One of the most pressing conversations a bank will have with its corporate clients today will be around the need to streamline treasury processes, reduce costs and build the structures and models of liquidity management that support the treasurer in these objectives.
Another, very much connected, conversation is around technology. With banks and corporate clients moving towards embedding systems into each other’s organisations, the theme of hyper-connectivity unsurprisingly was championed at this year’s Sibos event. This was SWIFT clearly making a statement about where it believes the bank-to-bank, bank-to-corporate and corporate-to-corporate worlds are heading.
Of course, ‘digital’ progress is being made at different levels, but in the banking sector the most astute players have realised that standing still is not an option if they wish to remain on the corporate panel. This is why many are seeking out partnerships with fintechs.
To be successful, this has to be a liaison based on leveraging the fintech’s technical expertise and agility, and the bank’s client relationships and understanding of how to monetise services, explains Alan Verschoyle-King, Head of Cash and Liquidity Management EMEA, MUFG.
“These relationships are also now much more of a continuum, where the two parties agree up front, with absolute transparency, where each side begins and ends, and how that chain can be monetised from start to finish and still provide a win for the client.”
Where once perhaps bank was master and fintech was slave, Verschoyle-King is adamant that these arrangements must now be viewed as “partnerships of equals”. But he says that there is a relatively new additional input source that ought to be central to this set-up, and it’s one that banks had previously perhaps been guilty of overlooking: that of the corporate client.
“Historically, we weren’t great at this, opting instead to create solutions in isolation,” he admits. “As an industry, we thought we knew what the market needed, and often there was a reluctance to go back to the client to validate the direction of a development,” he adds. “That has now totally changed. At MUFG, we won’t even begin the creation process if we don’t have clear input from our largest corporate clients.”
Treasury input informs the bank that it is creating something that is needed and that the client is willing to pay for (and, of course, will go to MUFG for its delivery). “Today, all three criteria need to be validated at the start of any of our innovative initiatives and then on a regular ongoing basis,” says Verschoyle-King.
Indeed, regular validation is essential in this space; at MUFG there’s never a case of having gone so far that it is impossible to back out. “We’ll take our foot off the pedal if we don’t get that continued validation from our clients.”
In practical terms, corporate influence is translating into a focus for MUFG on digitising trade and cash settlement tools. Here, the bank is working with fintechs and other banks to create digitised streamlined settlement processing.
Within the trade space in particular, whilst the persistence of manual processing allows for subject matter expertise to be demonstrated by the banks, Verschoyle-King accepts that it also brings risks in terms of settlements, human error, and the likelihood that the pool of expertise will diminish over time. “The industry has simply got to step away from its obsession with manual processes, and start to digitise,” he warns.
This means exploring technologies such as AI and blockchain. The latter in particular is often cited in these pages as a solution seeking a problem. Financial institutions are acutely aware of this, notes Verschoyle-King. “As with most banks, we have a diverse technological interest, partly to disperse the risk, and partly because no one has yet figured out the winning technology when it comes to streamlining the trade supply chain.”
The lack of a dominant technology is perhaps why there are a number of initiatives in the trade space (usually featuring between five to ten banks and a handful of corporate clients), with prospective solutions currently ranging between ‘early-stage development’ and ‘pilot project’.
One of the longest running discussions in trade is around the adoption of digital signatures, and specifically their legal recognition. With many trade banks still presenting as “monolithic, highly traditional, multi-geographic, multi-legal entity structures”, the concept of moving to a single standardised process for digital signatures is, says Verschoyle-King, a major hurdle. “But we are making progress and our discussions are slowly coming to fruition.”
But with monolithic banking structures potentially slowing progress – even with fintech partners demonstrating how nimble it is possible to be in development terms – are corporate clients getting the solutions they deserve? There is an observable spectrum of response to this challenge, says Verschoyle-King.
Some banks argue that forcing innovation into a BAU environment will stop it in its tracks, he notes. Proponents of this model make ‘innovation’ a standalone entity but allow validation of all activities on a regular basis. At the other end of the spectrum is the belief that if innovation was extracted from the business, it would have no validity. “We’re in the middle of that range,” says Verschoyle-King.
MUFG’s digital transformation division (DTD) works “in lock-step” with each business unit. DTD collaborates with the wider business on opportunities that may have relevance to corporate clients, but does not have full autonomy.
“It can suggest innovative products as it wishes, but these must always be validated internally first,” explains Verschoyle-King. “If they pass muster then the relevant business unit will ask their clients if the proposed solution resonates with them. If it does, that business will then fund DTD to develop the idea – but it will still require validation on a regular ongoing basis.”
One of the most talked-about technologies today is the API. The concept has risen to the fore, courtesy of the regulators, with APIs being a key part of European PSD2/open banking requirements. With most banks publishing APIs on the back of this huge industry change, rather than as a response to client demand, Verschoyle-King sees their roll-out following “more of a push than a pull process.”
Indeed, he observes “very limited take-up by corporates” across the banking sector, although “That will change,” he suggests. “Treasurers are aware of the move to open banking and are cognisant of the technology that has been built to support it, but I just don’t think they have it as a priority, yet.”
Whether corporates choose to take up APIs or any of the other innovations that banks are investing in remains to be seen. One thing is for sure, with the march of technology and the push for digitisation showing no signs of abating, it would be a foolish bank that takes its foot off the pedal right now. It surely behoves treasurers to get involved now, talking to the banks and helping to shape these products.