Despite its rising popularity, open banking and data sharing frameworks were not necessarily opportunities toward which banks initially jumped.
Their hesitation is understandable, considering many open banking initiatives aim to unlock data once held exclusively by traditional financial institutions (FIs) in favor of sharing that information with FinTechs — many of which offer products in direct competition with those banks.
Gradually, however, traditional FIs are increasingly acknowledging the value in open banking. One of the largest value propositions today is the ability for banks to promote customer satisfaction by connecting their clients — and their clients’ data — to FinTech solutions that are either partners of the bank, or providers of services the bank finds too resource-heavy to build in-house.
Michael Cichy, general manager of the Americas at Palette Software, said FIs continue to face barriers when developing products and services that can compete with agile FinTechs.
“This is a classic build-versus-buy decision,” he told PYMNTS. “Time to market and cost are the primary challenges banks will face” in developing their own products.
This is particularly true in the corporate banking sphere, where FinTech innovation is accelerating, and banks are facing greater pressure to introduce products and services beyond the basics. But according to Cichy, when banks invest in these value-added services for their corporate clients, they also find a new opportunity in opening up data.
Value-Add for Corporates
Palette recently announced the launch of a white-labeled purchase-to-pay platform, SecureCloud P2P, for FIs to offer their own business customers. As Cichy explained, P2P is a particular hotbed of FinTech innovation today, making it even more difficult for banks to invest in developing their own solution — and launch them to market in time to remain competitive and relevant.
“To be competitive in the P2P space today, especially at the mid- to high-end of the market, the investment would be millions of dollars and a number of years of development,” he said. “By the time the solution was commercially available, it may not be competitive or cost effective.”
Another major hurdle unique to the purchase-to-pay space is the process’s deep touch points with an array of other back-office functions within the enterprise, including vendor management, product sourcing, accounts payable, accounting, inventory management, contract management, manufacturing and distribution, and more.
When it comes to helping corporates manage their supply chains, traditional banks tend to focus on the financing aspect via trade finance, factoring or other such products. Offering solutions that promote workflow automation from sourcing through to payment, reconciliation and accounting is not usually part of an FI’s product roadmap.
“P2P transactional processing is not part of a bank’s DNA,” said Cichy.
Unlocking Data to Unlock Value
While it may not be cost effective for banks to invest in developing a proprietary P2P solution for corporate customers, Cichy said there is immense opportunity for FIs to invest in a third-party tool with benefits that go beyond boosting customer satisfaction.
Just as open banking and data integrations promote the ability for FinTech solutions to explore new ways to use financial data, banks can unlock the data from their purchase-to-pay offering to enhance existing services and develop new ones.
Banks’ factoring and trade finance offering, for example, can improve origination and underwriting processes by analyzing clients’ P2P data. Cichy also pointed to additional bank solutions, like lockbox operation, payment processing and commercial card offerings, into which Palette’s P2P solution is linked, promoting cohesion in banks’ corporate offerings.
Historically, opportunities to wield this kind of data have been limited for traditional FIs.
“Banks do not use their clients’ business data to mine information in the traditional sense,” Cichy explained, pointing to the high degree of sensitivity and security of that information that makes unauthorized access to data within a P2P solution next to impossible.
But, he noted, when FIs are the ones offering that P2P solution, “banks can use their clients’ spend data to help them make more informed cash management decisions, which benefit financial health of the organization.”
As a process that touches so many other areas of the enterprise, purchase-to-pay can be an ideal way for FIs to not only improve their offering for corporates, but to find further benefits to unlocking data between clients’ back-office systems.
“Banks are rocks,” said Cichy. “Who could be more trusted with securing data and ensuring the process integrity of strategic purchasing and payments? Banks have the opportunity to take what would be a multi-vendor project implementation, and deliver the entire process from purchase to pay in a very secure, and fully compliant solution.”