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Going digital in transaction banking Going digital in transaction banking

Going digital in transaction banking

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Over the past decade the global financial services industry has undergone immense change and transformation. In fact over the last few years, the pace of technological innovation has been unprecedented. Increasingly digital services are required across every facet of society as consumers, businesses, international organisations and government entities race to embrace new technology.


In the consumer space, the internet of things has become a household phrase and increasingly technology is coming to define every aspect of way we live and do business, and that is becoming particularly true for the banking and wider financial services sector.


From a global transaction banking standpoint, until now the attention and focus has very much been centred on upgrading existing systems, procedures and solutions. However with the onset of blockchain technology, big data, cognitive intelligence and cloud based technologies, the next ten years could well be an even bigger game changer for the entire ecosystem of payments and liquidity management.


Increasingly multinational corporates and institutional clients demand end-to-end digitisation, to optimise and streamline core operations. Responding to this call we’ve seen new FinTech players emerge to disrupt the status quo. So it has been crucial for the banking sector to react to this change by investing in developing new solutions and roll out digital capabilities for commercial banking needs. Especially as certain aspects of transaction banking, such as trade finance, have traditionally relied heavily on ‘paper based’ systems.


Digitising and automating this process, has clear benefits in terms of efficiency and speed of cross-border transactions for buyers and sellers both in terms of clearing payments and settlement of trades. But it will also help with the reliability and accuracy of data. Especially if that data is stored on a distributed ledger using blockchain, the technology underpinning bitcoin.


In fact in August this year, MUFG joined the “Utility Settlement Coin” consortium project, which is aiming to create a new form of digital cash for clearing and settling financial transactions over blockchain. The idea, essentially, is to make it easier for global banks to carry out a range variety of transactions with each other. Similarly in March, MUFG announced it had joined RippleNet Advisory Board (originally known as the Global Payments Steering Group), as it works extensively in the FinTech arena to provide better services to customers and society. In partnering with Ripple, the intention is to address the pain points of existing systems and challenges of cross-border payments, including delays, cost, and lack of visibility. Both of these initiatives are a sign of the group’s commitment to drive forward the development and adoption of digital technology in the international payments, etc.


Another critical aspect driving the digital agenda in transaction banking and international payments is concerns around cybersecurity and the ongoing regulatory agenda that has been commonplace since the 2008 financial crisis.


New compliance regulation and stringent – but essential – transparency checks have placed added pressure on an already slow and cumbersome commercial banking system. While, according to estimates by market analysts Juniper research, cybercrime costs the global economy more than $400 billion a year and is expected to surge to $2.1 trillion globally by 2019. Even more strikingly, in 2016, nearly 1,100 significant data breaches were reported across the world, with about five percent of those in the banking and finance sector1.


Given the scale of the global transaction banking market, and the ever-increasing sophistication of cyber criminals, it is essential that banks and corporations have adequate protection and risk mitigation plans in place alongside their digitisation goals. Fortunately, digitising the process also has some added benefits from a cybersecurity and counter fraud perspective. In keeping with stricter rules around ‘Know your customer’ (KYC) and anti-money laundering (AML), new tools can spot, flag and block any suspect or unusual transactions, while other systems have been developed for compliance tracking and monitor for signs of cyber or data breaches. 

Against the context of evolving client demands, changing technology and growing threats, it will be critical for banks and corporations to assess their transaction banking systems, and for the international finance community to work together to mitigate risks and standardise digital solutions.

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Going digital in transaction banking