A modern makeover: Transforming corporate payments from back-office boring to new profit center

In the financial services industry, corporate payments have stayed in the back office as a detailed, batch- and bank-oriented process. We believe it’s time to give the corporate treasury its much-needed makeover.
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Eventually, we all need a bit of a refresh. Some of us more than others. 

In the financial services industry, corporate payments have stayed in the back office as a detailed, batch- and bank-oriented process. Slowed by inefficiencies and weak standards, corporate payments lack the sizzle of consumer, peer-to-peer and immediate payment systems. 

We believe it’s past time to change that and give the corporate treasury its much-needed makeover.  

New corporate customers come at a hefty price 

The banking industry hasn’t given corporations the same level of investment as consumer or other client experience projects, largely because they’ve viewed connectivity and channel support of the corporate treasury function as a cost center – and not without good reason. 

Acquiring and onboarding a corporate client is an expensive process. Cost estimates can exceed a quarter of a million dollars, factoring in expenses related to personnel time, account set-up, connecting the back-end systems, and adhering to regulatory requirements.  

Adding to the expense is how long the process takes, averaging months to complete integration after the contract agreement. During this time, the bank isn’t collecting revenue from the corporate client, but instead racking up more costs to make the connections, test the systems, communicate with the client and coordinate the process so payment services can begin.  

rocky start to the relationship 

Who do you think should pay for those initial connectivity expenses? Expectations and assumptions on both sides create friction in the corporate/bank relationship from the start: 

  • Corporations think connecting their systems to a bank should be “free” and at the bank’s expense. While this could be logical in a standardized world, in many geographies and especially in the US, standardization is not the norm. The situation is even worse for small-medium business clients. 
  • Banks think corporations should pay more for better and more standardized connectivity.  
  • Both sides think providers of enterprise resource planning (ERP), accounting and treasury software should provide standardized offerings to make connectivity and processing easier.  

Every participant will gain value when connectivity is more efficient, standardized and has costs divided among participants in an ecosystem of corporations, financial institutions, and software vendors. 

The need to standardize and simplify connectivity  

We predict a time when connecting banks and corporations will be like setting up new devices on a home Wi-Fi network – standard, straightforward and based on a relationship between the provider and the consumer. 

The current situation, however, includes several challenges: 

  • Relationships: Corporations who use multiple banks (for example, one for cash management services, and another for payroll) then must deal with the inefficiencies of managing multiple relationships. The corporate client must maintain the uniqueness of each financial connection including modifications to standards, timing, personnel or other changes that happen on a frequent basis.  
  • Contracts: Banks serving multiple corporations contend not only with set-up expenses but also varying degrees of standards adoption and unique contract terms. These and dozens of other variants make each corporate-to-bank connection slightly to heavily configured. The banks must maintain the unique negotiations of contracts, service level agreements, and variations of standards used by complex corporate clients. 
  • Software: Many of the transaction management systems are highly customized, built by various software and service suppliers or other consulting companies. Some date back decades. Because of this, corporate treasury departments create unique connectivity to each financial institution where they do business.    
  • Standards: Even when participants in corporate payment processing recognize a standard for electronic data interchange – say ISO 20022 – they often interpret the standard in different ways. Adding to the complexity, lines of business even within the same company sometimes use differing standards. This detailed grid outlines how different mandates feed a master data file, and the different ways it can be used to enhance intelligence throughout a bank. The data matrix visualizes how data is shared across business units, from mandates to analytics to beneficiaries.

Getting abstract with a mutual solution

Setting up and maintaining so many unique, direct connections between corporate treasuries and banks is a complex, time-consuming and expensive process. Fortunately, there is an alternative. 

A standards-based service to handle the data flow between banks and corporate processing systems will simplify connectivity and eliminate the need for old, proprietary systems. Such services exist, but they are not interconnected. 

Imagine one vendor uses service A with a payee. Another payee of that vendor uses service B. The vendor needs to join and maintain both A and B. This is the friction of the current situation that reduces adoption of more electronic messaging methods. 

This situation is creating a marketplace where the connectivity is enabled by multiple proprietary standards, interconnected by an industry standard. The marketplace can interlink dissimilar services available today. Over time, as the adoption of the interconnectivity standard grows, the need for the proprietary standards will decline and eventually disappear. 

The platform, connecting those who are offering services and those consuming them, would allow the bank to open application programming interfaces (APIs) so the code created by different software developers can talk with each other. 

While the industry has seen attempts to create such a “fast-track” layer to simplify onboarding and other aspects of corporate/bank relationships, these attempts had only mixed results. The reason? They didn’t include software vendors as part of the overall ecosystem. 

With a value proposition for all the involved parties, the industry would be able to achieve higher adoption of consistent standards to facilitate corporate banking services.  

Differentiating with services, NOT connectivity

Keep this in mind: Connectivity is NOT a differentiator in the corporate banking space. By freeing themselves of services that don’t add differentiating value, banks can focus on those aspects of service, analytics and support that set them apart from their competitors. 

If a bank can have a less expensive means of onboarding customers – and if those customers have less work and expense consuming their banking products – the banks can offer continually more interesting and adaptable services. 

ICC spoke with dozens of corporate treasuries and found corporations would consume more banking services rather than less if it were easier to consume those services with less time and effort on the part of the corporation. 

The corporations we talked with also accept the idea of a fee structure for ongoing processing maintenance, if they can reduce the internal expense of the original connectivity and onboarding. Paying for ongoing processing puts a manageable, budgetary number in place and, by moving the connectivity expense, banks can focus discussions instead on the value of the services they can provide. 

modern platform for a bright future

A readily available, common connectivity service – with costs and revenues mutualized among banks and corporations – will enable non-differentiating services such as onboarding to occur automatically between the banks and corporations in marketplace fashion. 

Many providers of treasury systems, workstations, ERP, accounting and other software would be able to include a standard means of connecting to the platform with API plug-ins designed for them. 

Do you know the costs associated with channel connectivity to your corporate banking clients? If you are a corporation, do you track the expenses associated with inefficient communications just to consume your banking services?

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