BCG recently opined that corporates want an Amazon-like experience from their bankers. What might this mean? And are banks best placed to deliver?
According to a recent BCG publication, “today’s corporate banking clients want the efficiency and convenience they experience every day on retail websites such as Amazon and eBay.” (From “What Do Corporate Banking Customers Really Want?”)
It is striking that this comparison by BCG is not to tech financial services like PayPal or AliPay but to an e-commerce platform. Even if arguably unfair, it raises good questions about what corporates want.
In the same way as a home buyer does not want a mortgage (they want a home and a mortgage is just an annoying step along the way), corporate banking customers do not want banking services – they want to do business. They want to delight customers and sell product. To do that, corporates need to collect from customers and pay to vendors, but handling cash is not their core mission. Banking for them is a means to an end.
Tellingly, e-commerce platforms like Amazon do everything they can to make payment invisible or at least minimally disruptive. It may be uncomfortable for some treasurers but this is where corporates are heading regarding banking. It is analogous to how corporate IT has migrated to the cloud, and how physical production has migrated to outsourcers.
Recent BCG interviews with bankers and corporate customers revealed that – along with cheap, reliable financing, of course – what corporate banking customers want most are simple, straightforward transactions and the option of self-service.
But before we get to the business platform nirvana that that implies, there are a lot of basics to fix in the short term. Banks have tended to mirror organisational silos in the technology, resulting in a confusing mix of software with which corporates have to contend. Even if many banks now understand that this is not ideal, progress in addressing problems here is slow.
In this sense, the advent of open banking and the regulators’ enthusiasm for API banking gives us some hope. APIs have been around many years. They are the glue that enables integration within and between businesses and will enable business platforms going forward. All basic business processes can be offered as services via APIs.
On the other hand, big and small tech companies come to this situation without legacy and with the API mindset in their DNA. Platforms like Alibaba take a holistic view of the customers’ needs – they extend into logistics and finance. The underlying mindset is to facilitate business – to handle all the support services so that their merchants can focus on whatever they do best.
Cloud ERPs like Xero come to this from a slightly different angle but also with the API mindset. Xero has a number of APIs for statements and transactions. Tally in India has integrated with DBS via API so that Tally users no longer need to work through DBS’ e-banking website.
This is quite similar to TMS offering SWIFT and other bank connectivity solutions in the box, so that corporates no longer need to do their own implementation.
Driven by cost savings, the first shared service centres (SSCs) were designed to reap economies of scale by centralising back office functions. Following the dotcom bust at the turn of the century, Sarbanes-Oxley and its ilk brought a second driver for centralisation and consistent processes – compliance.
Faced with ever faster moving businesses, many corporations saw a third driver for SSCs. The underlying idea here was that many back office functions have sufficient commonality so that they can be offered as standard services to various different parts of the business. The core concept is that business units should not worry about back office at all so they can focus on their key business priorities – normally customers and product – and leave the administration to SSCs.
If corporate action in the SSC space is a good indicator of what corporates want, then this will probably end up looking more like one or many platforms handling end-to-end business processes so that organisations can focus on core value-adding efforts.
Generally, the stuff banks (and treasurers) worry about – payments, accounts, even reconciliation – are non-core and not value-adding. Of course, they have to work effectively; they are hygiene factors which are invisible when functioning well and very negative if they go wrong. But they remain perfect candidates for outsourcing to a competent external service provider.
Banks have lots of complex processes internally. In fact, for many of their customers, they have too many and too complex processes. Banks touting “payment outsourcing”, which is little more than file transfer, show how far from holistic their view is. SSCs can typically take care of everything after order initiation for their internal business colleagues.
Even if banks were to offer deep integration into client ERPs, it is not obvious that clients would even want this, especially since for most that would mean integrating multiple banks. Given how difficult it is to get banks connected for basic payments and statements, many corporates will be understandably sceptical about deeper integration.
Once business process platforms begin to scale, they will provide service quality and scale economies currently unthinkable for any but the largest companies. This will allow platform users to better satisfy their customers, while reducing prices so that they will out-compete companies who still do everything in-house.
The current bank focus on pushing product and the narrow focus on the banking end of corporate processes will not result in end-to-end process handling. It is not clear in any case that they can overcome challenges like legacy systems, regulatory constraints and bloated cost structures and compete against nimbler tech companies attacking this space.
If we look at what is happening with the new virtual banks and existing e-commerce platforms, we can get some inkling about what business platforms might look like.
Virtual banks often use data analytics to predict customer needs. For example, when you go to the supermarket you might normally spend US$250. If your balance is less than US$250 the virtual bank may offer you on the fly credit and warn you if you spend more than US$250. Large e-commerce platforms routinely use the data they have on businesses on their platforms to inform them of credit decisions and flag potential problems. They can offer foreign exchange conversion as well as price list hedging.
Based on the evidence from the worlds of SSC and cloud, the platformisation of back office business processes seems inevitable.
Businesses using such platforms will not have to explicitly worry about banking, risk management, accounting, payroll and so forth. And just as cloud platforms today already get updated more or less continuously, business platforms will also likely continue to evolve in terms of their own functionality as well as in relation to API integrated specialist services.
Some might object that such things are too important to outsource. But then we used to think that about IT technology, however we have now largely accepted the move to cloud. Business platforms of the future will probably combine ERP, banking, payroll, taxes, insurance and so forth in one integrated platform, together with multi-functional APIs to integrate with customers and vendors.
And they will not need to do it all themselves. They can connect with APIs to best of breed service providers for banking, accounting, payroll insurance and so on.
Based on the evidence from the worlds of SSC and cloud, the platformisation of back office business processes seems inevitable. The benefits of scale economies and service quality that business platforms will offer will force companies to platformise or die. This will seriously change corporate banking and corporate treasury. Most banking is likely to be commodity services provided directly to business platforms. Treasurers will have to migrate away from back office towards core business.
Twenty-five years of management and treasury experience in global companies. David Blair has extensive experience managing global and diverse treasury teams, as well as playing a leading role in eCommerce standard development and in professional associations. He has counselled corporations and banks as well as governments. He trains treasury teams around the world and serves as a preferred tutor to the EuroFinance treasury and risk management training curriculum.
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