By Gilly Wright
Much has been said about the brave new world of transaction banking—robots and blockchains replacing humans and inefficient paper. Are we really headed for a Terminator-esque world where robots are the norm? The fantasy world of fintech has yet to materialize.
In the meantime, plenty of realities are changing. Near-term, we are heading toward a world in which corporations no longer accept the need to pay fees to move cash around, so banks are looking at data and digitization to transform their revenue models and generate income.
Ben Singh-Jarrold, corporate banking strategist at banking technology vendor Misys, says that as transaction products become increasingly commoditized, data becomes the real currency. “It’s all based on the operational challenge banks have—to deliver that single view across multiple jurisdictions back to the corporate,” he says. “It’s very much about what a bank sees its customer do on a daily basis, in a real-time and really joined-up way. Data enables advisory services, and more data in one place equals better analytics and better advisory services.”
Understanding Corporate Needs
Michel Jacobs, head of new market strategy at iGTB, believes that understanding the intent and context of each interaction will enable corporations to make better decisions associated with executing each transaction. “It’s like FedEx,” he says. “They don’t really care if something gets shipped by means of a boat, train or truck; they just focus upon the cargo.”
To put this in banking terms: If the interaction is the cargo, it doesn’t matter if it gets moved via a blockchain, Swift’s GPI, R3 or Ripple. “They are all just means of execution,” Jacobs notes. “It’s only by leveraging the actual data/content of the interaction that we can help clients make better decisions.” With FedEx, the urgency, value and type of a cargo load all impact the choice of how to move it from A to B. In like vein, a corporation needs to know whether it needs a particular payment to arrive at its destination in real time, in one day or three days.
“Is a payment associated with a container of production materials in Singapore that has to be released now? Or is it for a ship of produce that’s coming in from China, that may arrive in a week or two days sooner?” Jacobs says. “If you understand and leverage the data, you can not only understand what it is that clients are trying to do, but also synthesize why they are doing it. Understanding the ‘why’ allows us to offer better choices to corporate clients, so they can make better decisions. It’s about making transaction banking more business-aware.”
To help transaction banking become more business-aware, artificial intelligence (AI) is increasingly combined with analytics. “The vast and invaluable amounts of data banks possess on customer behavior and preferences can be exploited via machine learning technologies,” says Parth Desai, CEO of Pelican, a software company that focuses on AI in payments. “This allows unique insights to be gained and new, more relevant products and services to be created.” Machine learning offers the ability to up-sell and cross-sell based on user behavior.
In transaction banking there is still a lot of manual intervention, and Desai says intelligent payment management enables banks and their corporate clients to simplify, streamline and automate payments and compliance. “Through the application of AI, the ‘last mile’ problems not yet solved by traditional technology and requiring human input can also be automated,” Desai says. “This results in superior efficiency, reduction in unnecessary manual intervention and reduction in associated costs, delays and risk. Last but not least, it makes the organization scalable and prepares it for fast growth.”
Singh-Jarrold says robotic automation with an element of machine learning built into transaction processes, based on what is known already about customers, will define how transactions are processed without someone having to do it. “In the credit management side of the business and KYC [know your customer], it is already happening,” he explains. “Systems can do that because it [involves] actions based on information that is known, with an element of intelligence built on top of that.”
Knowing Where to Focus
This pragmatic use of emerging technology is underpinned by having data in one place to analyze, and is, Singh-Jarrold says, a key driver for banks reengineering internal processes. “Digitalization has been very fragmented,” he says. “Over the past 10 years there was a big uptake in cash management and payments and online channels for cash and individual projects for trade finance front offices, but until very recently we’ve not seen banks looking at digitalization in an enterprise way.”
Statistics from McKinsey, Boston Consulting and Misys over the past three years consistently show that only one in five banks has an enterprise-wide strategy for digitization. “When you think about all of these dynamics in transaction banking and the need for connectivity, it’s crazy that only 20% of banks have really thought about this across business enterprise level,” he says. “That’s fundamental when you think about what new emerging technologies they can take advantage of.”
Increasingly, corporate banks are reviewing strategy to choose segments, needs, geographies and business objectives to serve rather than aiming to be a one-stop shop for all transactions. Retrenchment of larger banks has opened opportunities for Tier-2 banks—which are more aggressive now in terms of growth.
The Cloud, Singh-Jarrold says, has become a great enabler for smaller banks, helping them deliver connected corporate banking platforms quickly. Misys worked with Commonwealth Bank of Australia, for example, to help the mid-tier bank expand into global markets. “They looked at a hosted model where they deliver our connected platform—connecting trade and lending connected across FX, cash trade and services—for corporate banking,” explains Singh-Jarrold. “The Cloud is the quickest way to capture market share.”
Big multinationals such as Unilever or P&G, have in-house banks, but the large corporate layer just below their level drives a very big chunk of GDP around the world. This, says iGTB’s Jacobs, is where banks can add value. “If banks don’t start bringing the right services to those corporates, we’ll see that ERP [enterprise resource planning] vendors are more than happy to do so,” Jacobs says. “Just take SAP as an example—they already have extended their ERP services with basic cash management and basic payments functionality and liquidity.”
Trade and supply chain, the most paper-based transaction banking areas, are both ripe for disruption. Blockchain has great potential for trade finance, yet Misys has seen a lot of interest from banks because of its partnership with essDOCS—a different way to bring paperless trading solution and representation all in one system both for the customer and for the bank.
“Collaboration,” insists Singh-Jarrold, “is the linchpin of success in transaction banking, because banks are moving to a situation where a bank is not the only intermediary for a corporate or a supply chain, [but] just one of the nodes in the network of transactions.”
Whether it’s partnering with fintechs or developing more strategic partnerships with core platform providers to bring innovation from outside, these collaborations are how transaction banking will add value. Citi, Deutsche Bank and Misys have all recently opened third-party portals to enable third-party coders to create and test new financial applications.
“Corporates want to optimize their cash and working capital, and banks understand corporate needs, which is why fintechs are not taking all the business,” concludes Singh-Jarrold. “Banks have not always had the technology or information at their fingertips to deliver what corporations want. That is changing.”
