Payments and treasury management: from cost center to strategic advantage [guide]

Traditionally, financial institutions have seen payments and treasury management as necessary but unremarkable operational expenses, but that is changing in the modern financial environment. Now, these functions are emerging as powerful strategic levers — capable of boosting revenue, deepening client relationships, and streamlining operations.

For decades, payments and treasury management systems relied on outdated methods, such as dial-up connections and physical data transfer. Then, the internet brought a significant shift, followed by the mobile banking wave, which offered instant information on the go. Now, we stand at the cusp of a third and even more transformative wave: Artificial Intelligence (AI).

AI is opening up transformative opportunities across payments and treasury by:

• Making payments faster and safer: AI enables quicker payment processing and injects intelligence into every transaction. It dynamically selects the most efficient "rails" in the background, making payments smarter, more efficient, and friction-free without user intervention.

• Delivering strategic value: AI presents both a huge opportunity and a clear threat. Banks failing to adopt AI risk being left behind, while those embracing it can drive growth through enhanced client interaction and smart product recommendations. AI also frees relationship managers from mundane research, allowing them to focus on high-value advisory roles.

• Creating cohesive digital journeys: A modular banking platform powered by AI can offer capabilities across the entire customer lifecycle, from onboarding to proactive customer support and intelligent cash flow forecasting.

The traditional model of relying heavily on relationship managers for client servicing is becoming increasingly unsustainable due to rising costs; the cost to serve through the RM model exceeds income by 55%. But modernized payments can play a new, highly strategic role.

Real-time payments are reshaping these models, especially for mid-sized banks. In the US, it's a new payment rail after a long time, but globally, many countries have already embraced real-time payments. Businesses now receive funds instantly, transforming previously illiquid assets into immediate sources of capital and paving the way for “on-demand liquidity”.

Unlike traditional payments that often lack context, real-time payment systems provide rich data, enabling businesses to understand and apply funds more effectively. This information flow creates new opportunities for banks to monetize payment rails and offer various value-added capabilities.

The focus used to be primarily on basic automation — moving files or payment messages quickly. With AI, this shifts dramatically. AI transforms treasury into a strategic driver, acting as a predictive and advisory partner.

AI can drive growth by:

• Increasing client interaction: AI allows banks to offer personalized insights, moving towards a more proactive experience, as well as enhancing satisfaction and loyalty.

• Suggesting products: By analyzing client usage patterns and financial behavior, AI can identify and recommend relevant banking products. This approach to cross-selling helps increase a bank's product holdings per customer, directly contributing to non-interest income and revenue growth.

• Optimizing workflows: AI streamlines internal processes, making operations more efficient for both the bank and its clients. For instance, it can automate much of the admin tasks typically done by relationship managers, allowing them to focus on strategic advisory tasks.

Let’s break this down into practical, actionable areas where AI is making a real difference:

1. Revenue growth

AI enables smarter client segmentation, allowing banks to provide tailored dashboards and tools that resonate with specific client roles, like administrators or controllers. By surfacing targeted offers based on client platform usage, AI helps increase product adoption, reduce churn, and directly boost non-interest income and overall revenue.

2. Enhanced customer experience

AI significantly improves the customer experience through conversational interfaces, creating a concierge-like feel for digital banking. This allows for personalized, interactive, and informative digital experiences, complete with tailored financial coaching, ensuring a "white-glove" service even in a digital environment.

3. Operational efficiency

Operational efficiency is dramatically improved as AI facilitates frictionless onboarding and origination, streamlining processes for clients. It also enables smarter customer due diligence by giving relationship managers instant access to crucial data, cutting research time and fostering more insightful conversations. It helps resolve disputes faster by equipping back-office teams with real-time insights, reducing a major cost center.

Tokenization could be the most profound shift of all. It turns static, often illiquid assets on a balance sheet into dynamic digital tokens. These tokens can be traded, leveraged, or repurposed, creating new liquidity where none existed before. 

The question for banks is how to prepare for it and monetize it effectively. The answer lies in flexibility and an agile platform.

Preparing for a tokenized future

To stay competitive, banks need to lay the groundwork today for an increasingly tokenized financial ecosystem.

• Adopting a "Buy and Build" approach: Instead of a "big bang" overhaul, prioritize flexible solutions that allow for gradual modernization.

• Smooth integrations: Utilize platforms that offer pre-built components and seamless integrations with existing systems.

• Extensible platform and API ecosystem: A tokenized world is a connected world. Banks need robust API ecosystems that enable them to consume and integrate new market innovations as they emerge. This is crucial for future innovation, security, compliance, and reliability.

1. Embrace the AI wave: AI will bring intelligent payment capabilities, allowing the system to automatically determine the best way to process a payment, freeing users to focus on their core business. The shift from receivables to intelligent payments is already underway.

2. Invest in a future-ready platform: Choose a modern, modular platform that can adapt to rapid changes in the financial landscape. This agility is crucial for staying competitive and capitalizing on emerging opportunities. 

3. Monetize new offerings: The integration of advanced solutions doesn't cannibalize traditional fee income; it opens up new monetization layers. Banks that fail to offer integrated, modern solutions risk disintermediation by fintechs and other innovative banks.

Backbase helps financial institutions move beyond legacy limitations and reinvent their commercial banking journeys — from payments and treasury to onboarding, servicing, and engagement. Our AI-powered Banking Platform enables banks to unify fragmented experiences, adopt AI-powered capabilities, and deliver seamless digital journeys across the entire client lifecycle.

With pre-integrated modules, open APIs, and a flexible “buy plus build” architecture, Backbase is the ideal partner for banks preparing to thrive in an AI-driven, tokenized future.

Discover how we can help you turn payments and treasury into strategic growth engines.