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Press release

Transaction banking: Salvation or collision course for incumbent banks?

Bain & Company finds that increasing competition, new digital technologies and resulting price compression will require banks to overhaul their operating models to be successful in transaction banking

  • May 22, 2018
  • min read

Press release

Transaction banking: Salvation or collision course for incumbent banks?


Bain & Company finds that increasing competition, new digital technologies and resulting price compression will require banks to overhaul their operating models to be successful in transaction banking

New York – May 22, 2018 – Many banks and fintechs are placing big bets on transaction banking - the business of managing cash for companies and financing trade and supply chains. However, as competition intensifies and technology firms offer alternatives, prices are bound to fall, and the numbers won’t add up for everyone. A new Bain & Company report, Wolf in Sheep’s Clothing: Disruption Ahead for Transaction Banking, finds that to succeed, incumbent banks will need to overhaul large aspects of their operating models, including legacy technology systems.

Banks increasingly see their futures bound up with a greater presence in transaction banking in large part because transaction banking revenues tend to be less volatile than other types of banking revenues. Further, transaction banking includes multiple products that are part of clients’ day-to-day operations and critical for client loyalty. The business also can serve as a source of more stable, lower-cost deposits that help banks maintain liquidity ratios and cost of funds.

“Transaction banking has become a significant factor in bank plans to improve the return on equity of their wholesale divisions,” said Thomas Olsen, who leads Bain & Company’s Strategy and Corporate Finance practices in Asia-Pacific. “Forward-looking banks have a significant opportunity to jump ahead by rethinking their role, focusing on how they will add value and how to charge for it. To do this, banks will have to get comfortable experimenting with new economic models – from simple revenue sharing to sharing of the customer relationship with external partners.”

However, Bain & Company’s report acknowledges that widespread optimism around transaction banking may not be warranted as competition is growing. Banks are all chasing the same, albeit growing, pool of revenues. Technology companies and other ‘non-traditional’ competitors that operate platforms to address specific client needs also turning up the heat on banks.

As these new digital technologies automate more and more of the paper-intensive processes involved in transaction banking, costs will decline. This, combined with heightened competition, is likely to cause a decline in prices across products such as payments and trade finance. Bain & Company estimates that distributed ledger technology, if adopted in the right way by trade ecosystems, has the potential to reduce trade finance operating costs by 50 percent to 80 percent, and to realize three- to four-fold improvements in turnaround times, depending on the trade finance product involved.

Significant operating model changes that will be required to win include moving away from legacy IT systems, which hinder-long-term competitiveness, and attracting new types of talent – employees conversant with artificial intelligence, or those who are knowledgeable about distributed ledger technology or advanced analytics, for example.

Forward-looking banks must also rethink their role in transaction banking – specifically, how they will add value and how to charge for it. With pricing pressure inevitable as technology reduces marginal cost structures they should rethink pricing approaches – for example, charging not per transaction but rather through a fee for a solution that includes transactions, data analytics, security features, a portal connecting the client with other banks, and more.

Bain & Company sees banks’ roles evolving in several ways:

  • Some will focus on using partnerships – with IT firms, other banks, ecommerce platforms and others – to provide a complete transaction banking solution to clients. Others will provide the infrastructure for local payments and collections, or become utilities for processing certain transactions in certain countries or regions.
  • Banks will want to stay upstream as the preferred institution to centralize operating accounts and liquidity management solutions. They also will want to develop value added services such as advising in treasury management, working capital forecasting, etc.
  • With technology disrupting most areas of transaction banking, it is critical for banks to develop a more seamless experience for clients.
  • Relationships and expertise also still matter, and these take years to develop. The quality of relationships stems directly from a bank’s ability to co-develop appropriate solutions with clients.

As transaction banking evolves, senior bank leaders should take several steps:

  • Understand the biggest sources of disruption and their effects on market and cost structures, and profit pools.
  • Define the bank’s role in the ecosystem and its sources of differentiation, rather than trying to be everything to everyone.
  • Define an effective operating model, including the most important capabilities.
  • Restructure the technology stack to deliver a simpler, less expensive customer experience. Source the required talent supply to accelerate investment in technology and analytics.
  • Cultivate the right partnership models, whether with other banks or external ecosystems.

“Banks that are slow to modernize are destined to land on the wrong side of the competition,” said Olsen. “Those that move aggressively now to redesign their operating models and carve out a differentiated role will raise the odds of securing a strong position for years to come.”

Editor's Note: To arrange an interview, contact Dan Pinkney at or +1 646 562 8102

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