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A new landscape: How technological innovation is transforming transaction banking

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By Daniel Verbruggen, Head of Relationship Management Europe, and MEA & CIS respectively, Treasury Services, BNY Mellon.

Bana Akkad Azhari, Head of Relationship Management Europe, and MEA & CIS respectively, Treasury Services, BNY Mellon.

Transaction banking is undergoing significant change. While a combination of factors is responsible– including new regulatory requirements, globalisation and evolving client demands – it is technology that is really driving the transformation. For example, the growth of digital solutions across finance is contributing to evolving consumer expectations, while PSD2 regulations have been introduced in response to the growth of fintech.

This new landscape is challenging banks, which must adapt to manage an increasingly technology-focused environment. Yet,importantly, technology is introducing a multitude of opportunities, enabling banks to leverage this shifting industry and its capabilities to optimise their transaction services.

Transaction banking needed change

Bana Akkad Azhari

Bana Akkad Azhari

Transaction banking stands to benefit considerably from innovative, digital enhancements.Trade processes, for instance, are often plagued by time and cost inefficiencies, with manual, paper-based tasks increasing labour costs and decelerating cash flow.Meanwhile, administrative, documentation tasks – required for trade services – can prevent staff from concentrating on more strategic priorities, thus further driving down efficiency.

Payment processes – particularly those involving international payments – are also subject to inefficiencies. The outdated back-end systems and procedures involved can result in slow and expensive transactions, with the tracking and transparency procedures required for cross-border operations further increasing banking costs and processing times.

Innovation is enhancing processes

Certainly, transaction banking is an environment ripe for reform, with technology providing the catalyst. A number of initiatives – including SWIFT’s global payment innovation (gpi) initiative, artificial intelligence (AI), application programming interfaces (APIs) and blockchain technology– are being explored by banks to help transform payments and trade.

SWIFT gpi, for example,aims to enhance transaction banking by delivering improved speed, efficiency and transparency to international payments.The first phase of gpi is already live and delivering tangible benefits: over 180 banks are now members[i] and the majority of the approximately US$100 billion worth of SWIFT gpi messages sent in the daily flow of transactions are being credited within 24 hours[ii]. Gpi is also improving payment visibility through its Tracker. Unique tracking codes enable visibility of the lifecycle of a payment, allowing them to be traced with ease. Such visibility can reduce tracking operational costs for banks by up to 50%[iii].

AI is also being leveraged by banks. BNY Mellon, for example, is utilising AI robots to automate certain straightforward, manual procedures, and is experiencing significant improvement in processing times as a result. One branch of AI – known as “machine learning” – has the potential for higher value applications. Machine learning is the ability for applications to use datasets to learn how to identify patterns and trends – and then apply this knowledge to “think” in a logical way.Applying the full capabilities of machine learning is still some way away, but its practical applications could include supporting fraud detection, and enabling algorithmic trading – AI systems that make extremely fast trading decisions.

Elsewhere, APIs can be harnessed to enrich the payment and trade space. APIs permit streamlined communication between various software components and can be particularly valuable in creating digital ecosystems that are accessible by clients.

Blockchain technology could also deliver value-added payment solutions. Blockchainis a digitalised, decentralised ledger that is inviolable and transparent, and it could potentially be used to streamline payments between people operating under different levels of regulation and security; which has the overall effect of speeding-up the entire transaction. Similarly, trade services often involve ecosystems of external partners, with each independent participant further decelerating the process. As blockchains facilitate transactions under one system, ongoing developments aim to also support faster trade operations.

Leveraging the digital space

Daniel Verbruggen

Daniel Verbruggen

The innovations touched upon are just some of those that could enhance payments and trade. But how can banks ensure they leverage these new capabilities in order to optimise their transaction services?

At the heart of any banking strategy should be client value. The first step should therefore be to determine which initiatives will enhance the experience of the client. Every region is different, so banks must consult their client base to develop deep insights that determine which clients will benefit from each initiative.

If banks believe the developments will enhance their clients’ experience, it is then a case of prioritisation. With new fintechs continually entering the market – and one in four failing[iv]– banks should be prudent when investing in technology, looking at what will add value to client relationships in both the short and the long term.

A collaborative approach

Of course,leveraging the digital space is rarely simple. For smaller – perhaps local banks – investing in cutting-edge technology can pose a significant challenge. Technologies can change rapidly, picking winners in this environment can becomplex.

It is here that a collaborative approach can provide a solution. Non-compete alliances between local and global banks combine the capabilities and skillsets of both parties – local banks gain access to the technology solutions needed to enhance their services while global banks gain access to unrivalled, country specific insights and expertise from local banks. Corporate clients can therefore benefit from an experience fuelled by the strengths of both parties.

Yet, collaboration does not need to stop there. The new landscape is also generating opportunities for partnership that extend to fintechs. A bank-fintech alliance is equally valuable. Participation not only gives banks access to technology services, but also allows fintechs to benefit from the extended reach of banks.

Technological innovation is transforming transaction banking. Technology solutions can deliver enhanced capabilities, transforming payments and trade. And by collaborating, banks of all sizes and reach can access these enhanced services, delivering a new, value-added experience to clients.

 The views expressed herein are those of the authors only and may not reflect the views of BNY Mellon. This does not constitute treasury services advice, or any other business or legal advice, and it should not be relied upon as such.

Banking

Bank of Idaho Selects Teslar Software to Enhance Customer Service

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Bank of Idaho Selects Teslar Software to Enhance Customer Service 1

Partnership enables bank to spend more time with borrowers, better meet their needs

Teslar Software, a provider of automated workflow and portfolio management tools designed to help community financial institutions thrive, announced today that Bank of Idaho selected its platform to improve productivity, freeing lenders to spend more time with their borrowers and improve service to the community.

Bank of Idaho is a business-focused bank that is one of the top SBA lenders in the state of Idaho. The bank first partnered with Teslar Software to leverage its automated workflow and portfolio management tools across its entire lending portfolio.  It selected Teslar’s portfolio management, loan review, construction management and exception tracking solutions.

During the implementation process, Teslar’s technology made an impression, specifically its automation capabilities, so the bank felt it would be beneficial to also leverage Teslar PPP Forgiveness to help its businesses more efficiently navigate the PPP forgiveness process.  Known as “the bank with a heart,” supporting community businesses with PPP loans has been a natural fit for the institution. And, Bank of Idaho hasn’t just helped its current customers; of the 1,200 applications processed, nearly 50% were new relationships.

“Teslar’s automated workflow and portfolio management tools are changing the trajectory of our organization,” said Jeff Newgard, CEO and president of Bank of Idaho. “The streamlined, modern processes are improving our customer experiences and allowing us to build stronger relationships. We’re building a frictionless banking experience that can help businesses in our community get through this difficult time and grow with our support and attention.”

Leveraging Teslar Software’s platform will enable the bank’s lenders to spend less time bogged down with traditional, manual processes and more time engaging with borrowers. They’ll also be able to increase visibility and communication across departments and can better serve customers and cross-sell.

“Bank of Idaho prides itself on taking a consultative approach to customer service,” said Joe Ehrhardt, CEO and founder of Teslar Software. “The bank truly cares about its customers and effectively helping them. Through partnering with us, they’ll be able operate more productively and empower their bankers to focus more on forming meaningful relationships with their customers, which is more important today than ever before.”

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Banking

Turkey’s Akbank Will Use FICO Optimization to Build Value in Credit Card Portfolio

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Turkey’s Akbank Will Use FICO Optimization to Build Value in Credit Card Portfolio 2

Akbank’s teams will also use FICO’s advanced decision optimization capabilities on a range of business problems

Highlights

  • After a competitive search, Akbank chose FICO to optimize its consumer credit card limit decisions for new and existing customers.
  • Akbank also plans to use the same optimization technologies in solving different problems such as setting loan amount and price, and customer credit limits
  • FICO is also working to futureproof the bank’s risk management growth by training in-house Akbank team on the optimization methodologies and action-effect modelling.
  • Akbank’s strategy is to establish an optimization centre of excellence.

Global analytics and decision management provider FICO is providing decision optimization software to manage the growing consumer credit card portfolio for one of the biggest Turkish retail banks, Akbank.

More information: https://www.fico.com/en/products/fico-decision-optimizer

FICO has a global pedigree in credit limit management optimization projects, and many of the world’s leading financial institutions use its optimization technology. Akbank will tap into this depth of experience to create an optimization centre of excellence. Akbank has tasked FICO to train an in-house team so they can build their own applications for other areas,  such as loan amount and pricing optimization, customer-based limit optimization and restructuring optimization.

FICO will configure and develop sophisticated “action-effect” models for Akbank’s retail lending team using FICO® Decision Optimizer to manage their initial credit limit assignment and the on-going limits for Akbank’s consumer credit card portfolio.  The action-effect models project customer responses to offers in order to determine the best offer for each customer.  These will be configured into the optimization framework, allowing the Akbank team to choose an operating point that meets their objectives and constraints.

Serhan Pak, Akbank’s senior vice president, Retail Lending, said: “We view optimization as a strategic tool for Akbank, as we build on excellence in credit analytics to reach our strategic goals. The robustness of FICO’s analytic technology and the fact that their optimization applications are in use worldwide made them a natural choice for us.”

Emre Unlusoy, regional director for Turkey & Balkans at FICO, said: “Akbank is aiming to improve profitability, market share and revenues while decreasing non-performing loans. This is an ideal use of optimization, which brings together analytics, decision logic, mathematical optimization and domain expertise.”

FICO® Decision Optimizer enables business analysts to develop, assess and improve the decisions that drive customer interactions and business results. Users can test decision strategies for the optimal results that balance trade-offs between cost, risk and reward, by factoring in dynamic economic and market conditions.

Akbank’s mission is to be the leading bank that drives Turkey into the future. The bank has grown to over 750 branches and employs more than 12,000 people.

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Banking

Atom bank partners with Codat and continues their support for small businesses during COVID-19

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Atom bank partners with Codat and continues their support for small businesses during COVID-19 3

Atom, the UK’s first app-based bank has joined forces with Codat to simplify their business lending process.

The partnership will see Codat provide their universal API, for small business financial data, which will enable Atom to directly integrate with business customer’s accounting platforms, removing the need for manual submissions. This will result in a streamlined onboarding process and enable Atom to make faster and better-informed funding decisions.

By connecting their accounting package directly with Atom, business customers are securely sharing permissioned access to accounting data, encrypted in transit and at rest. This represents an easier and more secure way to share information.

Tom Renwick, Business Banking Proposition Manager at Atom said: “At Atom we are continually looking to improve customer experience through the better use of technology.”

“Running a business is complex and the pandemic has increased the administrative burden on time poor business owners: our partnership with Codat will address the manual and slow exchange of data, making our application process simpler and credit approval faster.”

Pete Lord, CEO and co-founder at Codat added: “We’re very happy to be working with the team at Atom who will use our service to enhance their lending processes and improve the borrower experience.”

“Via a single API, we’re enabling financial service organisations to integrate with a wide and growing range of accounting, banking, and commerce platforms. It means banks and lenders can get a holistic financial profile of a small business in a matter of minutes rather than days.”

Both fintechs have been awarded grants from the Banking Competition Remedies (BCR) to transform banking for small businesses and this is just one of the ways that Atom is delivering against its commitments.

Atom has been very active in supporting businesses through the economic impact of the pandemic by being one of a small number of banks to offer secured loans to new, and existing, customers through the Government-backed Coronavirus Business Interruption Loan Scheme (CBILS).

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