Definitely, maybe: bank-agnostic technology for corporates threatens proprietary services
Banks’ proprietary cash management portals are under pressure, as corporates migrate to bank co-operative networks, such as Swift, attracted to the allure of multiple service providers and hedging counterparty risk.
At the end of October, Swift announced that the number of corporations connecting to its network had exceeded 1,000. Today the figure stands at 1,035 companies, 72% of which are based in EMEA – although, according to Swift, Asia-Pacific is the fastest growing region in terms of traffic, with recent corporate adopters including Samsung SDI and Toshiba.
There is still some way to go if the bank co-operative is to reach its goal of 5,000 corporate users by 2015, but the number of companies choosing to adopt Swift is steadily growing.
However, what does this mean for the proprietary cash management portals developed by banks for their corporate customers?
Why connect to Swift?
Connecting to Swift is usually regarded as an expensive option for companies, although recent initiatives, such as Alliance Lite and its successor Lite2, aim to bring cloud-based Swift connectivity to a wider range of corporations.
Other options for companies wishing to connect to Swift include connecting via a service bureau and setting up a direct connection in-house.
What’s the attraction of Swift for corporate treasurers? For some, the prospect of connecting to multiple banks using a single channel and format offers greater efficiencies and is more cost-effective than connecting via several different proprietary connections.
For others, the ability to change bank relationships quickly and easily is a selling point at a time when counterparty risk is a widespread concern.
|David Watson, GTB client access, product management at Deutsche Bank
“Corporates want a single standard they can employ with all their banking partners and have little time for bank-specific implementations,” says David Watson, GTB client access, product management at Deutsche Bank. “The dominance of proprietary electronic services is waning as the industry looks to develop more bank-agnostic services that will enable corporates to exchange information with multiple banks using common channels and standard formats.”
Watson says Deutsche Bank offers integration support for corporate clients and is working with enterprise resource planning vendors, such as SAP, to create plug-and-play bank connectivity from corporates’ internal systems, reducing the implementation lead times and cost associated with integrating disparate systems.
According to Tom Durkin, global head of integrated channel solutions at Bank of America Merrill Lynch, almost 200 of the bank’s corporate clients connect to Swift.
Durkin acknowledges that Swift connection models such as Alliance Lite2 compete with banks’ proprietary cash management portals, but he argues that customer adoption of Swift is at a level that makes it impossible to ignore – and that the bank has an important role to play in advising clients about the best route to take in connecting to Swift.
Bank agnostic versus proprietary
While companies are demanding bank agnostic connectivity such as Swift, banks are continuing to invest heavily in developing their cash management portals that bring together multiple functionalities for corporate clients. Is the banks’ continuing focus on the one-stop-shop for cash management services simply out of step with the needs of their corporate clients?
“What I find disappointing is that this whole single bank, single portal strategy goes against the trend among corporates towards easy integration with multiple banks,” says Bas Rebel, senior director, Treasury advisory at PwC.
However, although Swift might look more appealing to larger numbers of companies than in the past, the number taking the plunge and adopting Swift is still relatively small – and bank representatives argue that proprietary systems still have an important role to play.
“The industry in which we operate has shown that while innovation and creativity has started to occur in the bank-agnostic space, it has not done so at the expense of proprietary channels,” says Watson.
Durkin says that while large corporates are looking for bank-agnostic technology, mid-market companies – those with a turnover of between $500 million and $2 billion – tend to use a bank portal as their primary channel.
“These companies are expanding overseas and their first foray into global business is typically through a proprietary portal,” he says.
It is unlikely that bank proprietary portals will disappear altogether, but it is widely expected that more companies will decide to make the move to Swift in the coming years. This trend could be expedited by last year’s launch of Lite2. Bank-agnostic technology is here to stay, and to support their corporate clients, banks will need to play an active role in helping to deliver that.