Cost And Security Concerns Slow Banks Progress To Real Time Corporate Payments

Corporate treasurers want speed — a lot more speed — from their banks, including quicker transaction settlement and access to information, along with faster account opening. Banks? They just want a little more time, according to American Banker.

Bank executives know the demand for real-time corporate banking services is out there. “I don’t think it’s something we’ll be able to avoid forever,” said Bill Pappas, CIO for global wholesale banking at Bank of America, told the magazine at the Sibos conference in Boston.

What’s holding things up? The cost and risk involved in completely overhauling legacy batch-processing systems that work reliably, if slowly. “When you look at the infrastructure needed to go to real-time, it’s significant,” Pappas said, adding that current transaction fees that banks charge corporates are too small to pay for added costs.

That’s the conclusion of the regional Federal Reserve Banks, too. A consultant’s analysis commissioned by the Fed said that new infrastructure for completing financial transactions between U.S. banks in real time would be “profit contribution net neutral to negative” through 2025 — at least a decade in “investment mode.”

And in the U.K., which has already gone through a “faster payments” initiative, the biggest cost was upgrading core banking systems. British banks spent about $1.8 billion on those upgrades, according to Craig Ramsey, a U.K.-based solutions lead at services vendor ACI. What’s impossible to count up is the risk: “Big core upgrades are scary for any bank because they’re the heart of the bank,” Ramsey said. “You can’t change those easily.”

But the effects of the change in the U.K. have gone beyond corporate treasury departments, Ramsey added. People now expect funds such as expense reimbursements to be available immediately, Ramsey said. And as younger employees — who grew up expecting real-time results from technology — move up into treasury positions, aging batch-oriented systems won’t cut it.

In practice, corporate clients already want to see their balances in real time, said Alastair Brown, who until recently was CIO for international banking at Royal Bank of Scotland, and is now head of e-channels for RBS’s global transaction services unit. Real-time settlement will make it possible for corporate treasurers to unlock the value in “the exhaust trail of data they’re collecting,” he said. “I think there’s value to be had to analyzing what you’re doing. Not being real-time will become an issue.”

Still, despite the U.K. experience, for banks the real-time business case isn’t yet solid. And that goes beyond dollars-and-cents issues to some basic cultural resistance at banks.

Case in point: the long process of opening accounts for a new corporate customer. How long? “I was just in a roundtable discussion, and one guy was saying it takes three to six months to onboard a corporate customer. Another said, ‘How did you get it down to six months?'” said Falk Rieker, global industry business unit head for banking at SAP.

Part of the reason: While corporates want standardized processes and formats, many banks also use manual processes and proprietary software that make it harder for corporates to switch banks. Locking them in is a short-term benefit, but it’s unsustainable.

In the end, customer dollars may win out over that cultural resistance. Speeding up onboarding was a driver behind a four-year project to streamline Bank of America’s corporate treasury technology. “For us it’s revenue,” B of A’s Bill Pappas. “We need to bring them in as fast as we can.”