Transaction visibility and control for competitive differentiation

Competitive differentiation is a continuous quest, and offering clients transaction-level visibility and control is a low-hanging fruit for banks.

In a 2018 paper, McKinsey stated: “Whatever one’s business, the realities of today’s marketplace mean that those with the best data systems and capabilities will win, and by an increasingly outsize margin”. How is this applicable to transaction banks? Which data-intensive use cases bring real value to banks and their clients today?

On February 23rd, ITFA invited a panel of bankers and technologists to debate market trends around transaction visibility and control in payments and trade finance.

We collected the following key take-aways on the payments side:

• The payments space has succeeded to provide clients with enhanced visibility of the end-to-end processing within the correspondent banking space; this has been achieved through the use of a Unique End-to-end Transaction Reference that is carried in transactions and statements from start to finish as per the "gpi" specifications; it is very specific to payment instructions exchanged via Swift inter-bank messaging which remains the dominant communication platform in cross-border wholesale payments
• Following this new market practice defined some years ago, a new standard has emerged which all Swift banks are mandated to adopt in the foreseeable future; standardisation ensures all parties are able to offer increased visibility to their clients; the playing field is levelled, and that's great for the industry
• In addition to providing increased visibility through SWIFTgpi notifications, some banks are providing additional insights on their internal processing; this is achieved by tracking transactions internally, i.e. within the banks' own operational environment; this is particularly relevant for banks who want to provide enhanced visibility and control on any type of payments such as instant payments that are not tracked via gpi
• The increased need for visibility is also key for internal teams such as Banking Operations, Compliance, IT Security and Business Development. All those functions need some form of access to transaction details (archived or production flows) to deliver on their objectives. Examples include transaction-level business activity monitoring, responding to compliance enquiries, transaction-specific enquiries by service desks, transaction integrity surveillance, ...
• In addition to providing visibility, some banks have also started to enhance control by enabling their clients to perform pre-validation of specific instructions such as checking the IBAN; this helps ensure that the instruction details are valid at the time of submission to the bank.

"Clients get more visibility on cross-border payments in terms of payment status, value, FX rates, fees deducted by each bank, date of receipt by beneficiary." Eric Bayle, Société Générale

Our key take-aways on the trade space have been as follows:

• Some banks already offer trade transaction-level visibility via digital enquiry tools; as an example, Lloyds Bank offers its online "Trade Tracker" for customers to check the status of guarantee, standby L/C, collection, import/export L/C and trade loan requests as illustrated below:

"We developed our Trade Tracker solution to address a universal pain point and provide our customers a simple 'track and trace' solution for their Trade requests. This was designed with customers and has become a game-changer for the bank." Merisa Lee Gimpel, Lloyds Bank

• When digitising and automating additional functions such as document checking, those additional digital solutions also offer the opportunity to report on the lifecycle of the processing: f.i. has the document checking been started? has checking been completed? how many discrepancies have been found? ...
• Given the long lifecycle of trade transactions, providing access to the transaction details and event-level processing status is very relevant, so that clients benefit from on-line and on-demand access to such information. No need to call or e-mail the client service desk

"Various internal teams within the bank benefit from tracking transactions but their needs vary much. For instance, the Operations team will want to spot transactions at risk and resolve issues on timely basis." Casimir Veisblat, Tesselate

• In addition to visibility, some banks have also started to provide enhanced control through pre-validation of trade documents; in this, case the document checking tool such as Traydstream is used by the corporate client in addition to being used by the bank. This ensures documents submitted to the bank are pre-validated, and no discrepancy will slow down processing and payment

"By automating document checking, banks can offer enhanced visibility on such processing as well; this can be achieved via e-banking. Some banks enable clients to pre-check documents before submission so the discrepancies are identified as early as possible by corporates themselves." Moshe Wolfson, Traydstream

• There is no absolute need to track inter-bank trade flows (as gpi does for payments) because most trade flows are concentrated in the corporate-to-bank space. There is no need for a new inter-bank standard such as gpi for payments
• Given the number of systems in place around payments and trade, tracking flows is preferably implemented with a dedicated technology such as Intix that remains independent of the existing and future processing systems. This also enables to track the end-to-end lifecycle of the internal processing as illustrated below:

• Tracking transactions doesn't impact existing systems and channels; on the contrary, it is the tracking technology that will adapt itself to internal systems, middleware and channels. This also contributes to time to market.

Conclusion

"Offering enhanced visibility in payments and trade enables banks to differentiate. This is immediate value for clients. In the context of gpi, internal tracking helps banks avoid being spotted as the ones failing timely processing across correspondent banks."

André Casterman, Intix

• Providing enhanced visibility and control is a key priority for transaction banks as it allows them to differentiate in the competitive space
• Banks have started to offer such new services to their corporate clients starting with payments, but it appears corporates appreciate enhanced visibility across additional transactions as well, as illustrated by the Lloyds Bank's "Trade Tracker"
• Banks will be expected to continue to offer more transparency on their internal processing in particular when transactions have longer cycle such as letters of credit, guarantees, ... and new forms of payment obligations
• Inter-bank tracking of transactions such as payments is relevant for cross-border payments cleared via a series of correspondent banks, but not necessarily relevant in trade finance. There is no need for an inter-bank trade standardisation initiative.

Contact us for more insights

• Johanna Wissing, Lloyds Bank
• Merisa Lee Gimpel, Lloyds Bank
• Eric Bayle, Societe Generale
• Casimir Veisblat, Tesselate
• Moshe Wolfson, Traydstream
• Andre Casterman, Intix