The global cash management industry continues to evolve and competition is becoming increasingly fierce. The role of the corporate treasurers are broadening and new pressures are being placed on banks and driving the adoption of new strategies. Corporate customers are now demanding greater electronification and automation, more consolidated information and tighter integration. They also want more global capabilities and analytical tools to enable the highest levels of cash optimisation. Banks must deliver or they risk losing customers to their more accommodating competitors.
The information in this article is based on detailed surveys of all of the top five Canadian banks, as well as HSBC, the largest foreign bank in the region. The surveys were conducted by Aite Group from September to November 2007.
Preparation for TECP
Canada has one of the most efficient check-clearing operations in the world. It clears checks overnight and therefore has no check float. Despite its check clearing speed, Canada lags behind countries such as the US, Spain, Hong Kong and Singapore in the area of image clearing. This will be changing, however, as a result of the new check image clearing system introduced by the Canadian Payments Association called Truncation and Electronic Check Presentment (TECP). Preparation for TECP is currently one of the most significant trends shaping the Canadian cash management space, and one that is touching every bank in the country. It is a mandatory industry-wide effort to change and modernise the country’s check-clearing system through the use of image technology. Implementation of the new check-clearing process is targeted to begin during the latter part of 2008, and will be phased in for a period of about one year.
Once TECP is in force, financial institutions will still receive deposited paper checks, but the images of the front and back of the check will then be taken, and images will be transmitted via secure networks to the financial institution from which they are drawn. To maximise the quality of images that are captured, paper checks will be required to adhere to image-friendly CPA design standards and specifications. For example, all checks will have to be a designated size, and the date must be written in a designated format.
In addition to greater efficiency and cost savings, there are several benefits that Canadian banks and their customers can expect to enjoy as a result of TECP, including earlier notification of returned/unpaid checks, easier account reconciliation, new automated approaches to preventing fraud, and new products and services. While TECP is still a work in progress for the Canadian banks, several of the largest banks in that region have already implemented some image-based services, such as the ability to trace checks and receive lockbox images. Banks have also given their customers online access to check images, provide check images on CD-ROM, and offer a form of image statement with images of cleared checks. While the banks do not yet offer remote deposit, many are currently in the exploratory stages. In fact, 66% of the banks surveyed plan to offer this service over the next 24 months. This product has proven to be extremely popular in the US and is likely to see similar adoption in Canada. Banks are doing several things to prepare for TECP, including:
- Rolling out end-user (internal and client) systems that enable access to image archives.
- Staff training and education.
- Client communication and education.
- Modifying core cash management products to adapt to and leverage the new image environment.
- Developing new products based on image capability and technology.
- Integrating new fraud detection safeguards that leverage image-based technology.
Some banks have spent the better part of the last two and a half years on technical development in preparation for TECP. From imaged statements to remote capture, a significant amount of resources and time have been dedicated to, not only meeting the industry time lines, but also handling pent-up customer demand around product delivery.
New Tools for Corporate Treasurers
Corporate treasurers have more accountability today, which is causing them to place greater pressure on their banks. The roles of these treasurers are becoming more strategic in nature and require new tools. They are also giving more responsibility to their banks in the areas of compliance and remittance. Banks, as a result, are playing more of a trusted advisor role. New responsibilities are also resulting in a greater need for cash flow forecasting tools, more global capabilities and tighter bank integration with ERP systems.
Cash flow forecasting
Cash flow forecasting is a huge challenge for cash management customers at 50% of the banks surveyed, and one of their least-efficient processes. Most of the banks believe that many of their corporate customers, including the large ones, continue to rely primarily on Excel spreadsheets. This lack of automation not only lends itself to more inefficient manual processes, but also leaves the companies vulnerable to human error.
Interestingly, despite the growing need for better forecasting tools, most of the large banks in Canada do not believe it is their responsibility to offer such tools. They believe most customers would prefer to find their own tools, or use tools incorporated into their treasury workstations. Those planning to offer forecasting capabilities, however, see it as an opportunity to play more of an advisory role to customers, deepen relationships and generate additional fee-based revenues. Several tier one and tier two banks around the globe are planning to offer such capabilities.
Global capabilities
The largest banks in Canada are increasingly finding that the need for global capabilities is moving further and further down market. It is no longer just the largest corporations that are doing business overseas, and needing global banking products as a result. In fact, of the banks surveyed, 67% stated that their middle market customers are ‘very likely’ to ‘definitely likely’ to use global products and international capabilities. Globalisation of client business dealings is driving banks to offer greater cross-border transaction and reporting capabilities.
Tighter integration with ERP systems
83% of large Canadian banks stated that their largest corporate customers want greater straight-through-processing which requires tighter integration between bank systems and customer ERP systems. Tighter integration improves accuracy and efficiency for customers. In addition, customers want information files delivered in a format that can then also easily be sent to other banks. This is becoming increasingly important as business customers maintain multiple banking relationships and start to manage company finances on a more global or regional scale.
The Creation of Web Portals
As the role of the corporate treasurer continues to expand and the financial supply chain becomes more tightly integrated, corporate customers are demanding more tightly integrated product offerings from their banks, in addition to the advanced tools described in the last section. They no longer want to have to log into different systems for different products, and they want a single view of their financial positions that can be accessed through a single login. In essence, customers are increasingly demanding a one-stop shop for all of their needs, including foreign exchange, trade finance and money market, as well as cash management for total liquidity management. Some banks are addressing these demands by building portals to at least create an integrated look and feel on the front end. To date, only one of the large banks surveyed stated that they already have a portal in place. Of those banks surveyed, however, 50% plan to offer a web portal integrating cash management and trade finance over the next 24 months. Most banks currently offer links to other systems, but all of the applications reside on separate platforms and all require separate logins.
Conclusion
The evolving cash management industry is creating several opportunities for Canadian banks to offer new products and services. TECP will not only increase the efficiency of its check processing system, but will also enable banks to better serve their customers. In addition, it will give them the ability to earn additional fee-based revenues through planned product offerings such as remote deposit. A more sophisticated corporate customer base is also creating better opportunities for cross-selling. Despite these opportunities, Canadian banks continue to be challenged by legislation that prevents M&A activities and is resulting in the largest Canadian banks becoming smaller relative to banks in other parts of the world. As this industry grows increasingly global, a failure by some of the major banks to grow their presence in other parts of the world may hinder their competitiveness as global providers.