Transaction Banking Evolution and Testing

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Transaction banking plays a significant role in the functioning of corporate and banking institutions to allow a smooth and safe flow of cross-border transactions, trade financial deals, mitigation of risks, cash flow management services, and security services. Transaction banking improves the relationship between banks, customers, and partners. It offers treasury solutions allowing a safer, secured, and effective flow of cash and financial securities across the international financial systems. It facilitates trade finance and offers cash flow management and securities for public and private entities.

The services of transaction banking are cash management services, online services, trade finance, and security services. Cash management service is a part of transaction banking that entities offer as a solution to manage the cash inflow and outflow effectively. Through online services, transaction banking provides a single point of cash access, trade, and security services to help streamline the workflow process for corporate, institutions, and small-medium enterprises. Transaction banking services for trade finance offer a range of global trade finance deals, including import and export services, buyer and seller financing, and open account receivable management. Through security services, transaction banking aims to improve the services and relationships between banks, clients, and partners.

In this article, we will explore why there is a surge of technology and innovation in transaction banking. We will track the evolution of transaction banking and highlight the business and regulatory issues. We will also investigate the scope of testing the transaction modules in banks and examine the products that are covered in testing the transaction modules and platforms.

Technology and Innovation in Transaction Banking

There is stiff competition in transaction banking that arises with changes in the regulatory compliances. With changes in regulatory requirements, banks and vendors are making considerable investments to remain competitive and ensure the quality of transaction banking platforms.

The banks no longer build their proprietary solutions. Instead, they rely on technology vendors to deliver corporate solutions. It significantly reduces costs and frees the internal resources to focus on more value-added services. Banks are investing to make the data easily available to companies and help them achieve straight-through reconciliation. Banks are focusing on collaborating with external vendors for payments. Mobile payment systems are emerging which is evident from different mobile payment platforms collaborating with Google, MasterCard, and Sprint.

Transaction banking is changing the relationship between banks and their technology vendors. Banks are improving their collaboration with the technology vendors to ensure that they offer quality banking services to the customers. Banks are utilizing the technology to the fullest to make their services flexible. With the inclusion of mobile technologies and Cloud services, banks are evolving and improving their services; banking services without these recent technologies now seem incomplete.

Evolution in Transaction Banking

Banks have reorganized their internal operation to improve different transaction banking units. The current structure unifies cash management and trade finance activities. The evolution of transaction banking has had a significant impact on the banks’ service lines. The quality of products and services like trade finance, payments, supply chain, cash management, liquidity management and more are now improved with the technology used for transaction banking.

Large corporations are using the effect of globalization on the economy to manage their cash and liquidity. They have standardized their finance processes by creating regional shared service centres and executing centralized back-office systems across regions. The earlier payment factories that used to process payments have now evolved into extensive corporate transaction banking systems utilized to manage the transaction flow between the partners, banks, and clients. Technology has helped corporates to manage and use their internal cash flow more efficiently. They have improved the visibility of cash transactions. But one area that can be challenging for treasury is to gain access of the cash once it is identified.

The situation can be grave in the countries where there are some rules imposed on tax. It prevents the easy movement of liquidity outside of the country. To facilitate this movement there are many large cash management banks present across countries that advise their clients and leverage the network to offer them value-added services. It offers greater visibility to the corporate treasurer over their cash status. They can manage the cash movement and access the cash without being worried about adverse situations. The organizations can reduce the need for short-term borrowings by up to 30-40%.

Working capital is extremely important for organizations since the liquidity risks can turn an organization into bankruptcy and counterparty risk is rising high. It is not just enough to have funds for a corporate they must manage the funds to make it more accessible and visible.

Liquidity Risk & Counterparty Risk

Liquidity risk and counterparty risk are the two common types of risk that transaction banking face. When an individual investor, business, or financial institution cannot meet their short-term debt, it raises the concern of liquidity risk. On the other hand, counterparty risk arises when the second party in credit, trading & transaction, and investment cannot fulfil their role in the deal and becomes a defaulter in a contract. An effective liquidity risk management and counterparty risk management program help banks meet their obligations to pay within due dates to avoid adverse scenarios.

The Scope of Testing Transaction Banking

The scope of testing transaction banking is spread across the area of its services. The service line of transaction banking is the flow of cross-border transactions, trade financial deals, mitigation of risks, cash flow management services, and security services. The scope of testing transaction banking includes testing the cash management, payment transactions, supply chain finance, collection and receivables, trade finance, and back and front office transaction banking modules.

Transaction banking is available through multiple sources and channels. Testing transaction banking includes testing the transaction origination medium like bank branches (back office and front office systems) and channels (internet and mobile).

Yethi’s Testing Approach and Methodologies

At Yethi, we have worked with some of the major national and international banks. We have tested prominent transaction banking applications. From User Acceptance test design & execution to regression testing and performance testing, we have conducted end-to-end testing of different transaction modules. We have also executed security testing of all the transaction banking applications.

We have tested the following modules,

  1. Payments
    1. NEFT/ RTGS/IMPS
    1. Bulk Transfers
    1. A2A Transactions
    1. UPI/NACH-based transactions
    1. Instrument Series
    1. Tax Payments
    1. ECS
    1. Products Maintenance
  2. Supply chain Finance
    1. Vendor Finance
    1. Dealer Finance
    1. Payable Finance
    1. Receivable Finance
    1. PO Finance
    1. Reverse Factoring
    1. Export Factoring
  3. Collection and Receivables
    1. Collections
    1. EOD BOD Reports
    1. Receivables
    1. All other Reports
  4. Trade Finance
    1. Bill Collection,
    1. Letters of Credit,
    1. Bank Guarantee
    1. Open Account for Trade,
    1. C2C Transactions for Trade
    1. B2C transactions for Trade

We follow strategic testing methodologies and execute testing in phases across different modules like Payments, Supply Chain Finance, Collections and Receivables, and Trade Finance. Our testing method includes identifying various business processes in the bank and customizing software based on the volume and value of transactions supported by each process.

Our testing focuses on the processes deemed to be at high risk, based on an algorithm built in conjunction with the bank. We design and execute test cases based on our analysis. We offer end-to-end and improved test coverage across all the modules and products in transaction banking. We help banks in identifying the defects at the early stage, thereby minimizing the defect leakage risk. We detect rare issues and errors and increase the overall productivity of the application.