US Regional Banks Fight for a Slice of the International Payments Market

Some of the large regional banks in the US are competing for market share in the increasingly competitive international payments environment and are bringing together their domestic ACH capabilities with international ACH capabilities.

In the US, as in other parts of the world, large regional banks have viewed payments along domestic and international lines. However, as the global economy has taken root, with more corporate customers becoming multinational, the requirements for payments support has grown increasingly complex. From a competitive standpoint, these banks now find themselves competing with large global banks in an effort to retain and attract new customers. In order to adapt to this change in the competitive landscape, many banks have come to realize that while not all payments are created equal, they are in fact still payments. It's a realization that, along with the maturation of electronic payment capabilities for straight-through processing, has helped to level the playing field.

If you are of a certain age, chances are you remember a time in the US when all banking was local. Whether you traveled from town to town or state to state, banks were omnipresent but the names were never the same. Over the course of the past few decades though, the landscape has fundamentally shifted. The small and mid-sized, local community banks, which were at one time so prevalent in America, have given way to a handful of large regional banks operating branches across wide swatches of the country and serving thousands and thousands of customers.

Today, banks are just as likely to find their competitors based half way around the world. This is particularly true in the US (and increasingly Asia-Pacific), as the global nature of the economy has enabled more mid-market organizations to transact business in international markets. As a result, large regional banks are re-thinking their corporate cash management and payments services. Rather than leveraging multiple point solutions for different geographies, or relying on a banking partner to act as an intermediary for international payments, these banks are learning how to use single, web-based cash management platforms to level the playing field.

Expanding Businesses, Expanding Cash Management Needs

A contributing factor in the shifting US competitive landscape has been the corporate customer itself. With the proliferation of electronic commerce, technology solutions for process automation, outsourcing, etc. nearly every aspect of how businesses operate, and the marketplaces in which they can serve has undergone a radical transformation, particularly in the mid-market. From a cash management perspective, the changes have been no less significant. With a greater amount of business occurring abroad, the banking relationships and payments processes of mid-market organizations must now be geared to support payment origination and processing into multiple countries.

Dominos Waiting to Fall

While there are many attributes that render the large global banks vastly different to their large regional counterparts in the US, there are some basic similarities relative to seizing strategic opportunities to increase revenue. Across the banking industry, banks of all sizes are actively pursuing initiatives designed to establish new value-added services that will serve as cornerstones for new streams of revenue.

Having built their global reputations, in part, on their ability to provide cash management products and services on an international scale, across borders and boundaries, the large global banks are now attempting to win - and in many cases - winning new international payments business from large regional banks. The fear of course, among large regional banks, is that once a global player has got 'inside' of a top-tier corporate account, it will become increasingly easier for that competitor to secure more of the corporate clients' business.

Standing on an Equal Footing

When you look across the banking industry, most banks have traditionally viewed payments as either domestic or international. To many, these are two very specific categories, each clearly defined by its own set of business processes and requirements. Therein lies the problem. While not all payments are created equal, they are at their core still payments. Granted, there are different currencies, time zones and formats to consider, but the notion that the uniqueness of each payment requires its own IT solution or a third-party relationship can no longer hold water. One of the most threatening aspects of competing against a global bank is its ability to deliver 'one-stop' shopping. Given the breadth of functionality and ease of use of today's web-based cash management platforms, large regional banks have the ability to accommodate the complex payment requirements of multi-national corporate clients and offer their own compelling 'shopping' experience.

Adoption of this forward-thinking approach to cash management has already taken hold across the country. There are a number of US banks, including some in the top 10, bringing together their domestic ACH capabilities with international ACH capabilities into a single workflow stream in order to aggressively respond to new competitive challenges and capitalize on the ability to make payments into new markets. With this new payments infrastructure, these banks will be able to quickly deliver the new products and services required to meet the complex payments needs of their corporate customers.

This trend towards leveling the playing field is by no means limited to just the banking market in the US. There's been a considerable amount of dialogue on this issue from banks in markets such as Korea and Japan. As is the case in the US, banks in these markets are actively pursuing similar cash management strategies that will enable them to integrate advanced capabilities for originating and processing payments in Europe and North America, for example, on behalf of in-country corporate clients.

Recently a new silver bullet has been introduced that many in the industry believe will solve historical international payment problems. The 'convergence' of XML payment formats, specifically ISO20022 format, is starting to get a lot of airtime at industry conferences as well as finding itself in 2007 IT project plans. This factor has further complicated the direction that some banks and corporate clients must make decisions on over the coming year. In the eyes of some corporate clients, the use of XML payment formats holds enormous potential but, in reality, it is likely that the new standard will only add complexity and confusion in the next few years. For now, the more reasonable approach is to stick with traditional payment formats such as SWIFT FIN as an international payment format and middleware standard. SWIFT is the first to admit that there is no planned end of life for FIN payment messages, and that means a stable alternative to committing development resources to emerging standards.

As the international payments environment has evolved, so too have the technology options available to banks. Disparate IT systems are being rapidly replaced with consolidated platforms offering the scalability and best-of-breed payment functionality necessary for large regional banks to compete in the international payment arena for straight-through processing. It's now plausible, for example, that a regional bank in the US can leverage a single solution to transact payments into Japan, Korea, Mexico, Canada and Europe (complete with IBAN and BIC validation) with the same level of efficiency achieved by banks of much larger stature.

Conclusion

No one expects the competitiveness of the banking industry to change anytime soon. In every market, banking always has been, and will continue to be a competitive endeavor. But the tools for becoming more competitive, particularly with regard to international payments, have now made it possible for larger regional banks in the US to grab a share of the market and compete more effectively for corporate customers. The notion of one-stop-shopping is no longer reserved only for the biggest global banks.