Gap in digital platforms pose a real threat to European banks
Lower funding costs and commanding lead at digital platforms give U.S. banks an advantage as KYC is the biggest issue for treasury departments across Europe.
Lower funding costs and commanding lead at digital platforms give U.S. banks an advantage as KYC is the biggest issue for treasury departments across Europe.
According to a new study by Greenwich Associates, two major factors are playing a role in companies’ decisions about which banks to use: banks’ willingness to lend, and innovation across their banking products, processes and digital platforms.
Greenwich Associates conducted 2,345 interviews across Europe with financial officers (e.g. CFOs, finance directors and treasurers) working for corporations with annual sales in excess of €500 million, including 540 with sales of at least €2 billion. These interviews, which took place from August to November 2018, were conducted throughout Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.
The interviewees were asked about their bank’s credit capabilities, domestic and cross-border advisory capabilities as well as the overall quality of it as an institution and its relationship management.
In addition, cash management and trade finance capabilities were examined in separate interviews with corporate treasurers. Roughly half of the 455 European corporate treasury professionals participating in the Greenwich Associates European Large Corporate Banking and Cash Management Study say their banks have not introduced any innovative new measures or practices throughout the past year.
The results found that U.S. banks continue to dominate. The extent to which they are currently leading the field can be seen in the results of the 2019 Greenwich Excellence Awards in European Large Corporate Banking and Cash Management (the debut edition in Europe for this global program). Of the 22 awards given across 15 categories, U.S banks such as Citi, Bank of America Merrill Lynch and J.P. Morgan took home a combined total of 16 awards.
The categories in which they excelled were:
Dr. Tobias Miarka, Managing Director, Head of International at Greenwich Associates, and one of the three co-authors of the report, said: “Previously, innovation in corporate banking meant the rollout of new and increasingly sophisticated banking products. A decade later, the innovation that companies care most about has less to do with financial products and more to do with electronic systems that make banking operations better, cheaper, faster, and easier—and eliminate pain points that have come to define the corporate banking customer experience.”
However, it’s not all bad news for European banks. UniCredit and ING Bank won in categories like ‘Likelihood to recommend’ and ‘Ease of doing business’, with UniCredit also winning the ‘Customer Service’ category.
Regional European banks with extensive local networks and longstanding relationships with local companies are also continuing to see success. These deep ties might explain why regional banks like Germany’s Bayerische Landesbank and Italy’s Intesa Sanpaolo earned the title of being the 2019 Greenwich Quality Leader in European Large Corporate Banking in their respective countries.
That being said, Melanie Casalis, Vice President Consultant at Greenwhich Associates and co-author of the report, said: “However, the situation could be changing in certain markets like Germany, where U.S. companies are finding some attractive opportunities in this smaller segment and are now starting to pick spots to leverage their funding advantages to build relationships and win business.”
Lower funding costs gives U.S. banks an advantage as they’re able to lend at more competitive rates and can also afford to make big investments in product development and digital platforms.
“When sophisticated technology solutions are the only things that alleviate serious customer service problems, the biggest banks with the biggest IT budgets have a huge advantage,” according to Greenwich Associates Managing Director Markus Ohlig, the third co-author of the report.
On the bright side, Europe’s biggest corporate banking customers—the treasury centres of large multinational and global corporations —report high levels of innovation from their banks and high levels of satisfaction with the digital capabilities of their banks overall.
Unfortunately for European banks, the accolades for digital platforms go almost entirely to U.S. banks and to a handful of other internationally-focused players like HSBC.
Once large multinationals integrate these digital platforms into their own internal systems, their existing client relationships will be increasingly difficult to dislodge The apparent prowess of big U.S. banks in using digital technology to alleviate compliance burdens and improve the customer experience is also bad news for smaller banks.
Know Your Customer (KYC) issues seem particularly frustrating for treasuries, and treasury professionals believe their banks could be far doing more to alleviate the burden.
As one European corporate treasury professional explains, “It is time-consuming and boring work, and we do not see it giving us any added value. Instead of pushing the work load over onto us, much of the work should and could be done by the banks themselves, since much of the information required is publicly available information, like certificates of registration, with information related to who is authorized to sign for our company and our many domestic and international subsidiaries.”
Another treasury professional echoed those complaints, adding that “Requirements related to AML (anti-money laundering), KYC and account-opening processes are out of control.” He continued: “Much seems unnecessary and redundant, as our bank either has received the information from us earlier or could access it from publicly available sites.”
According to Arin Ray, Senior Analyst at Celent: “The industry is successfully utilizing two main approaches for streamlining the challenges in KYC. The first is mutualization of efforts, which essentially is about sharing the burden of doing KYC due-diligence among industry participants. The second approach is leveraging emerging technology such as AI, machine learning, and robotics for digital platforms which can be used to automatically source and analyze large volumes and different types of data using intelligent automation techniques.”
In summary, European banks have a challenge on their hands if they’re to win over European financial officers and treasury professionals. Improving KYC issues might well help, but the larger IT budgets at U.S. banks might spell a run of sustained dominance going forward.