TAKING CENTER STAGE
By Anita Hawser
After the financial crisis of 2008 and heightened regulation on "casino" banking, transaction processing is enjoying a renaissance.
Historically, investment banking has earned the most money for financial services providers and attracted higher levels of technology and investment. Yet, the ability to process and settle payments on behalf of multinational corporations, move money around accounts in different parts of the world and mobilize capital in order to invest, expand and grow is integral to economic growth and the financial stability of multinational corporations.
Companies place increasing emphasis on mobilizing cash, not only in terms of their domestic operations but also in their global subsidiaries. Often these subsidiaries are located in emerging or developing markets where restrictions are imposed on the movement of funds offshore. Subsidiaries in countries with such restrictions have historically enjoyed autonomy over local bank accounts and cash balances, but corporations now are centralizing cash management to optimize cash and liquidity.
Companies are building in-house centers of expertise (shared service centers, payment factories and in-house banks) for transaction processing, particularly in areas such as payments, risk management (hedging, FX and interest rate risk) and liquidity management. They are also demanding more value-added services from their transaction banks. Real-time reporting and account information, the ability to better manage excess or trapped liquidity in countries or regions where there are restrictions on free movement of capital, and visibility over cash balances across multiple bank accounts globally are no longer nice-to-haves but must-haves.
With bank credit less readily available, more and more companies are looking at how they can unlock working capital by reengineering their own transaction processes. Although credit is still important, companies' relationship with transaction-processing providers is more about the provider's ability to deliver specialized services as well as their support of open standards and more-holistic solutions that integrate different areas of expertise within the bank—such as cash and trade. As banks' transaction-processing revenues come under pressure, they will be forced to decide whether to remain in the business or outsource to other providers. And as customers demand a more consistent experience and level of service globally, transaction-processing providers will be forced to collaborate with other financial service providers in order to deliver those capabilities.