For banks, cash management offers both opportunity and challenge. As part of transaction banking, which involves money movement, cash management is a critical component of any company’s day-to-day operations and solvency, tied in part to receivables and payables management.
Small wonder, then, that banks would do well to examine their treasury services overall, in terms of what’s on offer, and what could be on offer. A reimagining of product strategy takes on renewed urgency in an age when clients are increasingly going global, funds are flowing across borders and banks’ traditional operating model is under siege by FinTech upstarts.
In an interview with PYMNTS, Troy Hagey, strategy principal with KPMG in the U.S., said that transaction banking is undergoing structural changes.
“There are all the FinTechs picking away at different pieces of the value chain," he noted – which, in turn, is forcing banks to look toward customized and customizable region-specific requirements.
The Way It’s Done Now, and the Way It’s Changing
Traditionally, Hagey told PYMNTS, cash management has been done “very much on a country-by-country basis” amid a “siloed approach.” It’s been a mentality, he said, that has resulted in clients saying "send me something for China, send me something for Singapore" and so on, as they entered new markets.
That mentality has been entrenched even as transaction banking revenues have grown to be worth as much as $1.4 trillion in 2018, and cash management revenues at leading banks have grown at a high single-digit growth rate.
But the emergence of open banking, with the use of APIs that let third-party developers build new apps and services, is starting to encroach on that aforementioned piecemeal mentality. With tech streamlining the process of bringing new technologies to end users, said Hagey, “the inherent result is that you are easing the ways of doing business and taking down borders – especially as it relates to cross-border transactions."
It’s not a perfect process, as there really is no standardization yet in place for APIs. But, Hagey said, banks must include APIs as part of their general strategy when it comes to eliminating some of the frictions that exist in onboarding and manual processing activities. That’s especially true for banks that want to broaden reach and scale.
Ah, but so much depends on the technology that is in place with banks, said Hagey – and where offerings spanning, say, machine learning or AI have yet to appear, but are gaining visibility and traction. Much of the tech investment to date has come on top of legacy systems that are decades old and have focused on modernizing the “front end” of offerings, especially in mobile.
Circling back to onboarding, Hagey said this area is seeing a lot of attention and activity when it comes to new initiatives. There already exists a wealth of corporate client information within the bank itself, so low-hanging fruit exists in terms of cutting down on time-consuming and paper-based processes and switching toward automated offerings, such as the ability to pre-populate forms. AI, especially, has the lure of being able to look within long email strings, for example, and help banks pinpoint and respond to clients’ needs in a proactive and informed manner.
The Treasurer’s Role
As the economy has gone global, and as corporate banking customers' business, in effect, “follows the sun,” as Hagey noted, those customers expect to have on-demand access to their data, and to services like AR/AP reconciliation. Gone are the days “of batch-based [transactions], and bankers’ hours” – and now, he said, the shift has been toward a consumer mentality.
“It’s really tech-enabling cash management in a different way,” said Hagey.
Banks sit in the middle of the movement of money and data for all types of clients. All too often, he said, data gets dropped or doesn’t get passed through to the corporate client/treasurer, and so the chance to address inefficiencies, especially in the A/R process, is lost.
Advanced analytics and new tools can help inform better end-customer decision making on everything from cash forecasting to risk management.
Collaboration and Competition
The reimaging of the banking product ecosystem comes with the emergence of FinTech as competitor – perhaps spurring a bank’s focus on enhancing the customer experience, and also as collaborator. Banks may have approached transaction banking with the mindset of tackling specific problems, but what Hagey said is taking place now is “the rebundling of banks.”
By leveraging the tech of these nimbler, smaller firms – and moving beyond “waterfall” product integrations with perhaps one or two annual iterations – a “dev ops” mentality means a platform and continuum of services can be in the offing.
The question banks should be asking themselves, said Hagey, is “how can they take a different lens to the data and say ‘I have all this information – how can I apply it using the tools available today, such as machine learning and AI, to bring a different experience to my customers?’”