‘Instant-fication’ is coming – are transaction banks prepared?

Companies of all shapes and sizes have arguably never seen so much fluctuation in their supply chains and working capital than during the past two years, driving a need for access to real-time information. Many corporates have the added complexity of working with multiple banks, as well as accounting, enterprise resource planning (ERP) and treasury management systems (TMS), causing fragmented data flows.

“Within many companies, the flow of information from one end to the other is a broken chain that they are constantly fixing,” said Joost Bergen, founder of Cash Dynamics, a transaction banking training and advisory firm, speaking on a panel entitled ‘Let’s get back to the future: liquidity management’ at Finastra Forum Europe.

“In the scenario of the Covid-19 pandemic, finance directors/chief financial officers relied on their banks for more working capital but they also needed the flow of information into the organisation, particularly the reporting end, to ensure they were in control,” he added.

However, corporates and transaction banks alike need to work on their ‘plumbing’ to absorb data in a way they can manage it, according to Mr Bergen. Banks also need to provide the right data to their customers in an integrated solution, including working capital, payments and foreign exchange (FX). “Companies are moving increasingly to real-time or close to real-time requirements,” he added.

Vanessa Manning, head of transaction banking, Europe, the Middle East and Africa at MUFG, speaking on the same panel, emphasised how quickly transaction banks embedded flexibility and almost real-time change into core processes such as lending and generating liquidity for their clients, as well as credit scoring and reporting. “Banks have been rethinking how those working capital processes, documentation and onboarding can be made more flexible,” she said.

Responding to Mr Bergen’s point, she believes that most transaction banks are focused on the plumbing, as well as moving to real time and ISO 20022 standards. “The next step is re-engineering client journeys with customer engagement. And then data orchestration and harmonisation, to create insights that a customer would be motivated by, for example monitoring, screening and functional insights,” she said.

Many corporates have not registered the importance of the move to ISO 20022, according to Ms Manning. “The beauty of such a language is that it applies to all types of flows, whether cash, trade, FX or security settlements – the richness in the format means you can add any detail. From one message, we will have the ability to find out the invoice, the counterparties, the country, the on-behalf-of status, and be able to host that in a common way across all the banks for compliance, sanctions, to answer queries on who paid for which invoice, and so on,” she said.

Ms Manning also talked about the “instant-fication” trend. “Instant everything is coming but even now transaction banks have to have all the functional support, whether it’s credit, analysis, risk, exposure, fraud and screening, all done with a resilience and a latency that they never had to ensure before.”

While many large corporates have the TMS/ERP infrastructure to make the transition to real time, Mr Bergen believes that there is a wealth of opportunity for banks in helping small and medium-sized enterprises (SMEs) on their journey. He argued that banks need to serve these clients at a level similar to what they would do for their large corporates, and provide technology, such as application programming interfaces, to automate or gain insight into their cash flows much quicker and better than they can do by themselves. “Banks can really help their clients to be much more in control and manage risks, which will also have a de-risking impact on a bank’s balance sheet,” he added.

Banking-as-a-service (BaaS) seems to be the next step, and banks are exploring how to provide this offering to different customer segments, according to Ms Manning. She said: “There are many institutions evaluating a BaaS model within their current setup for retail and commercial customers to see the interplay between the two segments, as well as how the risk and control could be managed. So that’s under consideration and not too far away, either.”

Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight

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