The Changing Banking Integration Landscape: Is Cloud Technology the Future Model?

As corporates continue their pursuit of excellence,
through a combination of reducing operational costs, improving operational
efficiencies and optimising the use of cash balances, there is a continued need
to refine and even redefine the banking integration model. Initially, driven by
the advance of innovations in technology the focus was on removing paper from
the payment process with the use of bank proprietary electronic banking
(e-banking) systems. This typically provided a workflow for the payment creation
and approval process, in addition to providing visibility around the balance and
transaction reporting.

However, this model still required manual
intervention. As corporates improved their own internal architecture through the
adoption of enterprise resource planning (ERP) and treasury management systems
(TMS) from SAP, Oracle and SunGard, the focus moved to achieving greater
automation – effectively ‘straight-through processing’ (STP) processing. The
supporting technology evolution of these systems allowed banks and corporates to
adopt a broader range of proprietary online and host-to-host connections. 

While this technology enabled greater automation, it also introduced
different complexities and inefficiencies as well as a new focus on reducing
operational costs. To address the challenges around proprietary host-to-host
connections, banks and corporates turned their attention to the adoption of open
standards, which offered the opportunity to remove current complexity in the
corporate to bank space and provide a more ‘bank agnostic’ model. These open
standards often evolved from local market practices, or industry initiatives.

Competitive Boundaries have Changed

While various standards have
been available, many were industry specific or had limited geographical
adaptation. With the birth of global standards, for example in the form of the
Internet and HTML generally speaking and subsequently SWIFTNet for Corporates
and ISO 20022 XML messaging specifically, this effectively changed the
competitive boundaries on a global level. For the multi-banked corporate,
proprietary banking technology is far less attractive as the focus is now around
establishing a more simplified and standardised bank agnostic model that
provided the required portability in order to help manage both counterparty risk
and banking relationships in general.

below shows the corporate view on where the collaborative and
competitive boundaries are placed:

Citi Banking Integration Landscape Figure 1

Source: Citi

the above has changed the mindset of the banking community, as proprietary
connectivity models have become less attractive to the multi-banked corporate.
As banks look to differentiate their service proposition to ultimately drive
deeper wallet share, investment dollars are now primarily focusing in the value
added space.

Given that payments have become a commodity, the goal
is to take a more holistic look at the cash management space to understand the
challenges that still exist and determine what opportunities are there for the
banks to deliver greater value. In addition, the focus has shifted from
primarily pursuing portable or bank agnostic solutions to cost efficiencies.
This has been an important development as this has created a common interest
between the corporates and the banks; using standards means simpler system
architecture, easier maintenance, and more agile processes. All of that
translates to fewer investments, increased productivity and faster
Current Trends

As the banking integration model
continues to evolve, Citi has noticed a very clear trend as corporates look to
achieve greater centralisation, automation and standardisation.  These trends
are creating new business needs. Corporates and banks are responding by
implementing best practices that pursue the centralisation, automation and
standardisation of business processes to achieve a more visible and efficient
cash management model.

While the adoption of global standards
provides the opportunity to simplify and standardise the integration model,
corporates are now also looking to reduce the number of core cash management
banking partners. This rationalisation is often linked to either the creation or
re-engineering of a shared service centre/in-house bank set-up and provides
further opportunities to achieve a more standardised operating model and further
reduce the complexity, as per the example in Figure 2

Citi Banking Integrration Landscape Figure 2 

Source: Citi

However, whilst
some corporates are rationalising down to four to six core regional banking
partners, the above model still requires development and maintenance as part of
the adoption of global standards. If we consider the diagram in
Figure 3 below, this provides an approximate breakdown
of the project effort required concerning the three core components in the
corporate to bank space – connectivity, security and the file format.

Citi Banking Integration Landscape Figure 3

Source: Citi.

Considering this in more detail, there is clearly an opportunity to
redefine the banking integration model, by taking away much of the typical pain
that is associated with establishing the connectivity, security and file
formatting work through providing a more complete plug and play integration

The Emergence of the Cloud

again by innovations in technology there are now new options to consider when
rationalising and optimising the corporate-to-bank integration model. Cloud
technology offers interesting opportunities to further optimise the cost of
systems infrastructure. Providers offer solutions and services that allow parts
of, or even complete business processes to be supported using cloud-based
solutions. For some, this simply means moving the ERP system into the cloud and
continues to maintain direct connections to their banking partners.

SAP has recognised this opportunity with the introduction of their new
Financial Services Network (FSN). Based on cloud technology and initially
designed to work with their SAP ERP system, it effectively provides the
connectivity, security and file formatting as part of an integrated solution.
Citi was one of the first banks to recognise the benefits of this new and
simplified banking integration model.

Given the increasing
importance of supporting client choice in the integration space, SAP FSN
provides a simplified way for corporates to access Citi’s world class solutions
from a single interface.

As Figure 4 below
shows, this new model provides a more holistic solution, providing faster
on-boarding with banks that have joined the SAP FSN and improving the monitoring
of the end to end message flows.

Citi Banking Integration Landscape Figure 4

Source: Citi


While an increasing number
of corporates progress with the adoption of global standards and indeed the
competitive boundaries have been changed forever, banks will need to continue
additionally supporting both proprietary and new integration models. Indeed some
corporates have adopted a more blended solution approach based on a combination
of global standards such as SWIFTNet and ISO 20022 XML in conjunction with
retaining proprietary internet banking platforms. The rationale here is that
while global standards typically support the centralised accounts payable (A/P),
accounts receivable (A/R) and treasury flows, there is still a requirement to
enable local operating units to make nuisance/ad-hoc payments and retain
visibility around balance and transaction reporting.  Other channels like mobile
will also complement existing solutions, providing visibility and control,
virtually anytime, anywhere.

What is crystal clear is the banking
integration model will continue to evolve and while Figure
below highlights Citi’s perspective, supporting client choice in
combination with continuing to deliver value added solutions globally will be
key to maintaining a competitive advantage.

Citi Banking Integration Landscape Figure 5

Source: Citi

Although cloud technology is still in its infancy, it offers the potential to
considerably simplify the integration model. Only time will tell which option
will become the dominant model in the banking integration space.  


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