Here is why the global banking system is focusing on digital transactions and services

Technology is impacting every industry today, and that includes banking. As corporates push themselves to grow their business and expand into new territories, the complexities in their banking requirement also increases. A year-on-year increase in transaction volume has prompted banks to invest heavily in technology to serve growing customer demand. It is only natural for corporates to expect their banks to adapt their complex and rapidly changing business and banking needs.

Growing awareness around Cash Management

Over a decade ago, the 2008 subprime mortgage crisis first hit the US. Soon, its impact was felt across the globe. The world was split into free and regulated economies. Banks with an unhealthy exposure to risky leverage, unproven risk management and questionable underwriting standards ended up losing billions of dollars in investor wealth. On the other hand, banks that had invested in transaction banking capabilities were able to better withstand some of the immediate risk around liquidity, though were impacted around the wider balance sheet risks they had taken.

Cash Management capabilities within banks have rapidly evolved since the financial crisis with many more regional and local banks that have seen significant investment in this line of business. This has been a great asset to banks as well as corporates. Whilst the banks have delivered on superior capabilities, many corporates have either not fully embraced the features or misunderstood the term cash management. Cash Management is viewed as the bank’s ability to handle cash, or an online banking system. However, this view sometimes prevents banks and corporates from not leveraging their full power.

So, what is Cash Management about?

Banks and corporates emphasize on Cash Management to better manage their liquidity positions. This helps corporates manage their working capital requirements better. As a result, banks can find a new source of liquidity apart from traditional fixed deposits.

For corporates, Cash Management is a banking service that helps manage day to day business needs spanning business size (whether they are an SME or a large conglomerate) and operations across multiple geographies. Cash Management services offer a seamless way to engage and transact with banks and involve the collection, handling, and usage of cash including assessing market liquidity, cash flow and investments. These services are known to enhance efficiency and enable swifter cross-border payments and receipts in a timely and informative manner.

Optimizing banking operation costs

Over the past decade, banks have increasingly used fintech to support their operations. While some banks continue to work with existing infrastructure, others embrace fintech through open banking to enhance internal and external system capabilities offered to customers.

In the UAE, e-Government initiatives aim for the country to be paper-free. This includes reducing cheque and cash payments to embrace digitalization in the region.

These initiatives have boosted investment in transaction banking capabilities. With stiff competition and challenging market conditions, banks see benefits of effective Cash Management.

Cash Management as the secret to success

As businesses embrace robust Cash Management services, banks also grew their transaction banking capabilities, introducing new players in the process with increasing market share. Although global banks continue to grow, the overall transaction space has grown with globalization of economies.

Besides corporates, Cash Management makes sense for banks due to the inherent focus on efficiency and resourcefulness. Effective Cash Management focusses on efficient handling and pooling of funds. This includes current account balances that are pooled in for better utilization of funds. Prioritizing digital transactions significantly reduces transactional processing costs. According to an ASSOCHAM-PwC report (2016), it is estimated that digital banking can reduce processing costs by almost 50% when compared to a manual transaction.

The magic of digital tools

Thanks to technology, there is increased connectivity between banks and their customers. Banks employ data to offer sound advice to customers and help them battle unpleasant economic events in advance through predictive analytics and offer help with corrective course of action.

In the future, banking services will rely on Machine Learning and data management to drive key customer services. Mashreq continues to invest heavily in developing Cash Management propositions and technology capabilities. With all the development over the last few years, Mashreq has identified its next phase of growth as it evolves customer experience.

Convenience and efficiency, minus the hassle

Cash Management Services by banks aim to provide the necessary tools to make multi-market operation easier to manage and control. This provides businesses with visibility over every single account across countries and banks, with details of users, transactions, and cash flow movements through accessing a single dashboard.

These tools for customers have increasingly helped Mashreq to build deeper and meaningful relationships with its corporate clients and build customer loyalties in the countries that Mashreq operates in.

Leveraging on new Technologies

With technology as one of the main drivers of change, we at Mashreq are witnessing an accelerated development of multiple new products, solutions and platforms that rely on new technology tools, infrastructure and connectivity frameworks. Traditional software product companies are well-positioned to provide the industry with core functional and infrastructure components replacing in-house platforms, while fintechs are further defining the innovation space either in alliance with those traditional providers or directly with customers or building their own market positioning as Innovation Labs.

Banks are focusing on transforming their rigid tech structures into flexible and modular frameworks to absorb new tech and adapt to new business models that are emerging as a consequence of the new digital wave transforming the customer experience.

For instance, banks are leveraging new capabilities and technology infrastructure offered by the Cloud Services providers to run, develop and test solutions and platforms. It has led to reduced internal development and production costs. New technologies are also disrupting the way information is shared for transactional purposes; for instance, blockchain provides added value components to a transaction and banks have already begun adopting it.

Consortiums targeting business corridors have been created with the participation of buyers, suppliers and all the trade cycle entities. APIs are also one of the most important emerging tech concepts, allowing fast connectivity between parties and defining standards. Leveraging on APIs, banks are opening a new area of Open Banking business model with access to marketplaces, exposing their own API or consuming information and transactional activity from multiple API providers. Another important factor of transformation is the “Agile” approach in design, development and deployment of solutions that are complemented by Dev-Ops tools, which are accelerating the time to market.

Convenience without compromising on security

The world does not have to be complex by design. And money and banking do not have to be a disorganized affair by design. Convenience and security do not have to be mutually exclusive. Banks have always regarded corporate reputation as a key pillar. To protect their image and trust with customers, banks place the strongest emphasis on security of their networks and security of data that holds financial information.

The key highlight of banking in today’s world is to ensure that corporates are saving money, banks increase their efficiency, to reduce overall costs while continuing to reduce risks and minimize fraud. As the economies, technologies and culture evolves, the key consideration for corporates should be if their banks are also aligned to their way to thinking.