In recent years, most innovation in cash management has been in online banking, driven by telecommunications and desktop computing technologies, says Lakshmi Balasubramanian of Infosys.

A number of market forces have influenced the move towards Web-Based Cash Management Solutions (WBCMS). In Europe, initially banks started by leveraging the investments already made on the retail side. But investment in the corporate banking arena is slowly gaining ground and there are several factors behind that increase.

As a channel, the internet is much cheaper than other electronic channels such as value-added networks (VAN). WBCMS allows customers to input transactions, transfer funds, modify accounts, download statements and handle analysis and reconciliation of their accounts, thereby reducing the load on other channels like the branch and tele-banking and thus reducing costs.

Cost cutting

The introduction of regulation 2560/2001 on cross-border payments in euros from July 2003, and the resultant reduction in the fees on such payments has triggered banks to focus on reducing costs and generating revenue by increasing the transaction volumes. Both of these are facilitated by WBCMS – customers can directly input transactions, and banks can enable straight-through processing (STP) to automate them.

Value-added services such as cash pooling, automating repetitive payments, presentation of bills/invoices for payment, are now available through WBCMS.

While banks do not usually charge for basic facilities such as balance reporting and funds transfers, fees are levied for such value added services, so the use of these services can increase fee income.

By analysing customers’ use of the web-based channel, banks try to understand the preferences of their customers and run more targeted marketing campaigns for cross-selling other products.

Market segmentation is also providing an impetus for investment in WBCMS. Traditional cash management service users were large corporations, which offered very small margins but high business volumes. However, intense competition constantly threatens these revenues.

Through WBCMS, banks extend similar services to small businesses which offer significantly better margins, with very low incremental investments. Since WBCMS provides tools to allow the banks to “bundle” services or reconfigure the bundles, banks are using it to differentiate and target different market segments.

Desire for consolidated reporting

Most banks are organised on lines of business and each business has the flexibility to choose its preferred platform, so IT departments have to contend with multiple hardware platforms. However, customers’ desire for consolidated reporting is supporting the demand for WBCMS, since they require a unified view of all their transactions with the bank. WBCMS provides the capability, and ease of interfacing with other applications that may be deployed in future.

Finally, banks’ drive to add value to their services is a further market force. Customers demonstrate a greater preference for self-service capabilities, since this gives them flexibility and greater convenience.

The ability to handle a variety of operations through a channel which permits “any time” and “anywhere” access without compromising on controls enables a more multi-faceted relationship and increases the interaction customers have with the bank.

Consolidated real-time information reporting, combined with timely rules-based alerts to the customer and internally to the bank employees enables better risk management. A manager on the move is able to view and approve transactions via his mobile phone and have information at his fingertips to help make decisions.

Other factors influencing banks to move to WBCMS are the consolidation of banks, the need for integration between treasury, trade and cash management services and the increase in outsourcing of back office and technology operations.

Technology as an enabler

With technology that enables integration of the front-end security processes, banks are able to allow customers a single sign-on and “unified view” across multiple back-end applications at the bank.

Standards-based technology and open architectures are allowing banks to address the challenges and provide more flexibility, so technology is facilitating a smooth transition to a more efficient processing architecture.

Adoption of technologies such as web services are also enabling corporate users to perform functions through an internal application, which interfaces with the bank in the background and presents data seamlessly to the corporate application.

Innovation is key

WBCMS has been used innovatively by several banks. The following example shows the true potential of a WBCMS system and the value it can deliver.

A large oil company in the Middle East uses the WBCMS offered by its bank to effectively manage its finished goods logistics. A closed user group is defined within the oil company and dealers in the WBCMS. The corporate’s Enterprise Resource Planning (ERP) system pushes invoices into the WBCMS. When a new invoice arrives, an e-mail and an SMS alert is sent to the dealer. The dealer logs into the WBCMS, views and accepts the invoice and performs a payment. When the payment is received, WBCMS pushes the payment details back into the ERP system. The payment triggers the printing of a delivery instruction at the nearest warehouse and the consignment is delivered to the dealer location.

Infosys Technologies has been a pioneer in this domain and Finacle WBCMS has been deployed successfully in several banks across the globe. This modular solution addresses corporate banking requirements of both small and medium-sized enterprises (SMEs) and large corporates, including offering componentised solutions for liquidity management, payments/receivables management, reconciliations and MIS.

Deployment strategies

The strategies that banks adopt vary significantly based on their size and specialisation. While the larger banks offer more sophisticated services, such as multi-currency funds transfers and direct integration with their customers’ ERP systems, the smaller banks look to provide mainly the basics, such as information reporting, book transfers and limited Automated Clearing House (ACH) facilities.

The adoption of WBCMS applications is no longer restricted to large and mid-tier banks. Solutions are available which are modular, customisable and allow a lot of flexibility to the banks. For instance, a bank can deploy a modular solution for basic account information reporting and cash pooling. Therefore even smaller and specialised banks are starting to offer WBCMS, and over a period of time, enhance their offering.

European businesses are already accustomed to interacting with their banks electronically, and there is a wide acceptance of the internet by the business community. This is expected to result in increased investments by banks for providing more corporate specific features through the web, with a view to offering new services and generating more fee-based revenues.

Though the corporate internet banking market has not yet seen much investment in Europe, it is expected that this trend will undergo a major change, as the banks move towards meeting the increasing demand for more value-added corporate banking services from their customers in a cost effective manner.

Businesses are demanding greater integration with their back-end ERP systems, and new technology is enabling this easier and better integration. Banks that can provide an enhanced customer experience over the internet will be the ones that can distinguish themselves.

Apart from the increased customer demand, WBCMS provides a considerable cost saving and revenue generation capability for the bank.

The focus of most banks now is to move more transactions to STP, reducing manual intervention. The technology is available to enable this, however, it is up to the banks to make the best use of the available technology and leverage it to benefit both themselves and their customers.

Lakshmi Balasubramanian is a senior consultant at Finacle, Infosys Technologies Limited. She has over eight years of experience in transaction banking, including trade finance, custodial services and cash management sales and operations with HSBC, ANZ Grindlays Bank and Citibank.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter