Open Banking, payments and tech: Finastra Q&A Part One

Finastra recently launched a report looking into how Open Banking is affecting corporate banks and their corporate customers. What are the key findings of that report?

This report was aimed at what Finastra would traditionally call a corporate rather than an SME or anything else, with some multinational corporates in there as well. We talked to the treasurers of those companies and looked across a broad range of things that they’re asking for from banks and how the banks ought to be servicing them.

I think there are probably two key messages from the report; one is the belief that there’s three categories that banks should be looking to move to. One is a product provider, a transaction bank effectively; the second is a relationship builder, so going beyond the transaction and building those relationships; and finally the move towards platform players – those banks that will start looking to do x as a service.

So, they might say to the multinational, ‘we’ll do your treasury as a service for you, we might do your payables and receivables as a service for you. We’ll use our economies of scale and our technology to actually lift that out of your business for you’.

I’ve talked for a couple of years now about digitalisation and the impact that has on banking and mediation. I think we’re ripe for a new age of relationship banking, using all these digital tools we’ve got and AI to better enable relationship managers to manage those clients. That’s important, because in the age of online comparisons – ‘I need to do x, whoever can do it for SLA at the lowest cost I’ll choose you’ – we need banks to be building those relationships and adding value.

I believe that open banking is accelerating faster in corporate banking than it is in retail banking. Because there’s so much more we can do with it, and probably for the first time ever technology investment in corporate banking is going to happen at a faster pace, or the investment in technology is going to happen at a faster pace than retail, because it’s not just about marketing. With a lot of retail banking technology, yes, we’ll get efficiencies but actually it’s about the cool new things we can do to attract customers. There’s vast economies of scale and efficiencies to be had in corporate banking. It’s an industry ripe for modernisation and open banking is the trigger.

PSD2 is Europe, so why is everybody globally saying we’ve got to do open banking now? But it’s happening and beyond the scope of PSD2. So, banks have got to decide which of those three categories I mentioned above they want to play in, and they’ve got to build their own roadmap to success in those and look at the technology investment that they’ve got to do to win in the sectors they choose within that.

In parallel to all of that is what the biggest priorities to corporate treasurers are, so we asked the question, ‘today, what’s your biggest priorities,’ and, ‘what are your biggest priorities going to be in 2022,’. Today, it’s access to funding, which is still a huge issue. Just getting your hands on cash and enabling that liquidity, was the highest ranked point. But the subtle shift over three years is that corporate treasurers themselves are saying, ‘over the next three years our biggest priority is actually access to real-time data and payments’.

Some treasurers are telling us real-time payments are great, but is it real-time data that’s the true game changer?

At the moment Finastra has got domestic real-time payments, and I think for the corporate treasury a seismic shift is going to be real-time cross-border adoption. I think we’re looking at a three to five-year horizon for that.

Now, what does that mean in terms of managing my position as a treasurer and moving funds around? All of a sudden, the TMS platforms they’ve got have to be able to handle the analysis of their liquidity and their forecasts, in real-time too.

The big challenge for them is then, where do all your trade finance positions sit, what about your lending, what’s become due, what repayments are you doing, what treasury positions have you got, what options have you got on FX, when are they maturing? We really need to bring all of that into a real-time data view to effectively manage real-time payments.

There’s a knock on impact for banks and treasuries as well of course, which is why, going full circle, it returns to relationship building. There may not be payment cut offs in the way we know at the moment, but what the bank’s treasury doesn’t want to happen is, at 16:30 on a Friday afternoon, unbeknownst to them £300m needs to leave the bank. So, you’ve got to build those relationships with your corporate clients to foresee these issues.

I think there’s a big play in that mid space for SMEs. As liquidity becomes available to push to those SMEs, there’s opportunity for the banks. Certainly, over the last two or three years, a lot of the larger tier 1 and tier 2 banks have looked at their client bases and said, ‘actually I don’t want you as a customer,’ so they’re then off looking for banks that can service them. So now we need tier 2 and tier 3 banks to be able to service those customers, off their own platforms and technologies. That’s why I can see investment in the ability to deliver these complex services.