What are today’s companies seeking? A lengthy, comprehensive list could easily be produced, but the needs to feature highest on the ‘wish list’ include cutting costs, boosting revenue and meeting emerging operational risks ranging from fraud to compliance with anti-money laundering (AML) and sanctions impositions.
So are the banks meeting these requirements effectively? Many, but by no means all, have positioned themselves to respond to their clients’ steadily evolving needs. Those that fail to do so are often constrained by budgetary restrictions, but others are simply reluctant to provide full transparency to their corporate customers. Some banks may also suffer from a lack of long-term vision.
Whether they like it or not, SWIFT connectivity is a must for their corporate customers. Indeed, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) was created initially for banks to trim their connectivity costs, standardise financial messaging and reach straight-through processing (STP). However, at the same time banks may regard extending SWIFT connectivity to their clients as a threat and some are still unwilling to cede their traditional position. This attitude can stem from fear that in doing so they will have to share the flow of payments and services with rival banks.
However, any modern organisation is fully aware of current market trends, so more banks are increasingly ready to help their customers – even when their willingness is borne of necessity rather than choice. Ultimately, while SWIFT connectivity can result in the bank ceding some of their revenue streams, it can also develop them new ones – such as from providing companies with services such as foreign exchange (FX).
Alternative service providers have made inroads into the banks’ traditional territory as they are generally quicker and more flexible in responding to changes in the market and emerging trends with new services. Those developed by Expertus include a sanctions screening service for files before they are submitted to the bank, which significantly reduces the possibility of a file being rejected.
These enhancements, in turn, puts the onus on banks to invest in upgrading their legacy systems and many are likely to baulk at the costs involved and the time that an upgrade project takes to complete.
What do companies want?
For multinationals in particular, having a single point of entry is a definite advantage. A major corporation may have as many as a few hundred accounts and having to go through the portal of each individual financial institution is a long and cumbersome process for the corporate treasurer. Having a single point of entry can make his or her life far easier.
Adopting XML standard ISO 20022 is also increasingly important as it is accepted in a growing number of countries, while the Federal Reserve is considering the drafting of a roadmap for an immediate payments scheme in the US similar to the UK’s Faster Payments scheme launched in 2008. Governments are increasingly keen for such schemes to be adopted nationally.
In this environment SWIFT connectivity has become a must as it provides corporates with independence from the banks, increasing their straight-through processing (STP), and enables them to deal directly with beneficiary banks rather than through a host of different intermediaries. The cloud provides both expertise and a shared service at relatively low cost and the company does not have to make an investment for in-house resources.
The need for a single point of entry to their accounts worldwide improves efficiency and reduces risks. Connecting to the multitude of bank portals using each bank security token has proven time-consuming for the treasurer preventing him or her from efficiently performing the main daily activities: the production of timely cash positions, forecasting, the transfer of funds, borrowing and investment.
Companies also want easy access to an up-to-date view of their overall cash position. They increasingly need to devote their focus on the core business and associated activities such as negotiating terms and conditions with their suppliers. Centralised control is also growing in importance, in response to the growing list of regulations that businesses must observe, requiring them to report in detail on who exactly did what.
Rising swiftly up the regulation agenda is anti-money laundering (AML) and sanctions legislation. Companies without a solution that offers sanctions screening as an integral part may find themselves inadvertently dealing with a blacklisted country. A number of banks have already been hit by multi-million penalties for illegal transactions. A company’s reputation is increasingly vulnerable if it lacks the necessary control processes in-house. However, a solution compliant with the requirements of Sarbanes-Oxley allows payments to be verified and stored with the right security controls.
So what’s the problem?
With so many benefits from SWIFT connectivity and embracing the cloud, what continues to hold some companies back? Security is obviously among the main concerns, principally for the compliance department. IT departments are more likely to be worried the loss of internal know-how from outsourcing and the implicit threat to their continued existence. This fear is legitimate as many companies have instigated major reductions in IT staffing. From the banks’ perspective, moving to the cloud offers the opportunity to both reduce costs while also generating extra revenue.
For treasury, operations and sales, each is prone to go along with cloud solutions as they need time to review the market, assess the respective offerings of each service provider and select the individual features they want. Many providers have efficient service levels and can offer their expertise at a fairly low cost.
Client onboarding can prove time-consuming and costly for banks, so treasury departments look at the cloud’s potential for focusing on their core businesses and thereby reducing costs. They also have assurance that service providers are overseen and certified by the regulator.
The technology aspect
How much does consumer technology affect the types of products that treasurers expect? Principally in a demand for increasingly sophisticated products, putting the onus both on banks and alternative solution providers to integrate the mobile interface into treasury functions.
Most recently, banks are looking at the tablet, which provides even greater functionality than the smartphone. Increasingly used by senior executives while on the road, tablets can be used for various functions such as analytical charts. Executives are keen to take advantage of the ever-growing variety of functions, as evidenced by the queues whenever Apple releases a new device or upgrades an existing one.
Item imaging is another service that a growing number of banks now offer, enabling a cheque to be scanned and deposited by a smartphone.
The bank that fails to embrace the cloud is the bank that loses out. The cloud enables banks to concentrate on their core services without having to devote resources to developing and launching new ones, as the service providers can offer the necessary expertise.
Cloud technology helps payments factories, as more banks move to the cloud and use it for client onboarding. It also assists AML and sanctions screening as well as treasury management, sparing costs for those banks that prefer not to develop treasury services in-house.
The threat to banks that fail to accompany their customers and respond to their evolving needs is that those customers are aware of the alternatives and ready to look elsewhere.
Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
The cost of compliance efforts for banks has increased exponentially in recent years. This is especially true for those banks that are active in the global trade finance domain, where the overwhelming expectation is for compliance requirements to become even more complex, strict and challenging over time.
This year promises to further the regulatory compliance burden imposed on financial institutions. How are firms in the sector responding to the challenge?