Special Report | Banking Systems & Technology
Keeping up with corporates’ increasingly sophisticated demands for more streamlined and well-integrated solutions is proving challenging.
Technology is central to the modern treasurer’s toolkit. “When it comes to good risk management—whether that is regulatory, operational or market-related—technology is at the core of our discussions with clients,” says Chris Jameson, head of corporate sales, Western Europe, at Bank of America Merrill Lynch. “It is an undisputed fact that technology facilitates greater visibility for treasury across business units and geographies, which is particularly important in light of regulatory risk and market uncertainty.”
Where banking systems are concerned, there are plenty of areas where treasurers would like to see further developments. In research published last December, research and advisory firm Aite Group identified 10 key banking demands from corporate clients, including advanced analytics, greater mobility, better risk management and tighter integration between bank and corporate systems.
The report points out that, as well as fulfilling the needs of corporate treasurers, banks are increasingly having to factor in other members of the organization—including procurement, operations, marketing and IT—and that failing to meet all these parties’ demands can result in the loss of competitive advantage.
Where data is concerned, the report says, different corporate executives have requirements that go beyond the raw “data dumps” banks largely provide. “Banks are good at setting up multiple channels and accumulating data, but they are not very good at aggregating or analyzing the data they acquire over all those channels,” comments David O’Connell, senior analyst at Aite Group. George Dessing, senior vice president, treasury and risk, for information services and publishing company Wolters Kluwer, agrees that the use of information is one area in which banks could improve. “If you take a step back, what we really want is to have the right information, which is something more than just transferring money from A to B,” he comments. Dessing says that Wolters Kluwer has a legal analytics tool, Datacert/TyMetrix, which analyzes $60 billion worth of law-firm invoices. “We asked our clients whether we could use the data which is already flowing through the systems, and they said yes,” he explains. “Before we knew it, we had a great amount of information and analytics which we used to show clients how they could further improve efficiency within their own legal departments.”
While some treasurers are looking for better analytics, others are more concerned about minimizing the complexity of bank-to-corporate connectivity. “If you have to deal with dozens of bank groups on a global level, even if all such solutions are great, they are very different from one another,” says Steffen Diel, senior vice president, head of global treasury, at enterprise software vendor SAP. “A unified channel to the banks to execute transactions or to gain transparency, for example via SWIFT, would be very helpful.”
Diel says transparency could be improved with the creation of a bank core system whereby companies could view liquidity on all group accounts at the relevant bank or get an overview of derivative positions, including mark-to-market valuations. He adds, “The lack of such an integrated system is why annual confirmations by the banks for outstanding business with the corporate (which are required by auditors for the annual audit process) can sometimes take a long time to provide.”
OBSTACLES TO INNOVATION
As large as fulfilling client expectations looms for banks, there are other factors to take into account when allocating budget. “Roughly 20% to 25% of bank spending globally is dedicated to new investments, such as putting in new software solutions,” says Jacob Jegher, a research director with consultancy Celent’s banking practice. “This is because the majority of the budget is tied up in other things, such as maintenance costs, regulatory spend—and, of course, keeping the bank safe.”
With other demands on banks’ budgets, cash is not always available for innovation. A report published by Aite Group in September found that 29% of bank respondents were not satisfied with their corporate banking portals, but less than half were planning to increase spending in this area over the next two years. In addition, only 34% said they were satisfied with their corporate mobile banking offerings, although 53% were set to invest more in this area.
Although compliance with regulations is required, it certainly does have a material impact on the funds that are left over to spend on new investments.
~ Jacob Jegher, Celent
One critical cost is that of regulatory compliance. A report on corporate payment trends published in January by Celent notes that regulation is still a major factor in most banks’ IT budgets. This has been the case since the financial crisis hit in 2008. “Although compliance with regulations is required, it certainly does have a material impact on the funds that are left over to spend on new investments,” says Jegher. “This is not necessarily anything new, but the complexity of the task has changed with more regulations coming into play.” Dessing agrees that regulatory costs are having a significant impact on innovation in corporate banking technology. “It’s fair to say that a lot of investment dollars and euros have gone into the regulatory requirements that we are all experiencing on a day-to-day basis after the crisis, as well as penalties and repayments of government support,” he says. “Banks have had to pause or hold their investments in ideas they have been developing for innovative value-adding solutions.”
On the other hand, compliance and innovation are not necessarily mutually exclusive. Nick Blake, head of sales, global transaction services, at RBS, argues that systems investment for the purposes of regulatory compliance and that driven by client criteria are intrinsically linked. “The regulatory requirements both make the banking environment safer and are complementary to our approach of building a simpler business for our clients, which focuses on doing less but doing it better,” he says. “Clients and regulators are both looking for greater operational stability, improved reporting/transparency and for developments to keep pace with technological advancements. The benefits of investment in these areas are mutually shared.” Blake says that, for example, enhanced transaction monitoring and the overall integration of risk management tools help ensure the safety of financial systems. This, in turn, affords corporate clients protection against exposures in global transaction flows.
Finally, while some treasurers are concerned about the impact of regulatory compliance on technology, others see communication between banks and corporations as a more pressing issue. “The main problem is that, to date, the banks have not shared much with us about their plans for dealing with the new regulations,” says Damian Glendinning, president of the Association of Corporate Treasurers (Singapore). “What we have seen is a series of additional requests from banks to protect themselves in case of issues with the regulators, but little in the way of investments to handle these regulations—at least, investment which is visible to us.”