B2T: Banks Thinking Outside the Box

With most bank products becoming basic commodities for any corporation, the quality of payments, loans or foreign exchange services is rarely the key motivation for customers to maintain loyalty with their banking partner. The battle for lock-in and market share calls for a broader range of services that benefit the corporate customer in advanced ways while providing either direct or strategic business value to the bank. Such service innovation can be categorised into two main areas:

1. Building more value into the current offering – Banks can invest in traditional services by developing their intelligence and thus adding customer value, as well as justifying higher margins or fees.
2. Finding new ways to serve the customer – By thinking outside the box, banks can approach the issue from the customer’s perspective and identify corporate treasury challenges that they can help to solve.

Focusing on the second point above, I would like to discuss some treasury challenges that some banks have already identified in this category.

The Business-to-Treasury Challenge

Business-to-treasury (B2T) refers to the processes and transmission of data between business units and treasury where treasury provides tools and guidelines for business units to:

• Manage their treasury related risks according to corporate policy.
• Report about cash forecasts and exposures in a timely and accurate manner.
• Execute internal treasury transactions effectively.

At over 80% of all major corporates, the reporting function between operating units and treasury, such as cash flow and exposure forecasting, is handled using spreadsheets. Similarly, internal transactions such as currency hedges, guarantees and loans are performed using the phone or e-mail. These methods do not comply with the current regulatory climate or management requirements around timeliness, reliability and auditing of such information. As a result, most corporates will have to implement an auditable and transparent B2T process in the near future.

The common absence of a system to support B2T processes is mostly due to the fact that traditional treasury applications (i.e. treasury management system) do not yield to the demands of B2T process management. As a result, corporations have been forced to find alternative, often Excel-based tools for this purpose and the problem with these solutions is that they tend to be based on the needs of treasury alone. Spreadsheets and TMS web interfaces don’t meet the needs of treasury but offer subsidiaries a complicated interface for handling simple tasks.

Dealing with Cash Flow Forecasting

Even though many corporations have identified their banks as potential providers of a cash flow forecasting solutions, surprisingly few banks have accepted this area as having the potential for business growth and customer commitment.

A recent article on gtnews, #gtnArticle(7180)#, noted that cash flow forecasting is an enormous challenge for corporations who are seeking solutions from their banks that integrate well with ERP systems and provide support for managing global businesses. As surprising as it may sound, the same article says that while they understand the increasing pressure on global liquidity management, most of the large banks in Canada do not believe it is their responsibility to offer such tools. Based on the survey Exidio conducted together with gtnews in November 2006, #gtnFeature(166)#, we found that:

• 94% of corporations are not able to create fully automated real-time/on-demand reports about cash held and forecasted.
• 91% of corporations have manual or partially automated systems to report and communicate between headquarters and subsidiaries.
• 88% of corporations are not satisfied with their current cash forecasting.

Why would a bank not find these problems worth solving? I wonder how banks can acquire new clients or lock in existing clients while ignoring one of the most pressing needs of their customers. High quality cash flow forecasting is a key factor of efficient liquidity and risk management. With little or poor visibility into the near future liquidity requirements at the business frontline, the noble intention to achieve productiveness through excellent treasury instruments tends to lose its edge.

Why Choose a B2T Solution from a Bank?

The role of corporate treasury has traditionally been that of business support. When making investment decisions, business-related development is typically regarded as having a better return and is thus given a higher priority leading to low allocation of funds for treasury-related systems development. This being the case, in most corporations, treasury has typically accrued very little experience of systems projects and certainly has no human resources available to allocate to such an occasional project.

The reputation and reliability of the solution vendor, and the same for the solution itself, are among the top criteria for treasury when selecting tools for their core processes. Treasury never plans for a short or intermediate timeline – it seeks a long-term partnership with as little management overhead as possible. The software industry is fiercely competitive and is going through a significant phase of consolidation, which in some cases results in the discontinuation of a solution’s maintenance. Corporate buyers are thus more suspicious about the continuity of the planned partnership, as any changes affect the corporation globally. Also, most large corporations have issued a strict vendor policy that rules out many software vendors due to their small size or financial instability, and enforces the principle of minimising the number of different vendors used.

Against this backdrop, banks are in a favourable position. As an existing partner, the bank is already an accepted vendor and enjoys a high level of trust in relation to the corporate customer’s financial and treasury processes. Most of the concerns that arise from vendor selection have already been solved, and the barriers to buying additional services from banks are minimal. This means the bank can focus on providing the best added value for its key customers.

The Value of B2T to Banks

While not many banks can argue against the benefits of providing B2T solutions to their customers, they do commonly argue that it is out of their business scope. The reasons for that may sound sensible but nevertheless I would like to offer alternative viewpoints:

Banks do not want to become software vendors – this requires investment in processes and capabilities that are not typically part of the bank’s toolbox

First, banks rely on technology and software in all services that they deliver today – only occasional tasks are performed manually. Second, just like most traditional banking solutions, a B2T solution can be provided as a web service without delivering actual software to the client. In fact, the bank is not even required to physically host the software – that can be left to the vendor. Offering a service that relies on software hosted by another party on your behalf does not make you a software provider.

Banks do not have the capability to sell services that support corporate treasury or the required knowledge

Building the capability to sell services that bring value to corporate internal processes can be a challenge for banks. Without undermining the indisputable benefits of really understanding your customer’s internal processes, such knowledge is not necessarily required from the start. The vendor who is responsible for the solution technically will have the expertise required to support and train the bank’s sales team in qualifying customers and presenting the service to them.

Banks do not see business value in providing services outside of the tight definition of a treasury-bank interface

Looking at it as an isolated issue, providing tools for enhanced business-to-treasury communication and improved forecasting capabilities can seem separate from the traditional banking products. However, the bank can gain benefits in a number of ways:

• Solving a critical corporate challenge in a cost-efficient way without major investment leads to increased customer satisfaction. While some companies are solving the B2T challenge through a systems project with their TMS or ERP vendor, many want to avoid intensive system projects and are seeking more cost-effective and time efficient solutions.
• The improved internal visibility into the corporation’s business frontline enables optimised liquidity and risk management, leading to an increased volume in various treasury instruments.
• Compared to normal banking tools used by a few individuals in the treasury department, a B2T solution’s users are numerous and are located globally throughout the organisation at best. A broad deployment means a broad connection with the customer relationship.
• Optional integrated solutions for straight-through-processing (STP) enable real-time transactions based on constantly updated business data, thus increasing the volume of the bank’s e-business.
• A bank that helps the corporation solve critical B2T challenges positions itself as a trusted partner. This in turn offers further add-on selling opportunities.

Conclusion

The traditional corporate-to-bank interface is becoming more and more commoditised and the competition for clients calls for innovative solutions. A smart player in this environment understands the broader scope of their target customer’s problems and looks for existing solutions to quickly solve those problems. Corporations are now turning to their banks for such solutions and will soon find one that is committed to developing services for their actual needs – will it be you?

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