The Future of Transaction Banking
Cloud, IoT, 5G and APIs will be key to helping corporates manage cash, says banker John Laurens.
The future of transaction banking will depend on the successful deployment of next-generation technologies. A senior DBS banker has spelled out what this might mean.
John Laurens, group head of global transaction services, says the bank is experimenting with 5G connectivity, applications for the Internet of Things, and more cloud-based computing in order to move cash management, trade finance and payments fully into the electronic world.
“DBS will be a truly data-driven business across all sets of activities,” he said. “Today our focus is on helping customers transform their businesses for the future, today. That requires us to orchestrate and create ecosystems, from which we can leverage insights from data.”
Transaction banking, also known as corporate banking, is the provision of services to help companies carry out trade and commerce. This includes trade finance, supply-chain management, foreign exchange, payments, and cash and liquidity management.
Laurens outlined a number of areas where DBS has been active – more on that below – but also said the bank is beginning to experiment with the next wave of cutting-edge tech to realize this vision.
“5G and the Internet of Things will drive new product development,” he said.
DBS’s innovation lab is piloting a radio-based communications network using 5G connectivity, he told DigFin. “It’s purely experimental, but we see linkages between 5G and the speed of data with instant settlements, 24/7 clearing of payment systems, and mobile payments. It will come quickly.”
The bank is also in early tests of Internet of Things applications, in this case, using chips and sensors to create a new means of inventory-based financing. “We’re looking at goods in a warehouse, the tracing of goods, the data of logistics providers and warehouse managers, the data regarding the velocity of goods moving through a warehouse.”
5G and IOT will drive new product dvelopment - John Laurens, DBS
He says banks such as DBS already use some version of this data to drive financing decisions, but the proliferation of IoT hardware and networks will make this analytics-based model the norm.
Supporting these technologies will be the foundational layer of cloud, which reduces costs and allows for scale. “Large enterprise planning platforms are moving to cloud now,” he said.
And APIs will play an increasingly dominant role in corporate banking. APIs, or application programming interfaces, are software that allow banks to easily share data or software services either internally, or bilaterally with partners, or openly with many third parties.
“APIs are key to digital transformation,” he said, noting that in the next five years the industry should see paper-based activities replaced. “Extensive cloud-base, API-driven interaction with customers will be the norm,” with ecosystems creating cross-industry revenue opportunities.
These technological developments do not occur in a vacuum. Corporate treasurers everywhere face massive uncertainty. The coronavirus has led to economic lockdowns. Factories are being shuttered, orders are being cancelled, payments are being delayed.
On top of this, for both economic and political reasons, multinationals are revamping supply chains, making them shorter and shifting from “just in time” sourcing to “just in case” planning.
A lot of manufacturing is shifting from China to Vietnam, Indonesia, Bangladesh, and India. The positive side to this is that Southeast Asian countries are enjoying a rise in trade with China.
But for treasurers, whether business is booming or flailing, getting visibility on trade finance, liquidity and cash flows is harder than ever. For smaller companies, like many suppliers to multinationals, this can lead to extinction.
COVID-19 has forced everyone to go digital faster. DBS reports so far in 2020 it has seen digital cash management transactions increase by 58% versus the first half of 2019. “The pandemic has fast-forwarded corporations’ digital transformation by two or three years,” Laurens said.
Banks are finding themselves in demand to help corporations free their workflows from unnecessary human contact; to adopt new operating models including remote working and automation; and to access financing using real-time information and execution.
Digital solutions vary by client. Laurens cited a number of examples from this year: OCR (optical character recognition, a type of artificial intelligence) for helping clients navigate foreign-exchange relationships; supporting collections and payments of e-commerce platforms; enabling companies to authorize transactions via mobile devices; remote onboarding of suppliers for anchor corporate treasury desks to support supply-chain finance.
APIs are key to digital transformation - John Laurens, DBS
In some cases the bank is using A.I. or, in the case of trade finance, blockchain to do away with paper at an industry level. But Laurens says what makes these things really work is having the bank integrate into customers or networks via API.
He says the bank has built over 200 APIs for transaction banking: “We’re getting more calls for data via API each month.”
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This article was first published by DigFin in Jul 2020.
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