A little more than a year ago, SWIFT declared success at the conclusion of several pilots of electronic bank account management (eBAM) using new message standards developed for exchanging bank account management information in an electronic form. One year later, eBAM has become a reality, with a number of organisations offering eBAM solutions on a commercial basis.
The processes for opening and closing corporate banking accounts and maintaining signatories for the accounts have remained virtually the same since the invention of the fax machine. With very little, if any, automation in place and an absence of standards that could be used across multiple banking relationships, the personnel costs to corporate clients for managing bank accounts are far from trivial. In addition to the costs borne by the corporates, banks also incur substantial costs for account maintenance.
The need for a more efficient way to manage these critical business processes is only part of the equation. The traditional methods for maintaining bank accounts represent a serious gap in risk and control procedures because manual processes result in delays of hours, days, or even weeks.
The risks can be illustrated best with a hypothetical example. Imagine that the assistant treasurer of a major multinational corporation with access to hundreds of bank accounts around the globe is terminated because of having committed fraud or other malfeasance. Without an automated process in place, it is impossible for the company to notify its banks and have the banks take appropriate action on a timely basis to prevent the fired employee from using his or her credentials to access company bank accounts in a fraudulent manner. Clearly, existing processes leave corporates and banks at risk.
How large a challenge this can be for large multinational corporations is indicated by the example of General Electric (GE). In 2009, GE’s centralised treasury division reported that it opened an average of 70 new bank accounts per month, it closed an average of 150 banks accounts per month, and it had maintenance requests for an average of 950 bank accounts per month. Although GE represents an extreme example, risks associated with account opening, maintenance, and closing activities exist for all companies.
TowerGroup defines eBAM as the end-to-end automation of bank account maintenance using standardised messaging, electronic documents (where necessary), and digital identity management for security and non-repudiation. Conceptually, eBAM can be extended to include product- or service-level maintenance over and above the basic maintenance of deposit accounts. eBAM as broadly defined does not imply the use of a specific transport mechanism; nor does it involve a standardised set of processes that all corporates and banks will implement in the same manner.
Given that it will be some time before the parties are ready for a fully automated solution, an ‘eBAM light’ solution is likely to be used in the interim. This process would use eBAM components to exchange signed electronic documents without the full automation implied with the use of the eBAM XML messages. Bank service personnel would manage the client requests and save document images as required to maintain existing downstream business processes. This short-term strategy comes with some risk, both operationally and in terms of a probable mismatch between client expectations and reality. It would not be the first such example of the ‘sneaker brigade’ in corporate banking, but TowerGroup believes that banks that fail to automate the process fully will eventually be at a severe disadvantage competitively.
As with previous efforts at corporate banking automation (e.g. electronic payment processing), eBAM light will likely exist for years as the concept is gradually adopted. Legal and cultural obstacles must be overcome before straight-through processing (STP) can become the norm. In many cases, banks will offer eBAM light services as a component of their respective corporate banking portals, enabling clients that have not invested in true BAM technology to upload documents and generate eBAM requests as the output from submissions the clients enter manually.
Banks need to become eBAM-enabled to support the growing demand from their customers. Banks must develop or acquire software that allows them to process and route incoming eBAM messages, send acknowledgments and updates, and manage the overall workflow of eBAM messages and documents. Maximising STP requires integration with back-office systems at the bank.
The ultimate success of eBAM will depend on a combination of understanding client pain points, smart technology investments, and the fortitude to change longstanding business processes that no longer meet the needs of 21st century business. Some key questions for banks to consider as they put together business plans for eBAM are the following:
- How much automation is required before making eBAM available to clients?
- Should the corporate banking portal be used to enable clients to generate eBAM requests, and is this sufficient?
- Can eBAM be overlaid on existing processes, or is business process reengineering a requirement?
- Should eBAM be a component of a larger onboarding automation initiative, or should it stand alone?
The way the banking industry responds to these questions will determine how long it will take eBAM adoption to become the norm among corporate clients. Some corporates will not bother to use the eBAM services of a particular bank if they perceive that the bank is simply printing the documents and doing little to improve the efficiency, timeliness, and accuracy of the processing of their requests.
TowerGroup expects that all major providers of wholesale banking will offer some flavour of eBAM no later than 2012. As with other forms of automation in banking, eBAM will be executed in myriad forms and provide banks with a new opportunity for differentiation. The leading institutions can be expected to offer multiple eBAM solutions to meet the needs of specific market segments. As banks consider the topic of differentiation, they should not lose sight of the demand from large corporates for a global multibank solution. Such a solution would allow a corporation to use the same software to manage all its eBAM activities, a single network to connect to all its banks, and a consistent implementation of eBAM technical standards. Most large corporates will desire a multibank security solution as well. Ultimately, the leading banks will offer eBAM services in whichever forms their clients demand.
As of early this year, it appeared that the topic of identity management would be the most controversial aspect of the evolution of eBAM. Replacement of traditional signature cards with legally binding individual digital signatures for authorising bank account maintenance is at the heart of eBAM. Yet there seemed to be strong differences of opinion, even among the pilot participants, regarding whether the transmission of eBAM files and messages requires individual digital signatures when such files are communicated over a secure network such as SWIFTNet.
However, by the time we reached Sibos 2010 in Amsterdam last month, many of those voices had been converted to the notion that support for personal digital identity (PDI) management is inevitable. There is strong interest in SWIFT’s new personal identity solution called 3SKey, which has been successfully piloted in France. Despite some debate about the relative merits of 3SKey versus IdenTrust (both of which can be used to facilitate eBAM messaging and other corporate to bank interfaces), the industry seems to have coalesced around the basic requirement for such technology.
In that vein, one of my personal highlights at Sibos was hearing the declaration by a corporate panel member that eBAM is the killer app that will drive adoption of multibank, digital identity management solutions that can be used for multiple purposes, not only for banking but for securely exchanging information with our trading partners as well.
In the long term, overcoming the legal and cultural objections to a fully automated eBAM solution will be the most critical success factor. Having new technology standards and software to handle the messaging is not enough. Success will require new ways of thinking about how to tackle highly sensitive centuries-old processes. A collaborative effort is required to address the legal hurdles that arise from the absence of a global framework for the acceptance of digital signatures.
For now, wholesale banks must capitalise on the demand from clients to automate the high-risk, high-cost processes involved in corporate bank account management. Banks have a clear-cut opportunity to differentiate themselves from their competitors based on innovative, client-centric solutions that also happen to yield substantial efficiency benefits to the banks themselves. For banks that have not already begun to develop an eBAM solution, the first steps include investigating available technology solutions, analysing existing account maintenance business processes for opportunities to automate, and working with clients to understand their specific eBAM needs.
Banks that are late to the eBAM market or offer solutions that are less automated than their competitors’ solutions will likely find that they receive more account closing requests than other types of requests. The benefits of a fully automated eBAM solution to all parties are indisputable. The biggest question is whether banks will meet the high expectations of their clients as they roll out these new capabilities.
This article is based on research by the wholesale banking practice at TowerGroup.
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