Published: August 16, 2010
The days when banks could serve their customers simply by providing finance or processing payments are long gone. Today, corporate treasurers and finance managers expect sophisticated cash and liquidity management solutions, intuitive technology that can be integrated with in-house systems and high quality information to facilitate process automation, such as account posting and reconciliation. In this way, a virtuous cycle is created: as banks capture and transmit more sophisticated information, they are in a position to deliver a wider range of services across the financial supply chain, facilitate greater automation and move further up the financial knowledge pyramid (figure 1).
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There are other factors too that are contributing to a changing relationship between banks and their corporate customers. For example, although the most acute liquidity shortages that characterised late 2008 and 2009 have eased, liquidity remains scarce and fears of a ‘double dip’ recession still remain. This is exacerbated by the proposed Basel III requirements that will constrain bank lending even further due to the need to hold a large value of assets on the balance sheet compared with the value of loans. Consequently, corporate treasurers and finance managers are increasingly seeking their banks’ support in finding innovative ways to access pockets of liquidity within the organisation, accelerate the cash flow cycle and enhance financial efficiency.
Banks that recognise the importance of the connections in their clients' financial value networks and seek to accelerate and automate these connections can deliver substantial additional value to their customers.
These are all factors we take into account as part of the ongoing review of our remote channel strategy. While financial transactions have become largely commoditised, banks need to differentiate themselves by their ability to provide the information that their clients require, at the time they need it, and in a format they can integrate with their internal processes. By doing so, a bank’s transaction business becomes an information business, and the greater the value it can deliver to its customers. In particular, by understanding and leveraging client data to develop specific solutions and delivery channels, a bank is positioned to enhance customers’ internal and external financial value networks.
But what is a financial value network, and why is optimising this network so valuable? The concept of the supply chain, and the financial supply chain is already familiar, i.e., the supply chain refers to the stages of design, production and distribution of the company’s products, while the financial supply chain refers to the reverse flow of cash from customer to supplier. Few, if any companies enjoy a linear flow of goods and services, with single relationships and connections joining each stage of the production and distribution cycle.
The value network reflects the complex set of technical resources that interact to create economic value. An internal value network includes key activities, processes and relationships within the company, including business units and departments and knowledge centres, while an external value network comprises the links between a business and its strategic and non-strategic partners, such as suppliers, vendors, banks and customers. The financial value network refers to the financial and related information flows across the internal and external value networks.
For example, a multinational automotive company will have many thousands of suppliers that contribute to the production and distribution of their vehicles. Some will be major organisations of an equivalent size to the company itself, others will be small and medium-sized enterprises. The stronger the physical and virtual links (such as the contractual and commercial agreements, and information integration) between the company and these suppliers, the easier it is to do business, therefore benefiting supplier and customer alike. The needs of these suppliers will differ according to the services they provide and the scale of the business. Furthermore, some of these suppliers will also be customers; therefore, the relationship is complex and a ‘one size fits all’ will not work.
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Banks that recognise the importance of the connections in their clients’ financial value networks and seek to accelerate and automate these connections can deliver substantial additional value to their customers. This is not necessarily about what a bank delivers – after all, as we explained before, many financial transactions have become largely commoditised – but how they deliver. In the past, banks have typically developed products and delivery channels concurrently. While this approach may address a specific business challenge, such as receiving bank statements or facilitating online investment, it does not recognise the wider relationship between the bank and the corporate, which comprises a number of solutions to address a variety of business problems. Consequently, there can be considerable fragmentation in delivery channels, which are managed by different parts of the bank. In some cases, products and channels are confused, such as supplier financing. While integration between the supplier and customer is key to the success of a supplier financing programme, the delivery channel need not be specific to the programme and could be used for a variety of other communications.
At SEB, we are taking a fresh approach to the way that we deliver solutions to our clients. By de-coupling products and delivery channels, we can create common delivery mechanisms across products that integrate with a client’s financial value network. This will take some time to achieve fully, but it reflects a major shift from the traditional model that has the potential to benefit customers considerably. For example, as Patrik Havander and Håkan Aldrin illustrate in the article that follows, we are working with new types of media to facilitate information sharing and interaction, and in time, we anticipate major changes in how products and services are delivered.
Central to our delivery strategy is the depth of our relationship with clients. We take the time to understand fully a client’s industry, the specifics of their business, their needs, constraints and aspirations. We follow a structured, well-established approach to prioritising, creating and developing solutions, known as the SEB Corporate Financial Value Chain, and seek to deliver these solutions in a way that recognises not simply the client’s financial supply chain, but the entirety of the company’s financial value networks. In doing so, we reduce the implementation time and facilitate highly efficient business processes.
The traditional role of banks is changing rapidly; for example, with new options for borrowing, such as lending websites that match borrowers and investors growing in popularity, banks no longer have a monopoly on lending. Consequently, those poised for the greatest success in the future are those who embrace the new reality and both anticipate and respond to the evolving needs of their customers. Embracing the financial value network and seeking to automate and optimise every connection is an important way in which innovative banks such as SEB are moving up the knowledge pyramid (figure 1) to deliver not just processes, but real value to their clients.
How Thought Leadership Can Reduce the Cost of Sales by Patrik Havander, Havander & Partners A focused attention on the costs incurred by the global sales and marketing processes is becoming increasingly important for corporate banks and their transaction banking departments. While the client/bank relationship remains vital, research has shown that in fact relationship selling […]
