Channel Banking Integration and Client On-Boarding: The Final Frontier of Payments Automation?

Banking technology is evolving at an exponential pace, rapidly changing the customer experience as evidenced by almost daily innovations and announcements in the media. Take smartphones; as consumers we now effectively have bank branches in our pockets, showing us up-to-the-minute balances, allowing us to buy new financial products, make complex online purchases, move money between accounts, set up direct debits and transfer money cross-border to our friends and relatives as easily as we might text them, using mobile devices and applications. And the iPhone, Android and other visual mobile-based consumer payment portals are the tip of the iceberg systems-wise, with sophisticated back-end platforms that the client never sees making all this change possible. Card providers also offer more and more value to the individual, through easy to use but more and more complex business processes that let holders operate virtual bank accounts with a bewildering array of services at their fingertips. 

So why does the world of corporate client electronic channel banking automation lag so far behind its retail banking cousin, especially since other areas of institutional banking, such as investment management and foreign exchange (FX), were largely automated a generation ago? There is no single answer in my view, but as a provider of both traditional corporate client on-boarding consultancy services and automated integration via hosted software services for payments processing, my company B2 TDI, is at the sharp end of the issues. Hence, while the underlying reasons banks continue to encounter issues with client on-boarding are many, experience leads me to believe these can be distilled down to two fundamental barriers, one of which leads to the other – namely: 

  • Complexity of integration. 
  • Cost of acquisition. 

Complexity comes from many angles, including host-to-host connectivity with the client (something that rarely impinges on retail banking efficiency as few of us have mainframes in our homes). In this context I use ‘connectivity’ as a catch-all, including: 

  • Setting up a physical line connection, whether via an Internet Service Provider (ISP) or across market networks like SWIFT. 
  • Transforming incoming and outgoing file formats into an appropriate message schema for the bank to process. 
  • Managing service outages when issues such as line breaks or system downtime mean transactions may have to be replayed. 
  • Issuing the client with appropriate statements, error reports and receipts. 
  • Multiple and disparate platforms, such as enterprise resource planning (ERP) packages, in-country clearing systems and core banking technology may all require different interfaces and ‘standards’, which the market perennially announces to be the panacea for all payments ills, automation or otherwise – only compounding the problem. 

Every so called ‘standard’ message can be subtly different and good subject matter experts in payments messaging, as in any such varied and arcane technical landscape, are rare and expensive. 

This connectivity complexity in turn affects the ‘cost of acquisition’, covering how much infrastructure expense, time and effort (and perhaps opportunity cost of missing other business in the process), is required to on-board the client before the bank can start realising a return on the services supplied? Equally, the corporate client head of treasury will be minded to challenge the bank on how quickly and easily they can commence using the new banking services and how the impact of the service on-boarding on their own systems and resources can be minimised. So where the bank could once dictate to the client in terms of connectivity, the client is now king, expecting the bank to work the way it works. 

Banks also regularly tell us they cannot justify deploying expensive and scarce on-boarding resources for anything but a small number of VIP clients at any one time, making the take-on of small to medium enterprises (SME) or mass client migrations challenging. Market views very much support our experience in the field, with the last Association for Financial Professionals (AFP) Electronic Payments Survey noting that: 

The top barriers to the adoption of electronic payments are: 

  • Difficulty convincing suppliers to accept electronic payments (83%). 
  • Inability of trading partners to send or receive automated remittance information with electronic payments (77%). 
  • No standard format for remittance information (72%). 
  • Shortage of IT resources for implementation (70%). 

The same report also indicated that by 2020, current payments transaction volumes worldwide will increase three-fold while revenue per transaction will drop by around 20%. Costs must therefore reduce, but in parallel, banking infrastructure capacity must increase. The numbers also back up both our observations and the market’s view in general. For instance, Finextra’s Research report ‘The Future of Transaction Banking’, based upon executive director and product management level respondents from banks ranging in size from large domestic players to regional and global financial groups, with 100 respondents from 32 countries, found the following answers to a series of questions: 

Figure 1: In Cash Management, What do You See as the Biggest Future Demand for Corporate Treasurers from Banks?

B2 TDI_Phil Boland_Fig1

Source: Finextra Research: The Future of Transaction Banking.

Figure 2: What are Your Technology Spend Priorities in Cash Management for Next Year?

 B2 TDI_Phil Boland_Fig2

Source: Finextra Research: The Future of Transaction Banking.

The above graph shows that bank technology spending is also commensurate with the difficulties encountered in various areas of integration, with regulation and reporting spend relatively low compared with client integration. The SME market is also perceived to be key, as illustrated below: 

Figure 3: What Will be the Strategic Focus for Growing Your Transaction Services or Cash Management Business in the Next Three Years?

 B2 TDI_Phil Boland_Fig3

Source: Finextra Research: The Future of Transaction Banking.

The trick is therefore to reduce complexity and hence cost of acquisition, something that cannot be achieved using traditional methods. My company, B2 has run a successful business for many years around transaction banks’ requirements for assistance with bespoke client on-boarding and I have no doubt will continue to do so for many years to come, but this is not the solution for achieving the levels of automation and rapid time-to-market already enjoyed by retail banking and other institutional sectors. More automation and less ‘hand chiselling’ is required. 

The solution must come from empowerment of banks to on-board en mass through easy to implement, automated services, using state-of-the-art components to deliver lighter, faster and more cost effective solutions. Advances in security and other areas of light technology mean there are options available that were not possible even a couple of years ago, covering key specific functional elements of the on-boarding process such as: 

  • Connectivity between the source environment(s) and the target delivery destination, with end-to-end security and message reconciliation and adaptability to any file format or message protocol, controlled remotely by the bank rather than requiring client site visits to install and maintain. 
  • Automatic generation and easy maintenance of complex implementation guide documentation for banks and their clients. 
  • Simulated testing facilities accessible directly by clients, for incoming transactions and outgoing statements. 
  • Support of multiple market standards and practices for rapid access to clients, whether in different geographical territories, using different ERP platforms or subject to cross-market standards like the single euro payments area (SEPA). 
  • Ability to rapidly configure complex business logic to process different transaction types according to various perspectives (e.g. client, geographical territory, currency). 

There will always be a place in successful client on-boarding processes for the valued and seasoned subject matter expert, the effective project manager, the determined executive sponsor at the bank or the experienced client-relationship manager able to hand-hold the corporate client through the on-boarding process. But the market will doubtless also continue to strive towards greater standardisation, and the appropriate use of smart and focused technology (not people or standards). This will provide the key to more effective electronic channel banking integration in the future. 

A case study showing the power of modern connectivity and on-boarding tools is the deployment of easyJet cash management integration across the B2 platform (on behalf of a major transaction bank) in 2011, where a number of different ERP and accounting systems at the client were integrated into a single payments feed within 30 days. So called ‘cloud-based’ infrastructures, offering virtually unlimited pay-as-you-go server power, are also now commonplace, meaning hosted service costs that were once prohibitive are now affordable, although of course on-going fees do still apply. Interest in mobile access, via smartphones, tablets and so forth, is also on the increase, with retail style front-ends now sought by corporates and banks because their staff already use them privately and because social forces like teleworking and globalisation mean the modern workforce is always on the move. In any event, things are changing, and at B2 we predict that from 2013 onwards, our hosted solutions business will be larger than our consultancy and on-site software business. Our fellow vendors in the payments software community (from small niche players to market leaders like SAP), tell us they too anticipate a similar shift. 

All this boils down to the time being right for a sea-change in the approach to electronic channel banking integration, especially client on-boarding. The key driver is, of course, demand. Transaction volumes are increasing, competition is higher than ever before – new technology helps banks but also makes it easier for corporates to move banks or select multiple banks depending on specific products – and so costs and time-to-market need to be reduced. But the difference today is that the right technology and infrastructure are at last available to meet that demand; secure, rapid connectivity can be had at minimal cost where previously only expensive mainframe-type solutions existed. Hosted ‘payments factory’ type services where any file (in or out) can be accommodated are appearing across the market and a wealth of IP is now embedded in those services (e.g. pre-built off the shelf libraries of interface formats), meaning quick, cheap, flexible and risk-free integration. 

Levels of automation within channel banking generally, and specifically client on-boarding, will therefore surely catch up with other institutional sectors before long, and who knows, with the revenues at stake given current growth forecasts, even catch up with the retail banking sector. Corporate treasurers dealing with open antiquated systems will no doubt be pleased to see the change.  

 

 

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