The economics of transaction banking are changing. For financial institutions serving increasingly sophisticated clients, traditional revenue pools built around deposit spreads and transaction fees are under sustained pressure, while client expectations around speed, optionality and global reach continue to rise. Competition from fintechs, growing payment rail fragmentation, cyber threats and emerging digital payment models are also forcing banks to rethink both infrastructure and business models. Christian Stolcke, global head of financial institutions, and Greg Kavanaugh, global head of products at Bank of America, described an industry adapting to structural changes in both economics and operating expectations. For Stolcke, the economics have shifted materially. Transaction fee pricing has become intensely competitive, while clients have become far more commercially sophisticated in negotiating fee structures. Deposit economics have also become less dependable, particularly in globally mobile balance environments where clients can move funds quickly. “There’s been a change of economics,” Stolcke said, describing a shift away from traditional net interest margin-driven economics towards fee-based and foreign exchange-led value creation. If moving money becomes easier to replicate, the strategic question becomes where transaction banking creates value. Payments may be commoditising, but orchestration is not Kavanaugh was direct in his assessment. “I think the payments somewhat become a commodity across all the banks.” That does not mean payments no longer matter. It means payment execution alone is becoming less capable of sustaining differentiation. Banks may still compete to be first to market with a specific payment capability, whether in a domestic market, regional corridor or new payment structure, but such advantages are increasingly short-lived. Differentiation, in Kavanaugh’s view, increasingly comes from what sits around the payment. That includes application programming interface (API)-enabled reporting, reconciliation capabilities, treasury forecasting, client self-service tools, advisory support and increasingly intelligent orchestration of payment execution across multiple rails. Financial institutions increasingly expect banks to operate across all major rails while abstracting complexity away from the client. Kavanaugh described this as an orchestration challenge. A client may care about settlement timing, cost, certainty or beneficiary experience, but not necessarily which rail achieves that outcome. The expectation is increasingly that the bank determines the most appropriate path. That logic extends further. Kavanaugh described a future in which intelligent payment routing becomes materially more dynamic, moving beyond static optimisation rules towards more adaptive decision-making shaped by client-defined parameters. That could include not only identifying the lowest-cost route, but assessing broader commercial implications, including whether payment decisions influence supplier relationships or pricing behaviour. Bank of America is already applying parts of that logic operationally. Kavanaugh pointed to products such as intelligent receivables, artificial intelligence (AI)-enabled forecasting capabilities within CashPro and internal AI tools that help sales teams structure cross-border payment solutions far more quickly than legacy document-based processes allowed. For Stolcke, foreign exchange has also become an increasingly important differentiator. He pointed to innovation such as guaranteed foreign exchange rates, allowing treasury clients to lock in rates for up to one year across roughly 140 currencies without using traditional derivatives structures. As payment execution becomes more standardised, the surrounding value stack becomes more important. Scale is concentrating, and resilience is becoming strategic infrastructure Stolcke identified another structural shift: concentration. Corporate clients increasingly want fewer banking relationships, not more. As businesses expand internationally, they are looking for banking partners with broad geographic reach rather than maintaining large networks of correspondent relationships. “They want to consolidate,” Stolcke said. That concentration creates operational consequences. More payment volume and notional value are increasingly flowing through fewer global institutions, particularly in cross-border payments. That increases the importance of infrastructure resilience. It also raises cyber risk. Stolcke pointed to the growing use of AI in fraud and other malicious activity as an escalating concern, requiring sustained investment in defence, resilience and capacity. This is also reshaping investment priorities. Stolcke identified three major areas of concurrent investment across transaction banking infrastructure: replatforming legacy payments architecture to improve resilience and cyber security, making CashPro more intelligent and self-service oriented for clients, and continuing the transition towards 24/7 real-time operating capability. Most major banks, he argued, are still running payments on ageing infrastructure that requires substantial investment to become future-proof. Real-time payments do not mean universal demand for always-on payments Real-time payments remain a major direction of travel, but both executives distinguished infrastructure capability from actual demand. Stolcke described a continuing progression from domestic real-time payments towards intra-regional and eventually cross-regional real-time models. Bank of America is preparing to launch real-time US dollar account-to-account settlement into 10 major currencies in the third quarter, aimed primarily at financial institution clients serving retail and small business customer segments. The commercial logic is competitive defence. Stolcke pointed to remittance corridors where non-bank players have materially disrupted incumbent financial institutions through stronger customer experience. Markets such as Japan, the Philippines and Mexico were cited as examples where traditional financial institutions have faced pressure from fintech competitors. Bank of America’s response is to facilitate low-value real-time cross-border money movement for financial institution clients seeking to defend those customer relationships. But real-time capability does not automatically translate into universal client demand. Kavanaugh described demand as a barbell. At one end are digital-native business models, gig economy platforms, internet-based marketplaces and content ecosystems, where instant payments may be commercially important. At the other are traditional corporate payment environments where neither payers nor recipients necessarily operate continuously. Many corporate back-office systems remain decades old. “Nobody really wants to pay faster,” Kavanaugh said. The more relevant value proposition, he argued, is certainty. If an invoice is due on Friday, a treasurer may prefer to pay on Friday with certainty of settlement, rather than sending funds earlier to compensate for timing uncertainty. Kavanaugh described this as precision payment. Real-time infrastructure may increasingly become standard, but demand remains shaped by specific use cases. AI is moving from productivity tools towards payment intelligence AI is already embedded in parts of transaction banking, but both executives suggested its more transformative applications remain ahead. Kavanaugh pointed first to internal productivity. Bank of America is using AI to accelerate information access for sales teams, allowing them to retrieve detailed payment structuring information far faster than previous document-based processes allowed. Tasks that once required hours of manual searching can now be completed in minutes. That productivity gain extends into proposal generation and client solution design. Client-facing applications already exist. Kavanaugh pointed to intelligent receivables, forecasting tools and transaction insight capabilities already embedded within the bank’s treasury platform environment. The more ambitious frontier is payment intelligence. AI-driven optimisation of routing decisions, cost selection and payment structuring is a logical next step. But governance remains a constraint. Kavanaugh was explicit that treasury clients may not be comfortable allowing large-value movements to become agentic. The practical question becomes threshold design. He drew a parallel with automated foreign exchange solutions, where clients begin with tightly controlled parameters before gradually expanding comfort levels as confidence grows. The same model may apply to AI-enabled payment decisioning. Stablecoins expose different levels of conviction around new rails The two executives placed different emphasis on the practical value of stablecoins and digital settlement mechanisms. Kavanaugh was cautious. His central question was what genuinely new use case is being created. Many capabilities often associated with digital assets, electronic movement of value, ledger-based settlement and programmability, can already be achieved through existing infrastructure, including wires, real-time payment rails, book transfers and programmable enterprise systems. He acknowledged that some trading and smart contract applications may become useful, but his view was that much of the market remains closer to proof-of-concept than scaled operating reality. Stablecoins, in that context, remain complementary rather than transformative in the near term. Stolcke was more constructive around specific use cases. He pointed to remittance corridors into emerging markets with volatile domestic currencies, where stablecoin payout mechanisms could provide practical value by preserving exposure to a more stable US dollar-linked asset. He also identified stronger institutional use cases. Collateral management, triparty repo, derivative margin movements and securities settlement all involve operationally intensive flows that could potentially be simplified through programmable digital representations of money, including tokenised deposits or similar institutional settlement mechanisms. Kavanaugh focused on use-case discipline. Stolcke pointed to specific areas where the use case may already be emerging. Southeast Asia is moving faster than many Western markets Both executives pointed to Southeast Asia as one of the most dynamic regions in payments innovation. Kavanaugh highlighted the region’s demographics, infrastructure investment and economic growth trajectory as structural positives. He also pointed to the active role central banks are playing in encouraging innovation, including bilateral payment connectivity initiatives and experimentation with interoperability frameworks such as Nexus. “There’s just a lot of innovation here,” he said. Stolcke drew a broader comparison with Western markets. Across the Asian markets he had recently visited, including Taipei, Hong Kong, Thailand and Singapore, he observed a consistent orientation towards technology adoption, retail financial innovation, wealth accumulation strategies and digital asset experimentation. Regulators in parts of Asia, particularly Singapore and Hong Kong, were moving faster to establish practical frameworks for banks and non-banks. By contrast, Western Europe and the United States remain more fragmented and slower-moving in regulatory development, even where high-level legislative frameworks are emerging. He also suggested that AI adoption sentiment appears more positive across much of Asia than in parts of the West, where employment concerns and broader scepticism remain stronger. Value is moving up the stack For Stolcke and Kavanaugh, differentiation in transaction banking increasingly lies above the payment itself. As payment infrastructure becomes broader, faster and increasingly standardised, value shifts towards orchestration, resilience, intelligent infrastructure, advisory capability, foreign exchange monetisation and the selective integration of new rails where practical use cases justify them. That reflects the reality that clients are not simply buying payment execution, but operating capability, connectivity, certainty and decision support across increasingly complex payment environments. The same pressures reshaping transaction banking economics are also reshaping the technology and operating models required to compete, from resilient infrastructure and real-time capability to intelligent client platforms and more adaptive execution models. If payments become commoditised, transaction banking’s future may depend less on moving money, and more on shaping how that movement is optimised, secured and embedded into broader client operating models.
