Future forward Four trends that will advance longstanding business goals

Four trends that will advance longstanding business goals

Four key trends in transaction banking that will support global trade growth while advancing long-held, shared business objectives.

Globalisation continues to evolve. In 2021, intra-regional trade growth was a key focus area in response to pandemic-led disruptions, along with growing consumer demand in developing markets. However, growth paths have not been limited to physical proximity. In 2022 and beyond, important trade corridors will continue to cut across continents. Corridors are flourishing between South Asia and the US, Africa and Asia, Europe and East Asia, and the Middle East and Asia.

There is a long-term focus on making global trade growth more equitable, sustainable, financially inclusive, and secure. Mutually reinforcing trends in transaction banking are supporting this. For example, the acceleration of digitalisation brings networks together—more tightly integrating buyers, sellers, and financial services providers—to make banking simpler, easier, and more immediate. This interconnectivity, in turn, broadens access to affordable banking services, enabling greater financial inclusion for consumers and small businesses.

Here are four over-arching trends in transaction banking to pay attention to in 2022.

1. A push for (financial) inclusion

Banks continue to focus on diversity and inclusion (D&I). Customers expect it, and regulators in Europe and the U.S. have proposed to increase its oversight¹. Employee belonging and well-being is of central concern, and banks will continue to formalise policies and programmes to foster D&I within their organisations.

Another area for D&I focus is on enabling small and medium-sized enterprises to participate in more equitable and financially inclusive global economic growth. For example, transaction banking solutions that enable digitalisation are unlocking new opportunities and increasing access to global trade for smaller businesses through the adoption of e-commerce platforms and collaborative tools that efficiently connect buyers and suppliers and make finance more accessible.

Global trade flows have been shifting toward higher-growth and emerging markets in Asia-Pacific, Africa, and the Middle East. Additionally, the Regional Comprehensive Economic Partnership (RCEP)*, a free trade agreement among 15 Asia-Pacific nations that account for about 30% of the world's population (2.2 billion people) and 30% of global GDP ($26.2 trillion)², came into effect 1 January 2022. RCEP will provide even more opportunities for companies of all sizes.

Note: The Regional Comprehensive Economic Partnership (RCEP) is an economic partnership agreement between the Association of Southeast Asian Nations (ASEAN)—which has 10 member countries—and the People’s Republic China (PRC), Japan, the Republic of Korea, Australia, and New Zealand. The RCEP will create the world’s largest trading bloc³.

¹ “Regulators push banks to do better on diversity” by Joy Macknight, 10/08/21 (Regulators push banks to do better on diversity - Comment & Profiles - (thebanker.com)).
² “Joint Leaders’ Statement on the Regional Comprehensive Economic Partnership (RCEP)” (RCEP-Summit-4-Joint-Leaders-Statement-Min-Dec-on-India-2.pdf (rcepsec.org)
³ “RCEP: Asia-Pacific countries form the world’s largest trading bloc”, RCEP: Asia-Pacific countries form world’s largest trading bloc – RCEP (rcepsec.org)

2. A focus on sustainable finance and investment

Increasingly, consumers are holding transaction banks accountable for investing in responsible and sustainable initiatives. As providers of financing and risk mitigation, transaction banks are heightening their efforts to develop Environmental, Social, and Governance (ESG) practices that help clients to achieve their sustainability goals. A key focus is on continuing to reduce greenwashing through methodologies that ensure investments truly support sustainable end-uses. Islamic finance is projected to exceed USD 3.5 trillion by 2024, with banking sector assets and capital markets comprising 75% and 20% of all activities⁴. Increasingly this important finance sector is focusing on and contributing to sustainable development. For example, the Islamic Development Bank Group has launched a green sukuk, which is a Sharia-compliant financial product⁵.

Banks are keen to contribute to global supply chain sustainability, building on the special attention they have given to supporting the financial stability of smaller suppliers during the pandemic. Expect banks to continue to take a disciplined and transparent approach to understanding and addressing the evolving working capital needs of supply chain ecosystems and to deepen efforts to address these needs. Alongside this, there will be a continued focus on technology platforms that support the diversification and distribution of risk while broadening investor access to trade assets as an alternative investment.

Another aspect of supply chain sustainability that will remain in focus in 2022 involves the shift from just-in-time to just-in-case supply chains. The just-in-case strategy arose from the need to keep inventory close to consumers in order to avoid localised supply chain disruptions. The resulting safety stock has caused a material increase in Days Inventory Outstanding. Unlocking working capital, using tools such as distributor finance, will be crucial to alleviating balance sheet stress.

⁴ “How Islamic Finance Contributes to Achieving the Sustainable Development Goals,” OECD Development Policy Papers, June 2020 No. 30, page. 10 (How Islamic finance contributes to achieving the Sustainable Development Goals (oecd-ilibrary.org))

⁵ “A glimpse into the future: The role of Islamic green financing”, by Muhammed Al Jasser, November 12, 2021, The Jakarta Post (A glimpse into the future: The role of Islamic green financing - Academia - The Jakarta Post)

3. Expanding on-demand commerce and instant payments

Global digital commerce grew 11% in the third quarter of 2021 according to the Shopping Index from Salesforce⁶. The dramatic rise in e-commerce during COVID-19 pandemic lockdowns has fueled a longer-term shift in consumer buying behavior towards e-commerce.

Payments are front and center in the digitisation trend. Transactions are increasingly cashless, mobile, and instant. With cashless transaction volumes on track to more than double by 2030, 97% of respondents to a recent PwC survey agreed that there will be a shift towards more real-time payments. In Asia-Pacific, cashless transaction volume will increase by 109% between 2020 and 2025, the world’s fastest growth rate⁷. Cashless payments enable financial inclusion because they are accessible, affordable, and convenient. This includes real-time cashless remittance payments that enable migrant workers to send money home instantly across borders. The high rate of smartphone penetration in emerging markets across Africa and Asia continues to drive this expanding financial inclusion.

⁶ “The Shopping Index: Global online shopping statistics and ecommerce growth trends” (The Shopping Index - Salesforce.com)
⁷ “Payments 2025 & beyond”, PwC (Payments 2025 & beyond : PwC)

Banks are integrating their service offerings to enable an e-commerce experience that is seamless and immediate. For example, businesses need to embed frictionless payments regardless of currency into the flow of on-demand commerce. In response, banks are coupling real-time payments with the instant presentation of competitive FX to enable businesses to localise the e-commerce experience.

Digital self-service goes hand in hand with accelerated digital transformation. Consumers and businesses are demanding self-service options for more tasks through more channels. They want seamless access to digital service, whether via computer, mobile device, ATM or banking branch.

In response, traditional businesses and digital natives have been extending their online presence. This trend will develop in 2022, and companies will continue to adopt transaction banking solutions that enable on demand e-commerce, instant payments, and digital self-service.

4. Accelerating digitalisation and innovation

Transaction banking solutions will increasingly help companies advance towards a real-time treasury operating environment that supports on-demand business models. This includes the use of API-based banking microservices and other technologies such as blockchain, for greater transparency, speed, connectivity, and security.

Out of urgent necessity, companies of all sizes have accelerated the digitalisation of treasury and finance processes since the onset of the COVID-19 pandemic. Digitalisation efforts will continue in 2022 and will support the heightened pace of technology-driven innovation.

Risk management provides a strong use case for investing in artificial intelligence, machine learning, and advanced analytics to mitigate and distribute risk. In a banking landscape marked by unprecedented systems connectivity and processing speed, cyber criminals exploit human and systems vulnerabilities. Artificial intelligence and machine learning will help to monitor and analyse vast amounts of unstructured data to help detect and prevent fraud attempts. Other use cases include distributing trade risk and hedging FX risk.

To enable an accelerated pace of disruptive innovation, banks and fintechs will continue to shift from competition to collaboration. According to Forrester, in 2022 tech spending by banks will achieve double-digit growth, and this will be a strong year for banks to invest in fintech⁸. Bank-fintech partnerships are a means for rapidly evolving transaction banking capabilities to enable just-in-time treasury and finance in an increasingly on-demand e-commerce global operating environment.

⁸ “Predictions 2022: Banks Will Double Down on Innovation” by Aurelie L’Hostis, November 2, 2021. (Source: Predictions 2022: Banks Will Double Down On Innovation (forrester.com)

A year of acceleration

The global pandemic continues to spur changes in consumer behavior and in the ways that businesses operate as we collectively adapt, recover, and work to strengthen resilience. As such, 2022 promises to be a year of continued change, and we expect the pace of solutioning to accelerate in the endeavor to address longstanding challenges and create better opportunities for all.