Wholesale banking? Transaction banking? How they are related to cross-border payments

What is wholesale banking? What is transaction banking? How are wholesale banking and transaction banking related to cross-border payments.

Intro

Wholesale banking

What is wholesale banking?

Its termed “wholesale” because the services are typically reserved for very large scale. Hence, the price of these services are typically cheaper than the price offered to the individuals.

Typically reserved for government agencies, pension funds, institutional banks, and or very large corporations.

Though some place has a stricter definition as it refers wholesale banking exclusively to banking transaction between 2 banks, or between a bank and other types of FI (broker-dealer, money services business).

What are services provided by wholesale banking?

Primary:

  1. Lending: provide loans or advances of high value to large scale business entities
  2. Deposits: receive deposits from big companies and provides high interest
  3. Credit creation: when dealing with the government, wholesale banking can increase flow of funds by borrowing from the government by selling loans on its book

Secondary:

  1. Underwriting: raises capital for projects of large business by issuing debt to investors
  2. M&A: wholesale banking participate in M&A through operations like currency conversion for international M&A
  3. Fund management: manage funds deposited by clients

Note that fund management is the area within wholesale banking that deals with cross-border money movement. The fund management or also called treasury management would typically offer the following financial services:

  1. Liquidity management across different countries
  2. International trade finance
  3. International Payments, also known as wholesale payments

Transaction Banking

What is transaction banking?

Transaction banking can be divided into 3 major categories:

  1. Trade finance
  2. Cash management
  3. Escrow services

Trade finance:

Cash management:

  • Working capital: Mostly categorized under cash management. Solution designed to address business needs’ to manage their liquidity and circulating capital in the short term.
  • Payment: include domestic and cross-border payments

Securities Services

Wholesale banking and transaction banking in cross-border payments

My initial intent was to understand the landscape before I deep dive on cross-border payments. But here are a few thoughts after going through wholesale and transaction banking, which are services reserved for the largest clients:

  1. There is international payment demand in the SME sector as cross-border commerce is not exclusively for the largest companies. For example, most of the Amazon sellers get their supply from China. This has created creates opportunities for fintech companies like Payoneer and Airwallex, but we are just started in the revolution of cross-border B2B payments for SMEs.
  2. On the larger scale side, I can see why solution like Visa B2B connect will target the wholesale payments or transaction banking area of their financial institution clients.

passion for #fintech #payments #RTP real time payment #Banking as a Service #digital strategy #blockchain