Global transaction banks are coming under pressure on many sides, from a challenging regulatory environment to changing customer demands. New entrants are eyeing this space and could gain an edge from the move towards open banking in many jurisdictions. Incumbents, on the other hand, remain weighed down by legacy infrastructure, viewed as the biggest internal challenge in transaction banking, according the 2016 World Payments Report.
Worryingly for many banks, the transaction business is facing falling margins and reduced revenues, after many years of being a profitable and steady source of income that could support other businesses. Research by data analytics firm Coalition shows that the margin in payments, for example, has compressed by more than one-third – from 6.8 basis points (bps) to 3.9bps – between 2010 and 2016.
