Transaction banking — which covers processing employee payroll, paying vendors and collecting customers — contributed about 8% of the bank’s total revenue in 2021, or $7.23 billion.
The second-largest US bank said it was expanding its virtual account management (VAM) tool – already available in Europe – to the United States, where the COVID-19 pandemic has accelerated the use of electronic payments by clients.
The tool helps businesses manage multiple accounts by creating a virtual ledger, accessible online, that shows all of their account balances and transactions, and can model future cash flows. The tool can be opened and used in a day, while opening a bank account can take weeks.
Companies need it because they often maintain hundreds of different bank accounts to segregate funds generated by their subsidiaries or customers, said Liba Saiovici, head of global claims in Bank of America’s global transaction services.
“It becomes very expensive and complex for the client,” Saiovici said, as they have to employ people to manage the accounts. “(Our) customers are growing, but their cash teams are not growing at the same rate.”
Transaction banking is a competitive but fragmented sector. Citigroup Inc, the world’s biggest bank in the sector, has about 10% of the market, chief executive Jane Fraser said earlier this month.
Efficiency, scale and significant investment are key to gaining market share in this sector, said Morgan Stanley analyst Betsy Graseck.
“It’s a service in which you have to continually invest. There is clearly room for competition”.
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