Michael Costonis looks at how market changes and payments trends are affecting banks’ corporate services.

In my last post we looked at six key themes in corporate payments across the globe. This week we’ll look at how these trends and market changes are affecting banks’ payments services to corporate customers.

The core goal for banks is to reduce costs and effort by boosting automation, digitalization and straight-through processing (STP), while also meeting customers’ growing demand for enhanced transparency, low cost and convenience through capabilities such as real-time balance access and multi-bank portals. 

Looking across banks’ corporate payments service portfolios, here are ten of the key areas where they need to focus. 

1. E-invoicing

The digitization and transmission of invoice information over digital channels can play a major role in streamlining working capital management. While the benefits have been recognized for many years, the adoption of e-invoicing by banks has been relatively slow, although usage is now rising rapidly.

Recent industry initiatives such as the development of community cloud based e-invoicing platforms, e-invoicing solutions managed by trusted third parties and greater standardization of e-invoicing formats will help banks and corporates accelerate the adoption of e-invoicing.

2. Automated cash management

Effective cash management enables a corporate to chase overdue payments promptly, minimize transaction costs and avoid having surplus funds sitting in low-interest accounts. It is a key building block of effective treasury management, and can be made much more efficient through automation.

While traditional cash management techniques focused largely on operational aspects, the latest generation concentrates more on strategic issues and forecasting. Some corporates also want daily and hourly updates on their financial position—and the advent of cloud-based automated cash management solutions is prompting treasurers to make keep data on the cash position accessible to sales and operational staff any time and from anywhere. 

3. Automated collections & reconciliation using “virtual accounts”

In an ideal world, all incoming payments to a corporate would contain information that could automatically reconcile open invoices in its financial system. However, the reality is that most corporates struggle to reconcile their accounts receivables due to insufficient information. This can result in an inaccurate cash position and increased day sales outstanding (DSO)—in turn translating into an increased working capital requirement and greater funding costs.

To enable their corporate customers to avoid these issues, growing numbers of banks are providing them with “virtual accounts” that can automate collection and reconciliation by providing accurate identification of the remitter of a payment and the related invoice.

Virtual bank accounts retain the advantages of physical bank account structures, while eliminating the costs of opening and managing different physical accounts. They enable corporates to provide better control over the cash management accounts, reduce administrative costs and optimize their number of physical bank accounts to one centralized account, eliminating the need for cash management products such as notional pools.

4. Multi-banking frameworks

Until a few years year ago, corporates commonly regarded a banking structure based on a single global transaction bank as the most efficient approach. However, today many corporates—particularly large ones—are putting in place structures that use a larger number of banks, supported by bank-agnostic technology. This approach allows for greater flexibility in their banking relationships, enabling them to change providers quickly and easily if required, and also helps diversify their counterparty risk exposures by spreading their business across a larger number of banks. 

For corporates looking to set up a multi-banking structure, their first priority is to have a single access point to manage their accounts and information. This gives them the ability to:

  • Self-service their accounts across multiple banks.
  • Aggregate balance information across accounts.
  • Track and trace payments.
  • Transfer funds between banks.
  • Switch their business volumes seamlessly between banks.

Complying with interbank standards such as SWIFT or EBICS enables them to deal with multiple banks in a streamlined and efficient way. Examples include using SWIFT’s 3SKey, which enables a corporate to authenticate itself with a number of different banks using a single USB token. Corporates are also making growing use of capabilities such as electronic bank account management (eBAM), which allows them to open, close and manage their bank accounts electronically. 

5. Real-time payments, balances and statuses

With activity rising in their domestic, international and multi-currency accounts, corporate customers are seeking more real-time services and information from their banks, including immediate payments, account balances and status updates.

In response, banks are providing immediate payments capabilities in countries where such schemes have been rolled out, and offering account information in as near-real time as possible using multiple channels including SMS alerts, email, WhatsApp messages and alerts on corporate portals. With real-time payments and fund transfers between banks, corporates will be able to manage cash in real-time.

6. Check digitization and imaging

Check payments are one of the last banking transactions to go digital. This is now happening, following regulatory changes allowing banks to use digitized images, scans or photographs of checks for processing, rather than the original paper document. 

7. Corporate mobile solutions

Mobile payments are one of the clearest areas where consumer services have outpaced those on offer to corporates. As a result, pressure from customers has pushed banks to extend mobile delivery to corporates. 

Today, corporate mobile solutions are available in areas including cash management, trade services, customer administration, reconciliation, authentication and operational support. Examples include the trade services solution offered over mobile by HDFC Bank in India, and the HSBCnet mobile corporate banking platform, which HSBC says doubled its usage in 18 months. 

8. New channels

Connectivity between banks and corporates is moving toward standardization, consolidation and integration, reflecting the need for banks to move closer to their corporate customers and integrate themselves into their value chains. Banks, third-party vendors and industry associations such as SWIFT have created new channel solutions that leverage banks’ existing technology and infrastructure.

These include:

  • Host-to-host channels are increasingly used by corporations seeking greater automation. Using industry-standard internet protocol, they generally support ISO20022 XML-based messaging.
  • SWIFT, the global bank-industry-owned cooperative connecting the world’s banks and their corporate customers. SWIFT is evolving as a channel to make on-boarding easier and to offer an increasing range of services. The FIN channel provides a standard “communications language” shared by all SWIFT-connected banks. SWIFT has new offerings such as GPII for cross-border payment tracking and Alliance Lite2, which integrates clients’ enterprise resource planning (ERP) systems with their banks, facilitating STP.
  • Cloud-based channels are emerging and making it easier for companies to connect to their banks. SWIFT is partnering with software vendors to embed its connectivity into their cloud-based applications. And the ERP vendor SAP is connecting corporate customers with their banks via its cloud-based Financial Services Network, SAP-FSN.

9. APIs and API factories

Some banks are starting to develop internal API factories, where they standardize banking APIs for balance look-ups, funds transfer, payment and so on for publication outside the bank for third parties to use. These factories include both the technology to publish APIs and also the business processes to operate them for use by third parties, including security, financial crime controls and billing. 

10. Cryptocurrency technologies: DCL and blockchain

The global rise of the Bitcoin cryptocurrency has introduced the world to distributed consensus ledgers (DCL) and blockchain/distributed ledger technologies (DLT). Rather than focusing their attention on the digital currency itself, however, banks are looking at the underlying technologies and their potential to enhance efficiency, trust, transparency, reach and innovation in several areas of financial services—including payments. 

A final word

In the past, payments were considered as a necessary but unglamorous and undifferentiated part of overall bank activities. The picture today is very different. As more and more banks seize the growth opportunity in payments by investing in technological innovations, defining new operating models and partnering with FinTech start-ups, the bar is rising fast. Banks that fail to move quickly with smart, targeted investments risk being left behind.

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