Not too long ago, HSBC launched an advertising campaign that consisted of a series of images designed to demonstrate different points of view. For example, one pair of images includes a hot red chilli and a very high stiletto shoe. In the first presentation the chilli is labelled as ‘pain’ and the stiletto as ‘pleasure’ in the second it is reversed with the shilli as ‘pleasure’ and the stiletto as ‘pain’. The message is simple – depending on your point of view, the same thing can be seen from completely opposite perspectives.
Today, this is true of the evolution of multi-banking platforms as an alternative to traditional bank-centric e-banking and web trade portal solutions. To the bank this has been seen as pain, but to the corporate customer as absolute pleasure.
But as momentum around multi-banking solutions accelerates, this is quickly becoming an outdated perspective. Increasingly banks are realising that proactively offering a multi-bank channel in addition to their proprietary channel delivers an opportunity for the bank to find pleasure as well.
For many years, banks have been protecting a bank-centric technology strategy. This has partly been due to their efficiency objectives, but mainly it is to do with looking at the issue from one particular perspective – the view of the world from a bank-centric perspective. The principal reasons for the banks’ strategy around proprietary bank solutions can be summarised as:
- Reducing the cost of transaction processing.
- Providing a common technology base for all of its customers.
- Providing the opportunity to up-sell and cross-sell other bank services.
- To use technology as a competitive differentiator.
- To deliberately lock-in customers to the bank’s proprietary platform.
While this makes sense for the bank, it makes little sense for the banks’ customer if it is pursued as the only solution strategy/channel to/from the bank to its corporate customers.
From the corporate perspective (apart from those who only deal with a single bank) current proprietary bank solutions (function rich as they may be) represent increasing levels of pain as the corporate is required to adapt business process and technology for each bank, with proprietary platforms, formats, processes, individual passwords, security certificates, workflows and multiplicity of document formats (telex, fax, post, email attachment, word doc, pdf, scanned image, xml, EDI, etc.). In addition to this being expensive and time consuming and requiring significant administration and operational overhead, this becomes a barrier to consolidation by the corporate and a barrier to any level of automation into the corporate’s finance, treasury and supply chain systems.
This has become particularly evident with the promise of full end-to-end multi-bank automation of the letter of credit (LC) and guarantees that eliminate most of the perceived and actual costs, inefficiencies and delays associated with these instruments while preserving the desired risk mitigation benefits. Today, a growing number of corporates who depend on the LC, standby LCs and/or guarantees (either on the import or export side of the business) are pursuing such initiatives in search of cost and time reductions and increased consolidation, visibility and predictability.
Today, most banks acknowledge their customer’s needs (and increasingly very vocal demands) for open multi-banking services in trade finance. They also acknowledge that this is an inevitable future requirement that banks involved in trade, trade finance and financial supply chain services will need to both embrace and fully support. From a bank’s perspective, however, this is still viewed as a source of pain.
Unfortunately, perceiving this paradigm shift as a potential re-balance of power in favour of the corporate and one that is contrary to the needs and objectives of the bank, can drive behaviour that is not in the best interests of either bank or corporate customer. Typically, behaviour falls into one of three categories:
- Banks who acknowledge the need but who will delay provision of a multi-banking solution until absolutely forced through customer or competitive pressure.
- Banks who acknowledge the need but will wait for a key client to drive initial adoption of such a service.
- Banks who acknowledge the need and wish to take the opportunity to position multi-banking proactively as an additional service and channels to their corporate customers.
As banks move through the categories from resistance to proactive provision of a multi-bank service, there is often little or no thought on how to implement a strategy to support this shift allowing the bank to be driven by individual corporate customer strategy and technology platforms. Paradoxically, this flies directly against the very efficiency objectives pursued for so long by the bank and creates an environment where the issues experienced by the corporate trying to deal with multiple banks is simply transferred to a bank dealing with multiple ‘proprietary’ corporates.
Resistance to change will almost guarantee the same issue, as this leaves the bank exposed to reactive solutions in support of their most powerful corporate customers who ultimately force a solution on the bank without any due consideration for the bank’s own multi-bank strategy.
As multi-bank solutions begin to appear and as corporates (and banks) pursue multi-bank strategies, there is growing realisation of the substantial gap in understanding of how these solutions need to be delivered to address the end-to-end needs of both corporate and bank partners. Many early multi-bank solutions have simply not gone live or have ended as proprietary corporate solutions that force a bank to accommodate multiple interfaces and be exposed to substantial levels of manual effort and processing inefficiency.
Perversely, banks are often party to blame for this outcome. By not having a multi-bank strategy for themselves or by assuming the multi-bank solution will be able to ‘easily integrate’ with the bank process and systems, the bank leaves itself exposed. In addition, the corporate leaves itself exposed to a failed initiative and/or increased upfront and on-going costs and risks.
Like any B2B, e-commerce or community solution, the scope includes multiple parties – in this case the corporate and its banks. A workable multi-bank solution needs to meet the requirements (in terms of solution scope, technology, security and compliance) for both the corporate and the bank. This means that the solutions needs to consist of two fundamental components:
- The corporate multi-bank application (management system).
- The carrier/communication/channel infrastructure linking the corporates multi-bank application to its partner banks.
Most multi-bank initiatives have only delivered the first of these, leaving the corporate with nice looking functionality but no cost acceptable way of connecting this to the banks. This, in turn, can lead to one of the following outcomes:
- The project does not go live.
- The corporate has to manually upload or download, re-key data, or cut and paste from other formats.
- The bank has to duplicate data entry and process, manually update the system and maintain paper back-up.
- Commitment to up-front and ongoing cost of proprietary peer-to-peer integration effort, which requires both corporate and bank to be linked to each other’s systems and processes.
Often not challenged at all are key issues for the bank that includes data ownership, liability, security, non-repudiation, guaranteed delivery, auditability and compliance.
Now, a number of leading banks at the forefront of this multi-bank paradigm shift have realised how to most effectively avoid this potential and actual pain and start to deliver pleasure for both corporate and bank. This can be achieved through:
- Proactively providing a formal multi-bank solution to its corporate customer.
- Not to see this as a replacement for the substantial investment in the bank’s own platform but rather as an additional multi-bank channel which compliments the existing channel.
- Selecting a full multi-bank solution that incorporates both application and carrier/communication capability based on a neutral hosted service.
Of these three, the last is substantially important in reversing pain to pleasure. A neutral multi-bank carrier channel will ‘loosely couple’ the corporate and its banks. This means that both parties are isolated from each other’s technical environment and back offices processes, communicating over a neutral secure messaging platform. This in turn allows the bank to establish a one-time multi-bank gateway from their back office environment into this new multi-bank channel, which is independent of the technology and specific requirements of each corporate customer who needs multi-bank services. Similarly for the corporate, the use of this multi-bank channel allows the corporate to have a single gateway into its back-office and treasury solutions, providing consolidation and automation without any need to be aware of each bank’s technology or solutions.
A number of banks are now launching such multi-bank initiatives based on the same robust multi-bank platform driven by a similar decision by a growing number of global corporates to standardise on an industry neutral solution. This now promises the emergence of a broader industry infrastructure in support of full automation of the letter of credit, standby letters of credit and guarantees. Such banks are realising the broader benefits of actively supporting their most important corporate clients in the realisation of a multi-banked solution and at the same time protecting their own need for automation and transaction processing efficiencies by offering a single multi-bank messaging channel.
If corporates and banks embrace this true multi-bank perspective, both parties will benefit and be able to preserve and deliver to their own individual technology and processing efficiency objectives without the need to compromise for each and every bank or corporate partner. As the adoption of this multi-bank infrastructure grows this also provides the opportunity for further automation (automated document compliance checking for example) and inclusion of extended parties in the supply chain as well as becoming the basis for the provision by the banks of other value-added trade finance and financial supply chain services. This finally delivers a solution where the perspectives of both bank and corporate are no longer reversed but aligned around a formal, industry infrastructure multi-bank carrier platform delivering benefit to all parties.