ready for the challenges which would evolve because of the open market competition.

Few of the issues which were encountered recently, due to the bank’s transaction banking product specific limitations are discussed below:

1. Payments failure because of special characters: This is one of the issues which was encountered with a major bank in Scotland. Bank’s product was not able to execute the payments having special characters in payments detail field. This is a flexibility issue of the product
2.  Insufficient/incomplete reporting because of an extra “/” in the description: This was a specific issue, again with the Scotland major bank, where in if a user is putting an extra “/” in the payments description field, the related balance reporting was received incomplete because of some truncation issues because of that “/” . This is again a flexibility or technical issue of the bank’s payments product
3. Inability of bank to re-send the balance reporting again: There are certain cases where due to some technical issues, the balance reporting is not received from the bank’s side. But many banks are able to re-send the balance reporting like MT940 electronically again. But with one of the big banks of France, this was the limitation
4. Bank rejecting payments because of character limitations:  One of the major US bank’s india branch was rejecting payments because in the payments field the character were exceeding 35 characters in a line and as per them the 2^nd line which automatically starts after 35 characters should start with “//”. This is a flexibility issue
5. Urgent and non urgent platforms: With a major bank of France, there was a scalability issue, wherein the bank was not able to migrate the accounts which it had set up on the urgent payments platform to the non urgent payments platform.
6. Batch failure issues: With SEPA migration, one of the major issue faced with the Major bank of Scotland was a complete batch failure because of one wrong payment. This caused a lot of issue for an organization and was fixed at the organization’s end rather that the bank. Again a flexibility issue
7. Balance reporting: Few banks have technical limitations on providing the balance reporting only when there are any transactions in an account. One Hungary bank has such limitation. This really hampers the cash management process of any organization
8. Only monthly paper statement: One of the France banks could only provide paper statement for the complete month after a month has ended while most of the European banks can provide the paper statement for any point of time. This is again a flexibility issue.

There are many more scenarios which keep coming up on a day to day basis and which if not proactively resolved, could seriously prove as dent in the relationship which organizations develop with their banks over a period of time.

Two major banks, one UK major and one Germany major bank, have really proved that their transaction banking product is highly resilient, flexible, scale able and easily customized as per the requirements of the customer. And these banks always secure the best ratings in the quarterly scorecards. But for many other banks, there is a lot of scope for improvement.
Suggestion to them :Try to improve on the current services with seriousness and explore your options carefully when you plan to migrate to a new product.

Thanks !!