Banks are finding it more difficult than ever to ignore potential FinTech partnerships that could better serve their corporate customers. When it comes to corporate treasury, business clients demand robust solutions and services from their banks, and FinTech players are stepping in to help.
But the banks themselves also have complex demands for their own treasury departments, which, like other corporations, must be able to manage finances, risk and compliance. As banks look to pair with FinTechs to meet the treasury needs of their corporate customers, they're also looking towards such innovators to integrate some of those same solutions in-house.
According to Marc Beaulande, executive director of Login SA, a Profile company, and operator of treasury management solution AcumenNet, the pressure is on for financial institutions to upgrade their treasury management strategies.
“Compliance with domestic and international standards is considered a must,” Beaulande recently told PYMNTS. “Financial institutions need to proactively respond through flexible solutions to store the required information and to generate all types of reports with specific formatting rules. As the rules become more complex, [and] with no tolerance for noncompliance, FIs are demanding solutions that can automate processes and eliminate human error.”
One of the most crucial areas for banks' treasuries is risk mitigation, which, according to Beaulande, has become more complex as it relates to other areas of treasury management.
“Segregation of duties, multiple levels of approvals and daily reconciliation of all transactions are mandatory to efficiently and safely manage the treasury activities,” he said. “Managing liquidity and credit risk are definitely of main concern to FIs. However, interest rates, FX, commodity and derivatives risk, as well as operational risk, should not be disregarded.”
Beaulande added that advanced analytics technology is now a must-have for banks to adequately manage these risks.
Risk management, he continued, isn't just about responding to threats. It involves ongoing, active monitoring of markets and events, and responding as quickly as possible. With banks moving into new territory, like commodity derivatives and structured products, he said, they have “new risks to monitor.”
The risk of noncompliance is an entirely separate beast, with many regulations increasingly targeting banks' risk management activities.
In a survey released earlier this year by the American Bankers Association (ABA), analysts found that banks are struggling with the regulations that impact their field — and are adjusting their risk management strategies accordingly.
Seventy-nine percent of survey respondents said they are performing enterprise-wide risk assessments in response to stricter regulations, while most also said risk management is also taken into account when performing other tasks like testing, training, compliance audit programs and developing policies and procedures. Sixty percent said that internal regulatory examinations include an assessment of risk management practices.
The ABA also found banks are increasingly turning to third-party providers to help manage risk and maintain compliance. Nearly half of the banks surveyed said they have outsourced compliance obligation at least once, while researchers also noted a significant portion of respondents reporting they use third-party software to handle regulations like the Bank Secrecy Act and foreign sanctions requirements.
According to Beaulande, banks' risk exposure has “significantly increased” in recent years. But, these heightened pressures haven't necessarily meant FIs are engaging in a technological overhaul of their treasuries.
“In many instances, we have experienced that treasury departments are stuck with outdated technology, if no system at all, due to a lack of resources and/or budget,” he said. “Regulation leads the change in IT systems for banks to become compliant and more competitive.”
Beaulande added that banks are usually aware of the shortcomings of these systems, and therefore approach FinTechs and service providers like Login SA to help. It's an interesting dynamic, he noted, considering part of the reason banks need more sophisticated treasury management solutions is because FinTechs themselves are placing new pressures on FIs, leading to “narrowing margins and wide competition” with those players.
One technology Beaulande cited as especially helpful to banks' treasury departments is the API.
“APIs are, nowadays, crucial in facilitating effective and secure communication among different applications,” he said, explaining that banks that address this tool “are focusing on innovation and combine treasury functions together with mobile applications.”
Collaborating with FinTechs can link banks with technologies like these, allowing treasurers at these FIs to focus on more strategic initiatives while enabling banks to more adequately address risks and compliance, according to Beaulande.
“Treasury teams must continually reevaluate their roles in order to balance their priorities and challenges,” he noted. “As markets and regulations are in constant evolution, FIs need to ensure they are using a flexible solution that can adapt at the same pace — efficiently and securely — so that they can continue to monitor their activities and risk without slowing down innovation [and] to keep a competitive edge.”