Every day, billions of transactions involving large amounts of money are made across the world. Transaction banking refers to the process of money transfer for corporates, by banks. This kind of banking includes domestic and cross-border payments, commercial banking products, provision of trust and risk mitigation for international trade, custody, and depository related services.

Transaction banking is essential to global commerce because the value of global trade rises each year and the vast amount of this trade is made possible by the services of transaction banking.

Transaction banking services

Transaction banking provide the following fundamental services that allow the execution and generation of global trade:

  1. Payment and cash management products such as liquidity management solutions, electronic and paper-based payments, as well as electronic delivery channels to multi-national companies
  2. Trade and supply chain financial assistance to small, mid-sized, large, and multinational businesses, for instance, through import and export financing
  3. Security services such as Chrome free VPN which help to ensure better domestic and cross-border security solutions for corporate and institutional clients

The role of transaction banking in the global economy

Transaction banking plays the following fundamental roles in the global economy:

Ensuring the smooth flow of national economies

Transaction banking provides liquidity between domestic markets and within banking systems. This kind of banking also influences the safety of global banking economies directly through interbank payments and lending.

Reducing risk

Transaction banking is less risky compared to other forms of financial services. A September 2010 survey by the International Chamber of Commerce and the Asian Development Bank concluded that banks had experienced less minimal losses on trade lending from transaction banking. The arrangements between buyers and sellers are secured using commercial contracts, and trade finance exposures are usually short term and self-liquidating.

Offering a better alternative to revolving bank loans

Small businesses in emerging economies use transaction banking as an alternative to revolving bank loans. This is especially beneficial to small businesses that lack an alternative source of funding. Availability of trade fiancé for these small business helps to accelerate economic recovery, which would be impossible or slow with limited availability of trade finance.

Transaction banking helps to maintain a sound global banking environment which in turn, facilitates global economic recovery. If businesses worldwide utilize this kind of banking, positive effects on financial markets will be realized, and this will spur global economic growth.