Financial institutions: different needs, same goals
The financial institutions (FI) sector, formed of banks and non-banks, is characterised by an extensive subset of sectors, including banks, insurers, asset managers, aircraft leasing companies, card schemes, central counterparties and governmental agencies.
Whilst it may appear difficult to pinpoint a consistent need across this broad sectoral remit, it does in fact harbour many shared elements, says Chris Jameson, head of Financial Institutions Sales, GTS EMEA, Bank of America Merrill Lynch.
Indeed, there are common challenges and opportunities across the FI space – and technology can be the unifying factor. Principal amongst opportunities, he notes, is the real-time sharing of rich data. Where speed and efficiency may not always have been part of FI payment flows, technology can deliver impressive results for bank and non-bank FIs alike.
Keeping it real-time
With around 28 countries having implemented the necessary infrastructure, real-time payments are becoming the de facto norm. For FI players seeking greater process efficiencies, Jameson believes that connectivity into these mechanisms is essential. And with SWIFT gpi uptake gathering momentum, the richness of data shared in the bank space is taking a major step forward too, as participants begin leveraging a real-time, end-to-end view of payment status.
Another opportunity for FIs is around KYC streamlining. In banking, KYC has long been a challenge from a regulatory compliance, legal and technical perspective. However, notes Jameson, the results of The Wolfsberg Correspondent Banking Due Diligence Questionnaire (a 2018 revision of its 2004 Anti Money Laundering Questionnaire for Correspondent Banks) demonstrates how the sector is cooperating to achieve KYC process standardisation and simplification.
This collaborative stance is strongly supported by technology, with a number of central KYC repositories facilitating inter-usability of KYC records across the sector. Again, SWIFT, which has the broadest reach of all providers, is becoming the leading service provider.
With this clear willingness to cooperate and standardise, the next step is to digitise KYC documentation, says Jameson. E-signatures and document exchange via web portals is something that Bank of America Merrill Lynch is already offering clients in the US, he explains. “There are still challenges around the legal acceptance of digital signatures in some jurisdictions but extending their use across the banking landscape is an important part of simplifying and enhancing the KYC process.”
One of the main threats in a digitised FI world – and indeed most others – is that of cybercrime. Jameson cites SWIFT’s Customer Security Programme (CSP) as a significant step forwards in the reinforcement of global banking system security. By strengthening the links in that system, and helping the weakest links to protect against incursion, it reinforces the message that the sector is working as one in the face of pernicious cybercriminals.
Treasury to the fore
At the highest level, the FI sector is making bold strides towards efficiency. The role of the treasurer in facilitating positive change is extensive, says Jameson. At this level, the treasurer often acts as the crucial interface between operational teams, business unit owners and client relationships. But in the last decade, the scope and responsibility of treasury has grown even more in importance, he notes. “It has become an area for significant efficiency gains, cost reduction and innovation.”
This evolution has seen the need for treasury to be at the forefront of available technology, including the emergence of innovations from the fintech community and banking sector, increasingly in partnership. Being at the cutting edge is potentially a means of enabling success, not just for treasury but for their business as a whole, notes Jameson. “Efficiencies delivered by the right tools can have a positive knock-on effect, right across the business lines that treasury is supporting.”
Success stories are often found where a well-resourced treasury has secured senior executive buy-in for efficiency-focused projects. Where industrial sectors have made huge leaps forward in this respect, a transaction-heavy sector such as insurance is only now beginning to leverage technology towards this end, notes Jameson.
In this setting, a solution such as virtual cards uses traditional card payment rails but diverts those payments through an alternate channel to gain advantage. The structure enables companies to extend payments terms, as before, but then improve business processes and exert tighter control over their payments. Indeed, it is the richness of data now made available that affords them far greater transactional transparency and understanding, explains Jameson.
A case in point is Amazon Business which is partnering with Mastercard and Bank of America Merrill Lynch to enable procurement teams to acquire invoice-level data about their purchases through the bank’s online portal. In this context, treasury will often be the bridge to the bank, further heightening the importance of the role.
Continuing the virtual theme, Bank of America Merrill Lynch virtual accounts have been facilitating improved collections and reconciliations for longer than most providers. “We have a strong understanding of how to structure and generate benefit from virtual accounts,” says Jameson.
Virtual accounts are beginning to progress from manufacturing into the non-bank FI space. Here, the ability to match receivables based on a unique virtual account number that each client is given “makes the reconciliation process so much more efficient”.
In a non-FI context, virtual accounts are often deployed in an in-house bank armed with a ‘payment of behalf of’ structure. However, Jameson notes, in the FI space, for major consumer-based players such as insurers, it is likely to be reconciliations of receipts where the virtual format “really comes into its own”.
Whilst many non-bank FIs may not have had the time nor capacity to focus on innovative solutions, Jameson notes that as their core systems – ERPs or TMSs – are upgraded, the technological platform from which they can build out new efficiencies emerges. It is then the role of the relationship bank to understand the challenges of the client, introducing innovation where it is an appropriate means of solving each pain point.
There is a persistent conversation around AI, robotics and blockchain in the FI context. Blockchain is still some way off, he believes, but AI is “very real”. There is an opportunity here for banks such as Bank of America Merrill Lynch to use AI as a way of simplifying and improving its back office functions, with robotics already in place to support some of that activity.
As the technology extends to client-facing solutions, Bank of America Merrill Lynch, in partnership with a fintech, has created intelligent receivables (IR). This uses AI, machine learning and optical character recognition to match incoming payments with disparate remittance data.
IR identifies payers, associating their payments with remittances that are received separately. It then scans the remittance email inbox for information, enabling it to match payments to open receivables using the enriched remittance data. IR can read free-formatted emails, attachments and even access web portals using its Web Crawler feature. Payments that are matched are posted to the ERP on a straight through basis; those that can’t are shifted to an exception portal to be manually matched.
When an operative manually matches the payments and remittance information in the exception portal, the solution uses machine learning to analyse and follow the steps taken. Next time a payment is made, it will replicate those corrective steps, attempting to post it straight through, ultimately removing most of the manual reconciliations work.
Clearly not all treasuries are using these innovative solutions but many are in a position to learn from the early adopters across the sectors. In the FI space, insurers are making encouraging noises in this respect; there may be a longer journey ahead than perhaps those in the consumer, retail and healthcare industries but, as Jameson has said, the banks have a responsibility to bring every client up to speed.
The banks themselves are constantly working on platform upgrades. Some have embraced the opportunity to partner with the fintech community (Bank of America Merrill Lynch’s IR is a prime example). Arguably, the discovery of “viable and relevant” innovations via this route is necessary to meet the rapidly evolving needs of business. “We can then offer guidance to our FI clients on what we are doing, sharing the innovation process and exploring the build-versus-buy or partner pathways,” says Jameson.
Every innovative project requires a strong set of drivers. Where efficiency is targeted, cost savings are often at the helm. In a sector such as transaction banking or insurance, the essence of success is partly defined by volumes processed. Improving processes supporting the volumes can deliver significant benefits. But using the right tools can deliver enhanced visibility too, empowering more timely decisions.
“In a world where market events can rapidly force industry change, access to real-time information and payment capabilities is giving treasurers the opportunity to be more agile on behalf of the lines of business they are supporting. Bank of America Merrill Lynch refers to this as Intelligent Treasury which is Powered by People, Driven by Technology,” says Jameson.
Bank of America Merrill Lynch undertakes to help and support such clients, raising awareness of what it sees across the sectors, and discussing what it has achieved itself and with its partners. “In this sector, there is considerable difference between the requirements of a bank, an insurance company and an aircraft leasing firm, but all are looking for efficiency. As advocates for our clients, we are there to support their broader enterprise-wide goals.”