Businesses are being left behind as many banks continue to focus on the consumer market. Laurent Descout, CEO at TMI Innovation Lab entry Neo, argues that it is time for treasurers to look beyond the traditional corporate banking model.
Banks’ investment into systems has mainly been focused on the needs of consumers, with limited consideration for their corporate clients. Consequently, many corporate treasurers grapple with outdated systems that are far behind the more modern platforms, apps, and services available via their personal banking accounts.
This trend is not exclusive to corporate banking. Commercial insurance buyers with multimillion-dollar budgets still wonder why they have to deal with paper policy documents that take six months to come through, while personal customers can arrange their home contents insurance on a pay-as-you-go basis through an app on their phone.
Similarly pension fund managers and other institutional investors with millions in AUM wonder why they don’t have personalised investment services and digital wealth platforms like ordinary retail investors.
However, this deficiency is possibly most evident in the corporate banking market where most institutions have yet to progress their offerings beyond the most basic banking services.
Overlooked in open banking
This trend of overlooking the corporate customer is even reflected in banking regulation, namely the open banking scheme in Europe. The initiative was introduced in the EU in 2018 as part of the Revised Payment Services Directive (PSD2). It is designed to provide more competition and innovation and to enable disruptive fintechs to break the monopoly of the traditional high-street banks when it comes to personal bank accounts and payment services.
This was achieved by making customer account information available to non-bank third parties using APIs. Four years on, there are more than 500 open banking providers across the UK and Europe. However, it seems that many of these are focused on the consumer market.
In theory, there should also be plenty of benefits from open banking for corporate banking customers, such as better access to company data; faster credit decisions; more accurate risk profiling; and a more efficient onboarding and account-opening process.
But much like the banks, open banking is arguably too fragmented and does not go far enough to meet corporates’ banking demands. This is most evident when it comes to currencies. Open banking deals mainly with euro payments, which is appropriate for the consumer market where most users might have a single euro bank account.
However, corporates have far more complex multicurrency requirements. While treasurers might be able to view all of their euro transactions in one interface, the regulation falls short of truly addressing their cross-border needs.
What corporates really require is a single interface where they can conduct treasury forecasts as well as all their audits and cash positions in real time, whatever the currency.
The traditional corporate banking model is still prone to inefficiencies and suffers from a lack of investment. Banks’ IT budgets are often channelled into updating their own aged legacy systems that are unable to communicate with each other and third-party systems effectively.
Another source of frustration for corporates is banks’ reluctance to offer multicurrency management solutions and to allow, for example, cross-border clearing for USD payments. This reticence is in case the payments violate sanctions. In 2015 BNP Paribas was ordered to pay €8.9bn to the US Department of Justice for such a violation, and billions have been paid out by other European banks since then.
Demand for alternative options
All of these shortcomings – the lack of investment in new platforms and the absence of multicurrency management tools – are why many treasurers are desperate for an alternative option to the traditional corporate banking model.
However, there are good reasons why many corporates choose to remain with their traditional banking partners. One is the fact that companies often give their business to banks in exchange for credit. Another is the lack of awareness of what alternative options are out there.
But while the open banking rules might fall short of meeting corporates’ cash management needs, they should at least inspire those treasurers who value automation over financing to look beyond the traditional corporate banking model.