Survey Reveals Increased Demand for Bank Connectivity
Bank communication has always been a major obstacle to developing multi-bank cash management and treasury solutions. Traditionally this is solved by developing connectivity modules in distinct solutions that try to optimise the specific aspect of bank communication.
Although bank communication isn’t a new problem, the timing is right to introduce bank communication as a service. With the rapid acceptation in the market of software as a service (SaaS) solutions in the treasury space, centralisation of bank communication becomes a hard requirement.
The internet has certainly enabled easy communication between corporations; however there is still a requirement for clearly defined value added services and a structured data exchange between business applications of corporations in the financial ecosystem.
The exchange of remittance information outside of clearing houses or networks for electronic bill presentment are examples of valuable inter-corporate exchanges that are based on a centralised communication infrastructure enhanced with clear service definitions.
There has been a shift away from a single convergence of one banking institution towards utilising multiple banks and connecting to them via a single point – SWIFT is a component of this. However, companies are looking for a broader spectrum of connectivity. A single connectivity service will allow corporations to connect once and gain access to SWIFT as well as other trading partners and exchanges.
This approach helps to greatly reduce friction across the ecosystem as corporations can streamline data transfer and gain transparency to transactions.
Thirty per cent of corporations in the US$5bn+ category are managing with 21 or more cash management banks. Global connectivity across that spectrum helps to improve transparency and drive efficiency. Bank independence is key component of corporate cash management strategy.
Recent market evolution has emphasised the vulnerability of financial institutions and created awareness with corporations that diversification of their bank partners is crucial to ensure healthy liquidity in times of crisis. To benefit fully from a larger group of core banks, corporations have to ensure their infrastructure has the flexibility to switch their transaction flows from one bank to another.
A centralised bank communication solution helps in this process by:
Many corporations are now looking to improve bank connectivity, some through SWIFTNet. And these include many firms that we spoke with two or three years ago. There is a clear trend for corporations to connect to SWIFT via centralised services such as a service bureau.
Connectivity – bank-to-enterprise or corporate-to-corporate, is an essential component of achieving improved efficiencies. Settlement of corporate to corporate transactions often takes 30, 60 even 90 days – compared with any other financial transaction, it is evident that there is an enormous opportunity for improvement. Reducing friction and attaining visibility across the ecosystem of buyers, suppliers and other trading partners will facilitate supply chain finance and help uncover hidden cash and opportunities.
Core to the strategy behind much innovation today is the value that can be generated for trading partners when true collaboration and connectivity is created. The survey findings around requirements for bank connectivity and enterprise connectivity represent even further that until these areas are addressed, true supply chain finance will not be as seamless as desired.
Bank communication has always been a major obstacle to developing multi-bank cash management and treasury solutions. Traditionally this is solved by developing connectivity modules in the distinct solutions that try to optimise the specific aspect of bank communication.
Although these are not new problems, the timing is right for corporations to now leverage SaaS technology and service delivery of technology. With the rapid acceptance in the market of SaaS solutions, centralisation of bank communication becomes a hard requirement. However, for the more forward-looking organisations, this requirement goes further to demand value added services – for everything from simple bank account management to fully engaged supply chain finance.
The global study on payments and connectivity contained 358 responses from corporations throughout the US, Europe and Asia across 20 primary industries. Due to the nature of the study, the results are often viewed by segmenting the small to mid-sized entities from the enterprise or large enterprise.
Of the responses, 44% are considered small to medium, with annual revenues below US$500m. The enterprise category considers the range of US$500m-5bn, representing 34% of the responses. The remaining 22% are considered large enterprises, with revenues above US$5bn.
From a regional perspective, the responses span a global view with the majority responding between North America (59%) and EMEA (30%) and the remainder in APJ (11%).
The industry categories span corporations. Any responses from financial institutions/services were removed, as the focus of the study is to better understand corporate requirements around connectivity and commercial transaction management, particularly around payments processing.