In corporate banking, the unified, holistic view — of where payments are going, what’s coming in and what it means for cash accounts — is key for modern financial services to be, well, modern.
In a podcast interview with Karen Webster, Harpreet Grewal, chief operating officer of Volante Technologies, said that several friction points still exist in corporate banking, but they are issues that can be solved through the joint efforts of traditional financial institutions (FIs), FinTechs and cloud technologies.
Grewal noted that his own experience in earlier stints with large corporates like PepsiCo — the kind FIs have (and want to have) as customers — showed a number of inefficiencies in day-to-day banking activities.
Chief among those pain points: “Not having unified views of our banking relationships with end [corporate] customers,” he told Webster, adding that “you’d go to a customer of ours — it could be someone like Subway — and you'd want to get a unified view of what their spend is, particularly what Pepsi was spending on them. And it was very difficult to get that.”
Other corporate roles along his career path showed Grewal that friction existed (and still exists), where transacting over the internet — with high volumes — has been anything but intuitive and easy.
Now, he said, “We all transact over the internet. But if you don’t give individuals enough choices, if customers do not have the payment choices they want on hand, our transaction rates go down pretty substantially.”
In an age where data is among the most valuable assets for firms to leverage as they seek to improve conversions and payments, Grewal said, “I’d remember making presentations where we’d say, ‘we understand 60 percent of the volume, and this is what the data tell us’ — but we'd hope the 40 percent is not contradicting the 60 percent. We'd make decisions, but there was a black hole in terms of understanding the business.”
No easy fixes were available, either, said Grewal. Deep integration projects in pursuit of those “unified views” required technical heavy lifting and took away from resources that could have been steered to the core business.
“It’s a painful process to go through, and it leads to incomplete decisions," he told Webster. "Where it really gets compounded is, for many corporates, much of the business is based on understanding consumer patterns — and predicting them.”
After all, for a snack food company or packaged consumer goods firm looking to bring two million people to its website — and transact with 5 percent of them — predictive analytics and machine learning quickly become critical.
Filling those corporates’ needs offers a significant opportunity for FIs that recognize those pain points and are able (and willing) to work with a range of alternative providers such as FinTechs, to help make the payments experience better for their corporate clients. Platforms and advanced technologies are becoming increasingly available to challenger banks, Grewal noted. Those firms, in turn, do not have to build large systems, which would cost tens of millions of dollars.
“The second piece that’s happening is the larger financial institutions are starting to understand that corporations are looking for something different,” said Grewal. “As a result, the FIs are looking at their legacy technology systems, and are rethinking them.”
A recent example of this logic is Goldman Sachs, which boasts a new digital transaction banking platform built entirely from scratch in the cloud, accomplished in part by leveraging existing technology from firms including Volante Technologies.
Even as the incumbent FIs are reexamining their tech stacks, said Grewal, FinTechs are emerging with innovative architecture that is cloud-native, which is critically important for FIs that want to offer new services or manage data more effectively — without huge tech overhauls.
The development of this technology is where FinTechs shine. According to McKinsey, FinTechs generally spend about twice as much as banks on innovation — 70 percent versus 35 percent — mainly because banks are spending over 65 percent of their budgets on compliance and maintenance of existing systems, which is something most FinTechs don’t have to worry about. Banks and FIs can use this disproportionate R&D spending to their advantage by leveraging FinTech technology to rapidly upgrade their own existing payment systems.
Before, said Grewal, “a lot of FinTechs forced banks to kind of consider a rip and replace of their technology." That’s changing with the emergence of more flexible technology solutions, he noted. FIs are beginning to understand that the clearest path toward modernizing their payments technology means collaborating — not competing — with FinTechs.
The Appetite For Change
The move toward embracing the advanced, nimble technologies that FinTechs offer has been given a tailwind, too, by the next generation of FI leaders who are no longer responsible for, in Grewal’s words, “only keeping the lights on, the compliance up to date and the systems running. Their compensation and bonus plans are linked to driving revenue and creating new revenue streams.”
The changes that are embraced include a shift to real-time payments, which are transforming the payroll function itself and how employers relate with staff. The idea that money can be transferred from companies to individuals in mere seconds stands in stark contrast to the tens of thousands of people at a firm who, traditionally, have been paid in batch processes and who have to wait days for funds to hit their accounts.
Now, with real-time transactions, the firm that may have overlooked a bonus payment or initial salary increase can make adjustments and changes within an hour of payroll going out. The company also benefits from being able to keep money in its account — earning interest — just a little bit longer.
“As they earn the interest, perhaps the company will return some of those savings and benefits to the employees," said Grewal.
In another example, in the U.K., individuals who use their Oyster cards to store money and buy tickets for the London Underground transport system can ask for refunds — not by visiting kiosks, but by going to a web portal. Account-holders can direct that funds be sent to banks as far-flung as in the States or, say, Dubai. Such flexibility offers a new revenue stream for the FIs, noted Grewal.
Call it a more efficient way of managing cash — right up until the very moment that cash is needed.
Real-time payments and the unified banking view, Grewal told Webster, “can create huge disruption in the marketplace, both in terms of what these FIs have to do and opportunities that can also be gained if they do it well.”
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