Transaction banking relationships and bank account management are continuing to evolve as the lessons of the global economic crisis take root. Companies are choosing to maintain multiple bank relationships. eBAM could help these companies streamline account management and this may help rein in growing transactional banking fees.
Before the financial crisis, treasurers focused heavily on the efficiency gains to be had from streamlining bank accounts and banking partners. This trend shifted abruptly as the crisis took hold. As the downsides of over-concentration became apparent, companies moved to increase numbers of liquidity providers and accounts during the crisis, in the interest of spreading counterparty risk and having back-up mechanisms for cash flow management. As the crisis has faded, the downsides of this strategy have in turn become apparent: more banking partners means more work – in managing relationships and in managing infrastructure.
So now the objective is to determine the optimum balance between streamlining and diversification, and treasurers are using new technology to achieve this.
In particular, there is a heightened sense of the need for transparency and control in bank account management processes. Sean Crosten, Executive Director, Client Access Group – Security, Risk and Infrastructure at J.P. Morgan Treasury Services, says that as part of the fallout from the crisis, corporates have been forced to take a much closer look at their banking partners and the number and structure of their bank accounts. For some companies, this was the first time a formal process of bank account analysis had been undertaken.
Improved security and better control
The need for greater control and transparency has increased corporate interest in electronic bank account management (eBAM) which, until the crisis, had been an idea of which few corporates were even aware. The primary drivers for eBAM are improved security and controls, and for companies to be able to audit their relationships with bank partners.
Electronic bank account management is both a technological development and a standardisation initiative to de-materialise (‘de-paper’) and automate how companies manage bank account changes and interact with their banks to effect those changes. It is intended to address everyday account activities – such as opening and closing accounts, changing account signatories – and also to provide greater transparency into what accounts a company has, with which banks and who has access and privileges on those accounts. For a company with complex bank account structures at various banks, this can be invaluable.
The complexity of a company’s bank account network depends on a number of factors:
A large multinational with a presence in 30 countries will have very different banking needs than a small firm with operations in just the UK and Canada, for example.
For those companies with just a few bank partners, and where account changes are seldom made, an online self-service model managed through each of the banking partners’ e-banking solutions may be all they need.
But for companies with numerous banking partners that must open and close accounts or make multiple account changes on a daily or weekly basis, automating and streamlining some or all of that process creates significant efficiency gains. Managing daily account changes by manually going to the web portals of 15 or 20 different banking partners is labour intensive, expensive and error-prone.
According to a white paper on eBAM by TMS provider Wall Street Systems, moving to an automated process helps companies reduce the time and resources dedicated to account management. The report explains: “The time saved to open, maintain and close bank accounts will make corporate treasurers more responsive to business demands, especially in fast-moving environments such as during mergers and acquisitions or when they seek to review bank relationships. The accelerated opening and closing time will provide corporates with the ability to expedite some of the processes should financial institutions eliminate credit or servicing falls below acceptable standards.”
According to the white paper, the key benefits of eBAM arise from:
Automating data exchange for account opening, maintenance and closure.
Speeding up and improve updates of mandates.
Move information and personal digital certificates.
Automating related documentation exchange.
Easing integration into back office applications.
Ensuring banks and corporates have the same view of their account and mandate structures.
Meeting internal and external audit and regulation requirements.
Linking changes to HR databases.
Achieving the highest security levels.
Still early days
However, the development of eBAM is still in its early stages. A small number of banks and corporates have developed systems internally to manage accounts electronically; vendors and outsourcers are providing packages to streamline internal bank account management work flows, and SWIFT has spearheaded development of a standard to support eBAM messaging.
A treasurer from a FTSE 100 company, who wished to remain anonymous, notes: “I’m very excited at the prospect of eBAM and I’d like to hear more about it.” He says he is surprised that people aren’t getting more enthused by it. “Or maybe people just don’t see bank account management as a problem, or don’t want to see it as a problem – but it’s a massive headache for us,” he says.
Part of what is holding back eBAM development is the need for standardised security and interoperability. To make eBAM worthwhile, treasurers require a single security credential that works with all banking partners, and one channel through which they access those partners. For example, it may be a single digital certificate on a flash drive that they can use in connecting with all of their banking partners to validate a particular change request, such as opening an account.
But this is more complicated on the bank side, notes Crosten: “Given that banks have many customers and multiple requests to support many different types of credentials, it takes time. They must go through a contractual process to ensure that they have protocols in place to accept a credential in a secure and reliable way, that the credential meets regulatory requirements in various jurisdictions, and so on. The customer’s challenge is that they want all 15 of their banking partners to take their credential. The bank’s challenge is to accept credentials from a global and diverse community of corporate customers.”
Interoperability is the other key to successful development and universality of eBAM. The risk, as with any new initiative, is that separate languages or standards grow up simultaneously that cannot easily speak to each other.
The results of that dissonance can clearly be seen with the many languages and protocols used in the payments space – including X12, EDI/Edifact, and so on. In order to avoid that, a number of big banks turned to SWIFT to develop a single set of standards for an eBAM messaging layer.
Notes the Wall Street Systems eBAM white paper: “Standards need to evolve, in order to remain relevant. Even as it launches, SWIFT’s eBAM standard needs to be ready for changes likely to take place in the next few years, such as the adoption of standards for digital certification and continued changes to Know Your Customer (KYC) due diligence processes.”
Clarity still needed
There are a number of areas that must be addressed before eBAM will be a fully-fledged, easily adopted and universally-accepted solution. One big issue is the lack of standardised documents for opening and closing accounts, and managing account changes. Harmonisation of documentation has been identified by banks as one area that needs to be addressed, according to Crosten; however much work remains.
Another issue is that of clarity and consistency in interpretation of global regulatory frameworks. Banks and vendors can interpret regulatory requirements differently. When a company interacts with its bank, even in just one market, three different banks may require three different things for a single account change, and all three may be basing those requirements on their particular interpretation of what regulators want.
Finally, there has to be full interoperability between vendor eBAM packages and transaction banks. There is clearly a need for straight through processing between different technology pieces in order to make this worthwhile. Companies are already using vendor packages to streamline their internal processes around entitlements, for example, and adding workflows to automate document creation. In addition, vendors are providing storage for all the data around that and the analytics to evaluate that data. The next step will be for banks and vendors to create those connections in order to communicate seamlessly.
Notes one banker: “Like anything else that is new, you don’t know what you don’t know. So we must identify the challenges and ensure we invest the resources to overcome those challenges. Right now the industry gets together to discuss it, but more work still needs to be done.”
Process re-engineering first
Corporate treasurers considering electronification of account management need first to identify the key problems with their existing bank account management process, the cost/benefit of removing those problems and the requirements for doing that. If, for example, the biggest issue is that treasury has no single audit trail of where accounts are and who has the authority to act on those accounts, then automation may help provide greater control and transparency.
Companies should have:
Good documentation management.
Control over entitlements.
Appropriate work flows and approval processes.
Ability to audit these processes.
Where there are deficiencies, companies then need to work out the internal changes necessary to fix them and then to ask what technology is needed to do that. eBAM solution vendors can help drive internal process improvement in these areas. The next step is to look at how that automation can be extended out to banking partners through a single channel, for example through SWIFT.
Challenges on a macro level
For eBAM to mature, the following areas must be addressed:
Single messaging standards.
Consistency of documentation.
Consistency of regulation interpretation.
SWIFT recently ran a series of eBAM messaging pilots with BNY Mellon, corporate clients, and Wall Street Systems. For corporate treasurers looking at eBAM through SWIFT as a means to streamline accounts and better manage account changes with their bank partners, a number of lessons came out of these pilots:
Take advantage of project management and subject matter expertise: don’t just invest in the technology, invest in an eBAM pilot.
Collaboration and open communication is essential: there is a model for getting eBAM right, and it is the ‘partnership model’.
Agree on a critical path and don’t underestimate the challenges of reaching a successful outcome. Delivery of an eBAM project is complex, with multiple partners involved internally and externally.
Watch out for scope creep: it is essential everyone agrees the beginning, middle and end of the project, and that all partner objectives are agreed at the outset.
See eBAM in the context of the corporate treasury: your software provider can offer knowledge and assistance to improve not only bank account management but your overall treasury system.
*Source: adapted from Wall Street Systems’ white paper, eBAM: the automated future of corporate banking.
Adoption of eBAM will be led by corporate treasurers and, over time, by regulatory changes requiring greater transparency and an audit trail of accounts. The white paper from Wall Street Systems notes: “The pace of adoption will be governed by the assessment of risk among corporate treasurers, which is largely impacted by precedent. Sooner in some jurisdictions than in others, legal precedent will dictate a need for corporates to adopt a better means to audit and track the status of bank accounts. However, once adoption begins in earnest, the pace may well surprise observers. If eBAM mirrors previous innovations in cash management, once the major banks are happy with the SWIFT message standards and understand the implementation path for providing eBAM for their customers, they will become the most active proponents.”