Friday, 14 June 2024

Banks’ online channel features: Bridging towards treasury management systems (TMS)

5 min read

By Kjeld Herreman

As payments are becoming increasingly commoditized and margins are slinking, banks are looking to find novel products to capture additional revenues and to provide intriguing value propositions in order to lock down their corporate customers

As payments are becoming increasingly commoditized and margins are slinking, banks are looking to find novel products to capture additional revenues and to provide intriguing value propositions in order to lock down their corporate customers. These value propositions are often geared to be of exceptional interest to mid-cap corporates. Whereas most Fortune 100 companies already have highly customised and efficient Enterprise Resource Planning (ERP) and Treasury Management Systems (TMS), and retail customers do not necessarily have the complex needs that such solutions address, mid-cap corporates are in that Goldilocks zone that banks can leverage to create deep and lasting relationships by providing unique functionalities in their online channels.

One of the first challenges that a corporate treasurer must address is the centralisation of payment initiation and reporting for multiple banks. This is a functionality that many of the larger cash management banks are starting to integrate in their online banking channels and is enabling corporates with global coverage and multibank requirements. DBS, who prominently showcase this functionality on their IDEAL 3.0 website, understand that it is key for corporate customers to have a single touchpoint and authentication method for all their banking needs. If we look under the hood of this type of functionality, it often relies on the generation and reception of MT101 and MT940/MT942 messages on behalf of the customer, and as such a trilateral agreement between the corporate, the bank at which the account is held, and the bank providing the online banking channel. It stands to reason that the proliferation of open banking will not only make the setup of such constructs easier and (significantly) cheaper but will enable the account balances of external accounts to be even more up to date.

Besides executing payments, one of the important operational tasks of a treasurer is to reconcile payments against invoices. Once a corporate reaches a certain scale, the burden of those reconciliation efforts becomes increasingly large, and they will look for technological solutions, including treasury management systems, to automate that burden as much as possible. This is especially true in markets where difficult-to-reconcile instruments such as cash and cheques are still commonly used over direct debits and wires. Banks are fiercely competing in order to provide best in breed reconciliation solutions, and are turning to fintechs to support them in delivering the customer experience their corporates have come to expect. In July of last year, Citi announced a partnership with a fintech that uses artificial intelligence to facilitate payments reconciliation. The fact that Bank of America had recently introduced an analogous solution called “Intelligent Receivables” was most likely a powerful catalyst. It is only a matter of time before the rest of the global cash management banks follow suit.

After a corporate treasurer has gotten her payments out of the way and has reconciled her receivables, she must establish a forecasted cash position for days to come in order to identify and manage any potential upcoming liquidity issues. For this purpose, BNP Paribas has partnered with the fintech CashForce, in order to allow their treasurers (and CFOs) to obtain insights into their current and future cashflows directly from their corporate banking solution Centric.

One of the most interesting approaches to channel value-added services is taken by Deutsche Bank. With Autobahn, they have created an app market that enables corporates to acquire specialised functionalities to support their workflows, whilst leveraging a single sign-on and user management system. Deutsche was clearly the pioneer in this tactic, having launched the platform in 2012, but it seems clear that as banks and fintechs continue to collaborate, it will be adopted by more and more banks; whether they call it an “app store” or not. Modularity is king, and corporates can expect their financial institutions to provide them with the functionality they need, without cluttering their solutions with functionality that doesn’t add value to them. Corporates can trust their banks to do the necessary due diligence for these fintech solutions, as such lowering the barrier to entry.

It is highly unlikely that online banking solutions will ever reach the sophistication required to address the needs of the largest and most complex institutional clients. However, even today there are banks developing solutions for their SME and midcap customers that will allow them to hold off on investing in a stand-alone treasury management system. Even the simplest and cheapest treasury management systems easily cost  $15.000 to get set up, and the same in annual license fees: banks that are able to delay those investments by providing compelling alternatives will be able to not only generate additional revenues from their corporates but increase stickiness and customer retention.

Kjeld Herreman is the head of transaction banking advisory for Azzana Benelux. 

Keywords: Treasury Management Systems, Fortune 100 Companies, Enterprise Resource Planning, Fintech, Bank Liquidity, Technology, Bank Revenues, Mobile Banking
Institution: Azzana-Consulting, Citibank, Bank Of America, BNP Paribas, Cashforce, Centric, Deutsche Bank, Autobahn
Region: Asia Pacific
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