How can technology help in treasury strategy?
By Benoit Desserre, Global Head of Payment and Cash Management for SG GTB - 2016
“SWIFT’s Global Payments Innovation Initiative is a response to the exact needs of corporate customers. It is time for the old correspondent banking network to be revamped and GPII will do this.”
Corporates are continuously seeking greater speed, transparency and predictability of cash and trade services as well as looking to increase their working capital and secure funding. As supply chains and liquidity management priorities evolve, how can banks help their corporate clients grow their business?
- Cash management and transaction banking globally have always been technology driven. Core banking systems and web-based banking tools allow a huge amount of information to be passed on to clients about their activities. The only difference between today and the services of the past is the rapid pace of change and the challenge banks face from competitors entering the value chain. But this always has been a competitive industry and even the largest transaction banks do not have more than a 20% share of the global market.
- The development of solutions for treasury is accelerating. In the past it would take a couple of years to bring new products or services to the market. Today there is pressure to deliver more rapidly. For example, corporates want more transparency around payments and ask for the ability to track where payments are. They also want to know what a payment transaction will cost them. These are functions that are delivered in other areas, such as parcel delivery. Innovations don’t always emerge from Fintechs; as is the case with parcel delivery new models have evolved from the postal services and are making their way into financial services.
- SWIFT’s Global Payments Innovation Initiative (GPII) is the response from the industry to the needs of corporates. It is attempting to bring the same transparency that exists with physical goods delivery to the delivery of international payments. Corporates will be able to track payments and also know the exact cost of any transaction.
Anytime, anywhere, any device models are also emerging in corporate treasury. There are however constraints for banks in the shape of regulations such as anti-money laundering and sanctions. Banks understand what corporate treasurers want: information, transparency, speedy transactions and low costs. The single euro payments area (SEPA) has helped banks to meet these requirements.
- All of the requirements of corporate treasuries are technology driven; there is no other way to meet these needs than by technology. However most solutions are not yet widespread. There is a question of how many corporate customers will be willing to pay for certain solutions. Transparency, for example, will bring value to corporates but some don’t see it as a value added solution. There’s a conundrum for banks: do they develop certain services if they are not going to be paid for them? SEPA brought one format, one type of credit transfer and one type of direct debit along with XML standards. Corporates like all of this, but they don’t want to be charged for it and banks cannot charge more for it anyway. There is now talk of developing SEPA-type solutions in other parts of the world, but the same issue arises: who pays?
- New entrants in treasury management systems can cherry pick certain functions and banks need to move at a good pace in order to prevent this. It is doubtful that these new entrants will replace banks, but rather will work alongside banks to provide niche services. Fintechs bring innovation to the industry but banks bring expertise in cash management and global transaction banking. Progress will be made via more collaborative approaches because all parties should realise they cannot do everything themselves.
A huge amount of investment has been made in Fintechs but only a handful are likely to survive. The question for banks is which Fintech they work with in order to continue to serve their corporate clients.
- Corporate treasurers have a few fundamental questions: do I get all of the information I want as fast as possible? Do I get all of that in as simple as possible a way that is easy to understand? The priority given to these aspects will not always be the same among corporates and depends on the type of business and the country in which it operates. In essence, corporates push banks for better services and the more sophisticated corporates are, the more they require.
- SMEs tend to buy standard solutions while large corporates will buy the standard but ask for much more customisation. This customisation is a key point of the relationship between a bank and its corporate client. Banks can become very specialised to the needs of individual corporate customers and this is technology driven.