What Leading Foreign Banks Can Teach Us About Making Liquidity Truly Usable - The way forward lies not in simply catching up, but in building on deep client relationships to shape a Japan’s own distinctive model.

Transaction banking provides the operational foundation that supports corporate clients’ payments, cash management, trade finance, and liquidity management. It spans a broad range of activities, including cash management, cross-border payments, foreign exchange, and supply chain finance. Traditionally, the core value delivered by banks in this field was the accurate and reliable processing of deposits, payments, FX transactions, and trade-related operations.

Today, however, as corporate activity becomes more global and supply chains more intricate, client expectations are changing. For corporate treasury functions, the question is no longer simply whether funds are sitting in a bank account, but whether those funds can be mobilized for business in the right country, at the right moment, and in the right currency.

Leading foreign banks have increasingly defined the client value proposition in terms of making funds available during business hours in each market. Global pooling, which optimizes surplus and deficit positions across group companies to improve capital efficiency, and cash concentration, which automates the movement of funds across multiple accounts, are not simply cash management services. They are mechanisms designed to put excess liquidity dispersed around the world to work in line with clients’ operating hours and business flows.

For example, Citi emphasizes the ability to mobilize global liquidity in real time at the required location and moment, while HSBC offers liquidity solutions across more than 50 markets.

Japanese banks, by contrast, have earned deep trust through the quality of their domestic payment processing, foreign exchange, and trade finance operations. In overseas transaction banking, however, their approach has tended to place greater emphasis on holding funds securely and managing them accurately at day-end or month-end. The strategic challenge for Japanese megabanks is therefore how to build on this strength in operational reliability and balance control while moving toward a model that places greater emphasis on liquidity that can be deployed with speed and flexibility. It is this difference in orientation that increasingly shapes competitive positioning in the global market.

The strengths of leading foreign banks can be understood along three broad dimensions.

First, they combine branch and payment networks with product design for liquidity management in an integrated way. Even if one affiliate has excess cash, group-wide capital efficiency remains low if another affiliate cannot execute payments during local business hours. JPMorgan’s multicurrency notional pooling, for example, is a mechanism that uses surplus liquidity to offset shortfalls across currencies and accounts, reducing reliance on short-term funding and embodying the concept of turning intra-group funds into liquidity that is actually usable for business.

Second, they are ahead in real-time capabilities. In 2024, Citi announced Citi Real-Time Funding, a service that enables the automated movement of funds across cross-border accounts based on client-defined rules, including intraday, outside business hours, and on weekends. In 2025, it also advanced the concept of cross-border instant settlement by linking Citi Token Services with a 24/7 U.S. dollar clearing framework. Competition is increasingly moving in the direction of aligning banking services with clients’ business hours rather than expecting clients to adapt to banks’ operating constraints.

Third, they are using AI and APIs as foundational enablers to connect banking functions with clients’ business processes. Technology is advancing in areas such as identifying early warning signals for payment failures, automating cash applications, forecasting cash flows, and strengthening sanctions and AML controls. These capabilities help make clients’ treasury operations both safer and faster. JPMorgan is applying AI to payment exception handling, and Citi has also introduced AI-enabled cash flow forecasting for corporate clients, among other offerings that are already becoming visible in the market.

It is also worth noting that experiments involving blockchain-based approaches, including tokenized deposits, have begun in certain areas. At present, however, these initiatives have not yet reached a stage where they are transforming global transaction banking as a whole. They should instead be viewed as an important theme to monitor closely from the perspective of modernizing next-generation financial infrastructure.

How, then, can Japanese megabanks carve out a distinctive advantage in global markets? The answer lies in the cash management support they can provide to Japanese corporates operating internationally.

The industry knowledge and understanding of business practices accumulated through longstanding relationships with Japanese parent companies, together with deep experience in credit assessment, are assets that foreign banks cannot easily replicate. These strengths allow Japanese megabanks to understand the tension between headquarters, which seek tight control over capital efficiency, FX risk, accounting and tax treatment, and governance, and overseas subsidiaries, which need to use funds quickly in line with local commercial flows. This puts megabanks in a position to design integrated solutions covering the concentration and deployment of funds, intraday liquidity use, currency conversion, intercompany funding, and accounting and tax treatment.

Moreover, the target client base is not limited to Japanese corporates. For local companies trading with Japan, banks can offer multifaceted support by combining capabilities such as L/C confirmation, receivables financing, FX hedging, yen-denominated settlement, and risk assessment informed by knowledge of Japanese counterparties.

For local suppliers whose buyers include major Japanese manufacturers or trading houses, supply chain finance can support earlier monetization of receivables while also helping optimize buyers’ payment terms and stabilize the supply chain. Even for non-Japanese global corporates with Japan-related transactions, there is room to deepen relationships by positioning the bank as a partner with deep expertise in Japan’s payments, FX, trade finance, and regulatory practices.

While the traditional role of supporting Japanese corporates remains the foundation, overseas offices of Japanese megabanks are now expected to expand further into financial infrastructure that supports Japan-related commercial flows more broadly. Rather than competing head-on with local banks for universal transaction relationships, they can establish a distinctive position by embedding financial services into touchpoints shaped by Japanese trade flows, commerce with Japan, and the supply chains of Japanese corporates.

When the objective is to provide financial services into the supply chains of Japanese corporates and related ecosystems, a critical question is how to embed the bank’s value proposition directly into client operations. One important means of doing so is the advancement of process-integrated banking for corporate clients. Whereas traditional product-led banking delivers individual products through bank-owned channels, process-integrated banking differs fundamentally in that it embeds financial capabilities into the client’s own operational workflows.

For Japanese megabanks, whose overseas franchise is centered primarily on the corporate segment, the main arena for embedded banking is this domain of process integration for corporates. Rather than requiring clients to log in to a bank portal and operate there, the differentiating factor going forward will be the ability to create an environment in which decisions relating to payments and trade finance can be executed directly within the systems clients use in their day-to-day operations. The same logic applies to AI: concentrated deployment in areas such as early detection of payment failures, forecasting liquidity shortfalls, cash application, and cash flow forecasting can make clients’ treasury operations safer, faster, and more efficient.
 

* A model in which functions such as payments, collections, foreign exchange, trade finance, and supply chain finance are embedded via API integration into corporates’ ERP systems, TMS platforms, and management systems covering accounting, procurement, sales, logistics, and trade, allowing financial processing to be completed within the client’s own business workflows.---