Evolution of Bank-to-Corporate Connectivity

The transformation of bank connectivity has been driven by the development of web-based technology, which allows corporates to demand more from their banks in the way that they interface as well as the connectivity tools that they offer. “From a treasury point of view, changes in connectivity between corporate ERP systems and banks are driven by higher requirements for information on payments and receipts,” says Guy Ingram, European treasury manager at Agilent Technologies. “Corporates want better levels of information to enable more automation in the processes of reconciliation and matching, for instance.”

Corporates ultimately want better control and visibility over their bank accounts and cash management structures – web-based technology is a key enabler. “Corporate customers want 24/7 self-service solutions that will allow them to manage the daily liquidity of their businesses in a consolidated way directly over the Internet,” explains Terje Aas, product director at TietoEnator.

The fact that web-based technologies enable increased functionality also translates into a better return-on-investment (ROI) from ERP systems. In addition, according to Filip Loveniers, manager of treasury and corporate finance at Georgia Pacific Services, because web-based cash management tools allow corporates to connect wherever they are located – without the need for an IT project and funding to accommodate different bank’s proprietary formats – more resources are now available for other business needs. Read Fundamental Shift in Bank-Corporate Connectivity by Infosys, and Impact of Technology on Bank Connectivity by authors at Wipro, IBM and Accenture.

Current Connectivity Challenges

To some extent, web-based technology is removing the cost and complexity of having separate client access channels with different banks – the traditional method of bank connectivity – but there is still a critical stumbling block. Georgia Pacific Services’ Loveniers sums up the situation: “Corporates want one gateway and format to connect to all their banks but this is an ongoing issue.”

According to TietoEnator’s Aas, corporates want a solution based on a standard Internet browser and Internet access, so that the system can be operated from virtually anywhere without any additional software or hardware requirements. Currently, however, many corporates believe that there is a fundamental lack of standardization and that the burden of managing bank connectivity unfairly falls on them.

“Banks are not focused on providing standard connectivity interfaces for corporates and therefore it is the corporate that has to implement the technology to connect to the bank,” argues Vinit Rishi, tax and treasury manager (international) at Iomega. “There is no standard format for connectivity. I am looking for a more proactive approach so that widely used ERP packages, such as SAP and Oracle, can be easily connected using middleware with certain data definitions.” He suggests this would make it easier and cheaper for corporates to manage connectivity issues and therefore deal with enhancements and upgrades without the need to dedicate IT resources and time to the issue.

Agilent’s Ingram describes how his company has an intermediary solution to translate information from its ERP to its bank, which is expensive – particularly if changes need to be made – and that there are also high maintenance costs involved. So what are the banks doing to remove the technology burden of connectivity from corporates?

The Banks’ Perspective

“Banks should be able to accept and handle whatever corporates have in terms of ERP systems – regardless of format,” affirms Gary Greenwald, global head of cash management information products at Citigroup corporate and investment banking. “Corporates don’t need another IT project on the treasury side in order to handle different banks’ proprietary formats.”

Rob de Gidlow, JPMorgan treasury services sales consultant in Europe, Middle East and Africa, agrees: “Banks have to be good at integrating the messages that they receive because corporates want to take raw data from their treasury management system or ERP system and send it directly to their bank via the Internet, and then into the bank’s back office where the transaction is translated to the correct format.” This way, he argues, corporates reduce the maintenance cost of having separate client access channels with different banks.

If there is consensus between corporates and banks that standardization of the connectivity channel is needed – why then is there a perception among some corporates that banks are not addressing this issue?

Standardization of Bank Connectivity

Citigroup’s Greenwald points out that there are currently many disparate formats and standards that the industry has to deal with so standardized bank connectivity is still a work in progress. “A few banks have invested heavily in connectivity processing capabilities and the ability to handle and process data regardless of format or ERP system,” he says. “To move this forward, the industry has to work in forums to encourage fewer standards and more homogenization.”

According to JPMorgan’s de Gidlow, when SWIFT released SWIFTNet capabilities based on an IP protocol, many large corporates saw it as an opportunity to standardize the way they communicated with key cash management and treasury banks through closed-user group technology – member administered closed user groups (MA-CUGs).

Currently, corporates must be sponsored by a SWIFT member bank to join a MA-CUG and then that bank manages the relationship with the SWIFT network. This allows the corporate to interface with all its banks (those that are SWIFT members) in a standardized format and through one gateway. SWIFT MA-CUGs have been cumbersome and expensive to set up though and there are discussions about how to make SWIFT connectivity easier for corporates through direct access.

SWIFT progress on bank connectivity is a start but, claims Citigroup’s Greenwald, it has its limitations because many corporates operate with banks around the world that are not SWIFT members so alternate mechanisms should also be developed. “Clients often want to aggregate information outside cash balances, i.e. aggregating short-term investments or debt information, in these cases SWIFT is not as robust and universal as it is on the cash account side,” he explains.

For JPMorgan’s de Gidlow, connectivity is one of three parts of how banks communicate with corporate clients. “There is also the content that passes down the communication channel and how you secure it,” he says. “Standards have a huge impact on what is transmitted through the common communication channel – the message. Those messages can still be formatted very differently and, in order to improve connectivity, the message format must also be standardized.” He believes the core payment kernel developed by SWIFT and other standards bodies is a significant step forward in this area.

Bank Connectivity Tools

Certain bank revenues are likely to decrease as a result of the loss of client access revenues through the demise of proprietary platforms. At the same time, web-based technologies and connectivity give banks the opportunity to drive new revenues by offering value-added bank connectivity services and tools. “In order to attract the most profitable corporate customers, a bank must be able to offer the most sophisticated cash management tools,” insists TietoEnator’s Aas. “Not all banks have the necessary resources to provide these solutions on their own so an alternative is to outsource the solution to another bank or processing centre.”

He warns that if banks do not provide the services corporates require, such as increased treasury functions in-house to enable better investment of funds and forecasting functionality, they will lose valuable revenues and market share.

Multi-banking and reporting tools are an example of value-added connectivity services that banks are currently providing corporate clients to improve their control over bank accounts and cash flow. This is particularly important in light of Sarbanes-Oxley. As JPMorgan’s de Gidlow points out, treasurers must have visibility and control over what’s going on in their bank accounts to comply with regulation. Read also Improving Bank Connectivity Through Automation, by Martin Schneider at Tomato.

While there is market take-up of multi-banking tools, the concept of real-time reporting and information is still evolving. According to Citigroup’s Greenwald, real-time reporting is taking off in the financial institution sector, for example among asset or fund managers who want a real-time view into their cash accounts or nostro accounts. “It is starting to slowly appeal to corporates but currently most corporates are happy to have reliable end-of-day statements on a global basis across their enterprise. They may eventually choose to have real-time reporting/information on accounts that are a core part of their liquidity management for account decisions,” he says.

Agilent’s Ingram agrees: “Real-time reporting is a ‘nice-to-have’ function not a ‘must-have’ right now”. He does add that this is part of the lifecycle of many new technologies – it might not start as a ‘must have’ but eventually it could become a technology that corporates come to rely on. Ingram believes this is also true for dashboard technology (which presents a set of key metrics used to provide a quick evaluation of treasury process status) and that further development is needed.

“It is something that we have found hard to achieve because, even though you can use it for all bank accounts, it is hard to incorporate other elements, such as money market funds, debt or inter-company cash positions,” he explains. “You might be able to see what your cash position is but you will also want to know what jurisdiction the cash is in and who owes who money within the organization – pulling all of this information into one picture is a difficult proposition.”

The Future of Bank Connectivity

Multi-bank reporting, real-time reporting and solutions such as dashboard technology will evolve over the next few years and become further engrained in treasury management of accounts. This is inevitable especially when you consider the fact that up-to-date information is an essential element in effective cash management as is the availability of relevant and timely information.

There is a continuing shift in the way banks and corporates interface and this is driven by the changing requirements of the corporate community enabled by web-based technologies. If banks don’t keep pace with this demand and transformation, they will certainly lose out in the ever-competitive financial services market.



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