What is a transaction bank – a two-minute explainer
Transaction banking is the services offered by a bank to help corporate clients move cash and securities safely around the global financial system, making use of a bank’s worldwide liquidity.
It can be part of the array of services offered by investment banks or can be the focus of a specialist transaction bank.
Serving corporate clients and financial institutions, a bank’s transaction banking services might include helping clients trade finance for deals, make cross-border payments, larger domestic payments, risk mitigation, cash management and trust & securities services.
The term has been in the news this week as Goldman Sachs Group (NYSE:GS) launched a £35bn transaction bank in the UK to build on its strength in the US seen last year after only starting operations in June.
The ‘Vampire Squid’ says the transaction bank helps clients improve the efficiency of their treasury departments, with “self-service client onboarding and account opening as well as secure mobile authentication… liquidity management, virtual accounts, payments, and escrow services”.
Growing market share in transaction banking is also one of HSBC’s stated strategic targets.
Being a large global bank is key.
“Similar to the world of telecommunications, where customers can only speak to each other when they both have a phone connected to a network, transaction banking services can only be provided if providers and users are hooked up to a common network,” said Ruth Wandhöfer in her book, Transaction Banking and the Impact of Regulatory Change.
“The existence of a network, however, also implies that collaboration is at play. Without participants collaborating in the creation of the network – a payment system, for example – there would otherwise be no network.”
It is a low risk, high profit business, according to Global Banking & Finance Review (https://www.globalbankingandfinance.com/overview-of-transaction-banking-and-the-role-of-transaction-banking-in-the-global-economy/).