Four forces of innovation – The next frontier of transaction banking

In the evolving world of finance, Transaction Banking stands as a cornerstone of global commerce, facilitating fund and investment flows. As macroeconomic trends shift, client needs have become more complex, prompting a transformation in transaction banking services.

Transaction banking is transitioning from standalone services to intelligent solutions, facilitating real-time commerce, integrating finance into digital ecosystems and supporting clients to trade, invest and expand amidst a dynamic geopolitical and economic landscape.

There are four key forces shaping the industry, requiring banks to innovate and transform from product providers to orchestrators of value across platforms, borders and time zones.

Force 1: Geopolitical dynamics & supply chain resilience

The global trade landscape is undergoing significant shifts. In 2024, trade volume reached approximately US$31 trillion, where 75% was goods trade and 25% services trade¹. Recent developments, such as the imposition of tariffs on goods, are reshaping trade and supply chain dynamics. Tariffs introduced a new baseline of 10% - 20% (though higher in some cases) on imports from various economies. Higher tariffs on sectors such as autos and some metals are compelling importers to adjust by either absorbing costs, renegotiating supplier terms or passing costs to consumers. This presents both challenges and opportunities as businesses navigate logistical hurdles and adapt to changing customs regulations.

The key to unlocking supply chain resilience amidst the current dynamic business environment, is effective working capital management. By strategically managing their financial resources, organisations can ensure smoother operations, mitigate risks and adapt to unforeseen challenges.

In the latest HSBC Trade Pulse survey, nine out of 10 respondents mentioned they are planning to invest in supply chain visibility tools, with six out of 10 already invested in new technology and digital platforms to optimise their working capital management². This strategic initiative not only strengthens the supply chain but also positions it to effectively handle tariffs, supporting long-term business resilience and growth.

Looking deeper into the need to drive effective working capital management, businesses must also ensure effective liquidity management. Typically, this starts with ensuring visibility into cash to make informed decisions and can be followed by centralising balances to improve fund flows across the organisation, while creating a well-defined investment policy for surplus cash. Real-time payments represent a paradigm shift in transaction processing and is revolutionising liquidity management and cash flow forecasting, enabling faster access to funds and working capital optimisation.

As a result, businesses, operating traditional and digital business models, are now looking at liquidity management as a 24/7 concept. Cutting edge solutions such as HSBC’s Seven-Day Cash Concentration Solution, recently launched in the UAE, overcome the traditional limitations businesses have faced by extending automated liquidity management beyond the working week, enabling working capital optimisation every day of the week, enhancing efficiency and financial flexibility, whilst taking the first step towards building a real-time treasury.

The latest macroeconomic developments have also created opportunities for alternative financing. Private credit is emerging as a significant source of trade finance, driven by the appetite from various actors to finance the ‘real economy’. Trade, as an asset class, has become an attractive investment due to its stable returns and liquidity. Companies and banks can harness the additional demand through partnerships with asset managers, channelling new capital to reduce the trade finance gap for corporates, providing attractive returns for investors and creating greater opportunities for small and medium enterprises (SMEs) to participate in the global trade economy.

Meanwhile, combined shifts in geopolitical, macroeconomic and investment dynamics are driving demand for Securities Services that can help firms navigate heightened market complexity, ensure market access and provide support in managing risk across increasingly fragmented markets. For instance, the embracing of new investment trends including private credit, tokenised assets, infrastructure, venture capital and growth equity is resulting in the need for ways of ensuring asset safety, transparency and reporting for these classes.

Force 2: Digital commerce

Digital platforms have revolutionised economic activities, creating digital-only economies like e-commerce, online education and the gig economy. These have evolved into ecosystems that integrate production, distribution, consumption and finance, accessible anytime, anywhere.

The global e-commerce market, valued at US$29.46 trillion in 2024, is expected to grow 18.9% (CAGR basis) by 2030, reaching US$83 trillion³. This is not surprising given the ease at which these platforms remove traditional barriers, provide 24/7 borderless infrastructure and data for quick decision-making and personalised innovations. Today, the B2B e-commerce market is five times the size of B2C market⁴.

Embedding solutions at the point of sale is surging, as more companies look to reduce costs and reach new customers in a more efficient way. HSBC continues to advance its solutions to facilitate seamless digital commerce for clients:

• HSBC Digital Merchant Services (DMS): enabling e-commerce merchants to receive payments via various traditional and alternative mechanisms, while enhancing reconciliation and reporting.
• HSBC Receivables Finance: Grow sales via receivables financing solutions embedded in merchants’ e-commerce platforms by providing their customers (business buyers) with the option to extend payment terms at the point of sale.
• HSBC Foreign Exchange (FX) APIs are increasingly becoming integrated by e-commerce platforms to improve the handling of foreign exchange in buyer/seller settlements, thereby enhancing operational efficiency and expanding the number of settlement currencies they can support, helping to drive cross-border growth.

With a network spanning across 50+ markets and access to 85%⁸ of world’s trade flows, HSBC combines unique insights with a commitment to innovation and digitisation. This ensures efficient, secure and tailored customer experiences, reinforcing the bank’s role as a trusted partner in clients' financial journeys in the digital economy.

Force 3: Innovation and new technologies

Innovation and new technologies are driving creation of solutions that address emerging needs, foster economic growth and introduce new business models. Key examples include:

• AI and Machine Learning: clients are seeing benefits of straight-through processing, real-time fraud detection, risk analytics, trade scenario modelling and cashflow forecasting. For example, AI-driven platforms in FX offer intuitive and powerful solutions to help businesses better understand and act on market trends supporting more effective decision-making for currency management and hedging strategies. Our new global HSBC study⁵ findings show that 57% of global businesses are using AI to drive international expansion plans and streamline operations.

• Digital Payments and Open Banking: The innovative use of QR codes, adoption of e-wallets and democratisation of payments leveraging open banking principles (e.g. UPI in India, PIX in Brazil) have almost eliminated friction at point-of-sale and accelerated migration from physical cash to digital payments. Digital payments via e-wallets for example, accounted for US$13.8 trillion of global transactions in 2023 and are forecasted to grow to US$25 trillion by 2027⁶.
• Distributed Ledger Technology (DLT): providing the trust infrastructure needed for a digital-first economy, DLT enables secure, transparent and decentralised data exchange necessary for solutions to today’s challenges. Firms including HSBC are leveraging DLT technology, such as blockchain, to tokenise money-market funds, streamlining fund distribution and ownership tracking, while enabling high-efficiency settlement and asset servicing.
• Digital Asset and Currencies: Beyond merely serving as alternative monetary forms, digital assets and currencies e.g. Central Bank Digital Currencies (CBDCs), tokenised deposits, and stablecoins are tackling current challenges, especially in cross-border payments, which are deemed to be slow, costlier, and reliant on intermediaries. For instance, tokenised deposits combine the benefits of traditional deposits, (e.g. interest benefits, principal protection) with technologies like tokenisation, blockchain and APIs enabling real time, 24X7 cross border payments. Financial institutions globally are exploring and advancing digital assets and currency solutions, including at HSBC, starting with the launch of Tokenised Deposits Services in Hong Kong and Singapore, domestically in the initial phase with cross border movement of value and expanded location footprint soon.

Force 4: Evolving market infrastructure and regulatory transformation

The transaction banking industry is undergoing significant market infrastructure and regulatory transformation, setting the bedrock for fast, secure and frictionless cross-border payments and seamless trade of goods and services.

Trade digitisation is an ongoing infrastructure transformation, with the potential to revolutionise global commerce by enhancing efficiency, reducing costs, and increasing transparency. Adopting digital trade standards and aligning with international legal frameworks like the Model Law on Electronic Transferable Records (MLETR), markets can lower barriers to entry, attract foreign investment, and enhance the competitiveness of their exports. Initiatives such as e-bill of lading have gathered some traction with nine of the most important ocean carriers committing to 100% adoption by 2030⁷, but a sustained digitisation will require additional efforts.

From a payments perspective, perhaps the most prominent infrastructure transformation is real-time payments (RTP). Despite slow initial uptake, RTP is expected to grow significantly at a 21.3% CAGR, rising from 19% of all electronic transactions in 2023 to over 27% (about 511.7 billion transactions) by 2027⁸. HSBC is supporting clients with domestic RTP across 34 markets and enabling the emergence of cross-border RTP, by participating in Hong Kong’s Payment Connect, which connects domestic RTP systems to facilitate real-time cross-border HKD and RMB remittances.

Supporting the ambition further for frictionless real-time cross-border payments is ISO 20022 standardisation, one of the major industry transformations in the past 30 years. Once fully adopted, ISO will enhance data exchange, automation and interoperability across financial institutions. To realise its full benefits, be sure to read The new language of payments.

Renewed interest in digital assets is reshaping how we think about the future of money: how it’s stored, transferred, settled and recorded in financial systems. This requires a rewire of the core foundations underpinning the global financial infrastructure. Central banks and financial institutions globally, including HSBC, are modernising payment rails to support these new future-state, innovative payments.

The rulebooks are evolving in parallel: payment regulations such as PSR1 and PSD3, data localisation and data privacy regulations across countries such as India and China, and various new frameworks for digital currencies and tokenisation globally. These changes raise the consumers’ expectations for greater transparency, control over personal information and secure, omnichannel digital experiences. In response, financial institutions are under pressure to intensify innovation and technology investment as well as reframe the approach to risk management and controls.

Crossroads with opportunity

The transaction banking industry is at a crucial juncture, with market forces simultaneously presenting opportunities and challenges. Investing in foundational changes now will enable agile response to these changes. For many financial institutions this will require a change in mindset: moving away from owning client relationships and gatekeeping data to offering banking as a service and empowering clients with control; as well as, shifting from the in-house build to collaborating with an ecosystem of fintechs, third-party providers and developers to foster innovation needed to meet the needs of an increasingly interconnected world of tomorrow.

With an unrivalled global network and market leading capabilities and solutions, HSBC is well placed to help provide the intelligence and confidence so that clients can adapt swiftly to the forces of change, act decisively and operate dynamically.