Since the Financial Crisis, large
banks are focussing on Transaction banking, as it is one of the growing
business in Banks. Banks have a strong position in this arena, but it is
changing fast. With the emergence of technology, banks are increasingly facing
strong competition from technology companies(start ups) . Start up Technology companies
are coming up with propositions which address a part of the Transaction Banking
value chain and provide customers with better features.
A case in point - PayPal
PayPal is providing payment
processing for a long time and has advanced capabilities. It has now started to expand its operations.
Merchant Acquiring was one of the
revenue engines for banks. It is this space PayPal has started to attack. For a
long time PayPal focussed only on internet transactions. however it has now expanded
its presence in the high street shops ( traditionally stronghold of banks). this opens up a lot of opportunities. By being able to offer proposition that spans
physical and digital presence, it makes it easy for SME and corporate customers
to manage their payments and transaction needs.
But it does not end there. Along
with lower transaction fees they offer a multitude of other services ( some
along with Partners) that make the proposition they offer attractive. In my
opinion the opportunities for PayPal is much more; e.g. cash management
services also a possibility
Consider a Retail chain. With the
option to aggregate balances per store and at multiple dimensions the
CFO/Financial controller can have a clear view of balances at multiple
dimensions. this will enable them to
manage their cash position effectively including overseas and currency
accounts.
PayPal have started to offer
electronic Invoicing. this facility enables customers manage their payments to
their suppliers effectively. Having an electronic invoicing service enables you
to schedule payments effectively based on your payables and receivables
position.
With PayPal providing currency
conversion services, one of the key needs of large firms is addressed. But this
is restricted to providing spot rates only. Banks still hold the upper hand in
providing complex FX services. In my opinion, there is one more space where
Banks have the upper Hand - Trade Finance. If firms like PayPal, bring up
disruption in the Trade Finance Value Chain, then the Transaction Banking
Ecosystem gets even more interesting.
The biggest advantage for these
technology firms and start ups is around Data. since these firms are new, they
do not have to deal with the legacy complexity around data, which Banks face. As
a result, these firms can be nimble in providing multi-dimensional analytics to
corporate customers that can help them
manage their business intelligently. In
situations where cash management, payments, Forex and the entire supply chain
is using PayPal, there is the opportunities to provide advanced analytics
for the whole ecosystem is there.
Using PayPal as an example, We
can infer that the disruption in the Transaction banking ecosystem is happening
fast. This space is getting exciting and
banks need to come up with unique propositions to compete and not lose market
share to these start ups.
