There is a growing trend towards consolidating payments, cash management and trade services into a single transaction banking division says a transaction banking survey conducted by Misys.
The survey, which questions respondents on the current trends in trade finance, reports that over half the bankers surveyed work in organisations that have already brought together transaction services into one division, with a further 15% planning to do so in the near future.
The survey also reports that the financial crisis has slowed two recent and related trends dominating the provision of trade services, namely the increasing disintermediation of banks in the financial supply chain and the declining use of letters of credit.
Over the past year, nearly two-thirds of those surveyed reported an increase in their banks’ involvement in their customers’ trade business. The financial crisis has made risk mitigation more important to banks involved in the financial supply chain, with 90% of respondents stating that this was a focus for them. Additionally, 53% of respondents stated that transaction visibility between customers and suppliers was increasingly important in the smooth management of the financial supply chain.
Furthermore, the rate at which organisations are turning towards open account transactions appears to be slowing, with only 25% of bankers reporting that open account is accounting for a larger proportion of the trade business, compared with 40% reporting that traditional trade was taking a greater share than before the crisis. This reflects a more cautious approach by corporate customers in a less predictable economic environment.
“This research supports what we are seeing in the market,” comments Olivier Berthier, solutions director, transaction banking, Misys. “Banks are still looking at traditional trade finance instruments, such as letters of credit, as a very important part of their corporate offering, while also investing in new models and setting up new financial supply chain services. This underlines the importance of choosing a solution provider that can support the bank’s customers whatever their trade finance requirements.”
The Misys survey also concluded that bankers need to simplify their payment businesses if they are to hold on to customers. Misys’ research shows that an “alarming proportion of banks have yet to simplify their payments businesses – something they need to do if they are to succeed in improving levels of customer service”.
The survey reveals that 65% of those canvassed stated they needed a simplified process for making changes to payment standards and rules across their multiple payment systems. Three-fifths of respondents reported that their payment environments are fragmented across these disparate processing systems. The consensus amongst the banks surveyed was that they must improve their payment processing systems and that centralising these payment processes through a payment hub was an efficient and cost-effective way to achieve this.
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