Incumbents need to evolve to meet increased demand from corporates
A recent transaction banking study, ‘2017 Transaction Banking Survey: Challenges & Imperatives of Real-Time Payments & Liquidity’, revealed that 80% of corporate treasurers operating in countries without real-time payments infrastructures are thinking about changing banks to one that is able to offer superior servicing and products.
The survey explored attitudes around advances and initiatives that are changing the transaction banking landscape – including digital, open banking, and AI – but the area that fell under particular scrutiny was real-time payments, with respondents stating that this was their most valued service enhancement. For many corporate treasurers, being able to move money quickly is crucial, as it minimises risk, improves liquidity management, and helps to minimise issues with cash flow.
Corporates are starting to ask for more from their banks as innovation continues to drive the industry forwards. Overall, banks are listening, but are slow to act.
There are many niche areas within the payment ecosystem that could benefit from optimisation. Managing FX payments and keeping the cost of international payments down continues to be a burden for corporate treasurers, with 43% stating that increasing FX risk was their biggest challenge. However, by gaining access to a real-time FX trading platform via a specialist FX payments company or broker, corporate treasurers are able to trade foreign exchange more efficiently, as well as make international payments at a significantly lower cost.
Another concern for corporates was the challenges that come with managing multiple bank accounts and relationships. Access to virtual IBAN accounts can make reconciliation more streamlined, and the majority of banks surveyed seem to have taken note of this, with 53% planning to offer virtual accounts within the next 12-15 months, increasing to 57% among banks based in countries with real-time payments.
While the survey does demonstrate that for the most part banks are listening to the priorities of corporates, it also indicates that they are slow to change, restricted by legacy banking platforms. In addition, many banks appear to turn inwards to address the challenges they face, overlooking the emergence of financial utilities that could allow them to ‘plug in’ to improved cross border and FX services instantly, saving them from having to overhaul existing infrastructure, which is incredibly expensive, complex, and resource intensive.
The financial utility model provides banks with an opportunity to optimise cross border payment services by maintaining the infrastructure, meaning banks can focus on delivering their core business services. With margins on international payments already squeezed due to new market entrants and increased pressure from regulators, banks are beginning to pull out of foreign territories, leaving regional banks without corresponding banking partners. The financial utility solves this problem by acting as the rails that connect correspondent banking partners, enabling them to offer their banking services to international corporate clients without having to physically operate in the region.
Banks need to evolve to be able to keep up with demand from corporate treasurers. We predict that the banks that will be most successful are those willing to move from the traditional ‘do-it-all’ to a ‘do-only-what-you-can-do-well’ approach.