There’s a maxim in the investment world that goes something like this: You never know who’s swimming naked until the tide goes out.
Which means: We’re all exposed, sometimes, when the environment changes. The pandemic has spotlighted the inefficiencies among payers, receivers, chief financial officers (CFOs), financial institutions (FIs) and others that had been simply accepted as the cost of doing business in simpler, steadier times.
And then, when everything was upended — and everything went virtual out of necessity — the sentiment echoed across Zoom calls globally: What can, and will — indeed must — change?”
In a panel discussion with Karen Webster, six payments, banking and FinTech executives weighed in on the very nature of change that is transforming treasury banking and corporate clients in real time.
The panel included: Todd Adler, senior vice president, director of treasury management at Commerce Bank; Drew Edwards, CEO of Ingo Money; Tom Halpin, executive vice president at HSBC; Kristen Michaud, managing director, InBlock at LiquidX; Shahrokh Moinian, EMEA head of wholesale payment at J.P. Morgan Chase; and Brad Windbigler, head of treasury and investor relations at Western Union.
You’d be remiss in thinking that, all of a sudden, the great digital shift was simply a reaction to the pandemic.
Indeed, as the panelists noted, the winds of change had already been blowing as COVID-19 alighted on every corner of the globe and forced us all to embrace distributed, remote accounting and treasury services environments, tasked with modernizing data and payment flows.
Setting the Stage
It may be hard to remember now, but FIs were already immersed in various stages of their own digital transformations as they looked at and started to overhaul their own aging batch-based systems that were just too slow and cumbersome to respond to the needs of corporate clients.
The general need for change — the tailwinds moving it all — may be easy enough to pinpoint.
Noted HSBC’s Halpin: There are new pressures on banks’ corporate customers ability to maintain and manage their business — day-to-day operations, yes, but business risk too, all while capitalizing on growth opportunities.
“There’s the need to manage and protect and sustainable growth. That’s a common thread of change. That’s the driver,” he said. “And regardless of your geography, regardless of the size of your customer, your own company or the industry that you’re in, that’s what the driver’s going to be.”
As to just what the changes required to fix the financial services sector may be — well, change is never easy, and within and between treasury banks, never easy to agree upon.
Windbigler of Western Union contended that when it comes to the choices facing payments professionals, what will get them to where they need to be when it comes to serving clients better, “I think you’ll find there will be areas of broad agreement. And as you get deeper, I think you’ll also find areas of where there isn’t broad alignment.”
Commerce Bank’s Adler said that the key to change rests with a focus on process as much as on product.
“If there’s anything that the last nine months have really shown us, it’s who is really set up to be agile, who can really take what was a five-year roadmap for a lot of organizations to say, ‘We’re going to get there,’ whether it’s a bank or whether it’s a corporate,” Adler said. “And, ‘Do we have the resources to do it? Do we even have the mindset to do it?’ Because now it’s absolutely needed versus before it was just desired … the best treasury people talk to our customers about process.”
Technology, he added, is simply a way to support or augment new approaches to process. The new work environment after all is the homestead, where treasurers and other professionals must collect payments and receive them too.
Bringing differentiation (and value) to corporate payments does not have a concrete model to follow or convenient boxes to check, beyond a few must-haves.
The general things everybody wants — transparency, for example, or lower cost structures — are definitely on the map. But in the pandemic, new needs and use cases have arisen. Windbigler noted the increasing use of digital signatures has been critical, with a nod to the fact that he’d only been in the office five times during the pandemic — and that each time was because a document required a “wet” signature.
But digging deeper, he said, and moving toward, say, real-time payments, means re-architecting systems, spanning EP, treasury workstations and process flows. Time and money are needed to modernize infrastructure. Yet there’s no guarantee of returns on those investments, especially in a world where new payments behaviors in the B2B space tend to lag the consumer side (and thus banks see a longer tail in realizing return on investment).
Flexibility Is Key
There are some must-haves, though. Payments need to be nimble.
Increasingly said Halpin, bank clients are expecting a digital journey marked by flexibility, where banks’ corporate services can scale and pivot alongside clients’ changing interactions with their own customers.
Nuance is critical.
By way of example, he pointed to HSBC’s Omni collections offerings in Asia, which smooths the collections process — and offers a greater range of payments choice — across marketplaces and communities where the use of mobile devices to conduct commerce (and make payments) is high.
In those markets, payments volumes have gone up by more than 40 percent, and values have gone up by more than 100 percent on those devices.
“We’ve seen an explosion of API requests in the market right now because it’s a shift from that batch environment to real time,” he said, adding that “there’s no sole, single payment experience that you can think about for a client or a market.”
Moving Toward Modernity
Moinian of J.P. Morgan said there are three key success factors banks must consider when satisfying their corporate clients’ needs.
Clients need to be able to pay and collect anywhere, anytime, in any currency, 24/7 across any network because bank accounts are not the only place money is stored anymore; digital wallets are on the rise, for one thing.
Banks also need to shorten their times to market with product and service innovations, with automated security and anti-money laundering (AML) functions in place that can allow them to compete effectively with FinTechs.
The end user experience is critical, too, he said, and must be seamless
As to that experience, remarked Ingo’s Edwards: “Anytime money has to change hands, the payment is part of the customer experience. And the customer experience is ultimately what drives customer satisfaction and retention.”
He said corporates must strive to delight their end customers (with, for example, speedy insurance claims disbursements) and for treasury bankers, payments have always been part of the product.
“We need to modernize this experience,” he said. “You know, ‘the check’s in the mail’ is no longer the natural part of the experience” — and banks have to change with the times.
Moinian stated that change is indeed being affected at banks by customer demand — “pulling” through innovation, in a way, using tools that the banks already had at the ready, underpinned by huge gains in computing power, machine learning, artificial intelligence and even open banking.
“I think we just had to make sure we respond to that demand versus us trying to convince some of the corporates to say, ‘Digital is actually good, let’s go for it,’” he said. “…We were sort of forced into that because of the lockdowns. COVID accelerated it.”
But banks need to speak the “right language” to corporates and explain why APIs are useful, for example, he said.
The ripple effect has been palpable all the way through to corporate back offices. The companies that are accepting real-time payments, said the panelists, now have to revamp their posting and reconciliation procedures in an environment that is 24/7/365.
That always-on, digital-first reality has opened the door for tech-savvy FinTechs to help treasurers figure out what needs to change, why it needs to change and how to get there.
Perhaps no surprise: The great connector is data, and as Halpin noted, the future is all about data exchange.
“There’s a lack of connected digital data,” said Michaud, adding that “most of the [corporates’] systems have not had the most robust controls around fraud detection. So, they beef up those controls or leverage a partner like a bank to actually offer those controls to then speed up and digitally connect their processes.”
By offering that connectivity, said the panelists, banks can better compete with FinTechs and avoid going the way, as J.P. Morgan head Jamie Dimon said in the not too distant past, of the dinosaurs.
J.P. Morgan’s own Moinian said that banks contending with pressures on profits in the current rate environment must be judicious about tech deployments as, for instance, they weigh new clearing systems or last-mile linkups to get payments to corporates.
“It always makes sense to think about build, buy or partner,” he said. “And I think that discussion has never been so important as it is today.”
The reality is that all stakeholders have a role to play, each has a different focal point, and FinTechs can help banks (and thus their corporate clients) speed their journey to digital innovation. Ingo’s Edwards stated that banks are critical in the financial services ecosystem, by dint of sheer size and the ability to extend credit and perform other functions at scale.
“Banks serve an important role in aggregating capabilities,” said Western Union’s Windbigler, adding, “FinTechs and banks can work together. It’s more than theoretical. It’s real.”
Michaud said FinTechs should be viewed as collaborators — noting that collaborations keep that same experience of the bank, but you’re using a FinTech product to basically deliver that customer experience through their branding, their experience, but on a more contemporary platform.
Halpin of HSBC cautioned that it is critical for FinTechs seeking linkups with banks that “when presenting your proposition, focus first on the problem your proposition solves then focus on your technology because there’s a lot of technologies that can solve the problems that are out there, but what gets all of our attention is what problem are you addressing?”
Michaud said, “every bank under the sun comes and talks about virtual accounts and every bank thinks about them different, and they all behave different. And if you’re a multinational that uses multiple banks, you’re never going to have a one size fits all.”
FinTechs, she said, have an opportunity to get banks where they need to go through partnerships.
In the end, the ecosystem remains intricately and innately connected. Banks and FinTechs, said Edwards, “need each other — and the corporate customers need them both.”