Reducing Costs, Generating Revenue: The Value of a Bank Partnership

Published: October 25, 2010

Tom Shrimpton
Director of Payments & Cash Management, Global Financial Institutions, Lloyds Banking Group

Reducing Costs, Generating Revenue: The Value of a Bank Partnership

by Tom Shrimpton, Director of Payments & Cash Management, Global Financial Institutions,  Lloyds Banking Group

The financial services market, in particular the correspondent banking sector is in the midst of a major transformation with growing competitive, regulatory and operational challenges. Today more than ever, financial institutions are under pressure to reduce costs, develop new revenue streams and maximise access to liquidity. Core to achieving this is the need to provide comprehensive, cost-effective and robust cash management services to clients. Working with Lloyds Banking Group (‘Lloyds’) as a partner for sterling clearing services gives our financial institution clients the confidence that they can meet their clients’ current and future requirements, supported by the bank’s scale, processing excellence, expertise and innovation.

In a largely commoditised business with narrow margins and relentless competitive pressures, financial institutions are seeking a market-defining cash management provider who can offer a combination of robust, reliable and cost-effective core processing with innovative solutions that can generate new revenue streams, manage clearing costs while further enhancing their clients’ experience. At Lloyds, we have the technology and experience, developed over many years, to achieve our clients’ objectives. In an industry which processes huge payment volumes daily, there will inevitably be the occasional issue. With cost reduction among the top priorities for our financial institutions, with a focus on the end-to-end cost of processing and servicing payments, clients trust Lloyds to have the skills and commitment to resolve issues promptly and efficiently, minimising disruption to their business. We take accountability for our performance in delivering our services, developing trust with our clients, resulting in industry-leading levels of client satisfaction.

Creating competitive advantage in a changing regulatory landscape 

We work closely with our clients to develop market-leading capabilities that set our clients apart from their competition by enabling them to deliver pragmatic solutions that benefit both their clients and their bottom line. For example, sending a cross-border, cross-currency payment, such as a US dollar payment to the UK, can result in an FX when processed onto the beneficiary’s account including both a margin and deduction - from which only the bank providing the FX conversion and account benefits. Centralising payments traffic into the UK through our Local Currency Payment Conversion solution (FX Share) can enable our clients to share equally in these revenue streams, strengthen relationships, and add commercial advantage to our clients’ proposition without jeopardising the payment experience.  

New industry and regulatory initiatives create challenges for financial institutions, but by leveraging our skills and innovative approach, we can help turn these into opportunities. For example, the Single Euro Payments Area (SEPA) and Payments Services Directive (PSD) provide the opportunity for a harmonised, cohesive approach to payments processing across the Eurozone. Lloyds is a direct member of the major euro clearing schemes (EBA (EURO1 and STEP2) and TARGET2) as well as supporting the necessary payment instruments and formatting requirements.

Not only does the changing regulatory environment pose issues for financial institutions, but payment processing is also going through major developments that create both challenges and opportunities. For example, SEPA Direct Debits (SDD) will become increasingly important to non-bank financial institutions, such as insurance companies, from November 2010, as banks supporting domestic direct debit schemes will be obliged to support the new instruments. We are already helping clients to develop new client offerings and integrate data efficiently into their organisation. We anticipate SDD will ultimately replace many MT101 payment requests, as they are quicker and more cost-effective to administer, so again, this is an area in which we are supporting our clients. SEPA also brings the potential for financial institutions and their clients to rationalise their banking partners, incoming and outgoing payments processing, and technology infrastructure, which is likely to lead to fewer, closer relationships based on mutual value. This relationship model has been steadily and successfully adopted by Lloyds over a number of years.  

Another example of the changing landscape in the UK is the increasing focus on cheques. The National Payments Council is engaged in a cheque reduction programme, although cheques still play an important part in the overall payments landscape, not least because the float is valuable for liquidity purposes. However, use of cheques is expensive and reduces the predictability of cash flow, which actually impedes efforts to manage liquidity and maximise use of cash. We are working closely with clients to understand the potential impact of phasing out cheques, and find innovative solutions that deliver added value, including Bacs, SDD and Faster Payments. [[[PAGE]]]

Prioritising liquidity

It quickly became apparent during the financial crisis that new regulations would be required to reflect the value of liquidity in a disciplined and resilient marketplace, and we are now seeing these requirements taking shape in the form of new regulations such as the Individual Liquidity Adequacy Standards (ILAS) in the UK. Since early 2009, Lloyds has been working with clients to anticipate regulatory changes and find ways of enabling clients to access the liquidity they need to manage their business and that of their clients. To achieve this, in addition to offering CLS Nostro Agent Services, we reserve liquidity for our clients at limits that reflect their business flows. While other banks offer this on a ‘soft’ or non-committed business, we are increasingly finding that our clients place a high value on this service.

Delivering value

We recognise that initiatives to reduce costs or generate revenues need to be effective immediately, so to achieve this, we have rationalised and accelerated our onboarding process to enable projects to be delivered on time, within budget and with a minimum of risk. We have achieved this by mapping project tasks carefully, focusing on the priorities and dependencies on the critical path. Clients have complete project visibility, supported by regular progress reporting, reducing the risk of misunderstandings or differences in expectation. Increasingly, we are finding that an efficient and transparent approach to implementation is an important criteria when deciding to adopt a new solution. Increasingly, financial institutions are attracted to Lloyds’ transparent, partnership approach, with detailed pre-implementation and post-implementation reviews, and a recognition of both short- and longer-term needs and objectives.

A partner in business

As a major clearing and correspondent bank, providing payment services is a core aspect of our business, delivered by the most respected and experienced individuals in the profession, highly automated ‘best of breed’ technology and a focus on supporting the commercial and operational requirements of our clients. Our clients are professional organisations with highly skilled resources. We avoid a call centre model that frequently lacks accountability and in-depth knowledge of each client’s business. Instead, we appoint a small number of named individuals who understand the business and can therefore help to address queries promptly. This approach also provides clients with a clear escalation process. In addition, a relationship manager works closely with the organisation to ensure that the right products and services are in place to support its ongoing requirements.

However, we also recognise that our clients have additional requirements that may be very specific to the business. We established our Agency Treasury Services (ATS) division, part of Lloyds’ financial institutions business. With over 20 years’ experience, ATS offers bespoke treasury outsourcing services according to the needs of each client, including transaction processing and custom reporting, enabling clients to access services not only from Lloyds Banking Group but across the market. We place a high priority on establishing and maintaining a close relationship of trust with our clients ensuring our services continue to meet and exceed client expectations. We maintain high levels of confidentiality, with separate offices, systems, staffing and contingency arrangements, so there is no visibility over transactions, counterparties, rates etc. outside ATS.

Collaboration and trust

In an environment where banking products have become increasingly commoditised, we focus on developing collaborative, holistic relationships with our clients that reflect the breadth and specific nature of their requirements. We aim to bring a fresh commercial approach, innovative solutions combined with resilience and security of core processing, industry-leading expertise and accountability for our performance. Consequently, Lloyds is positioned as the banking partner of choice for financial institutions seeking to enhance their competitive advantage and deliver the best possible services to their clients.

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Article Last Updated: May 07, 2024

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