Technology Innovations Driving Change in Transaction Banking
July 6, 2020
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The environment for transaction banking in Europe is extremely challenging, with continued margin pressure and low interest rates making revenue growth difficult. Drawing on recent market research and conversations with transaction banking executives, McKinsey sees four key developments with the potential for system-level impact for the business: advanced analytics and machine learning (AAML); distributed ledger (eg, blockchain) technology; FinTech challengers; and the Payments Services Directive 2 (PSD2).
Some of these developments may have an impact within a matter of months, others will emerge over the mid- to long-term. Some will be driven primarily by banks, others will depend primarily on non-bank players and complex market dynamics. It is essential for banks to consider the business implications carefully and decide how to prioritize their investments, where to act swiftly, and where changes can be implemented more gradually.
1. Advanced analytics and machine learning
Corporate payments—including business-to-consumer (B2C), consumer-to-business (C2B), and business-to-business (B2B) transactions—generate more transactional data than any other area of banking, and recent advancements in AAML will have a particularly significant impact on transaction banking. AAML surpasses the limits of traditional statistical approaches, enabling more precise description and prediction of real-world phenomena, thus optimizing market performance. These capabilities have become widely available in recent years thanks to the exponential increase in the data generated and a continued decrease in the cost of data storage and processing that makes it easier for banks of all sizes to leverage AAML-powered use cases.