What will be the impact of banking-as-a-service (BaaS) and embedded finance on different players in the treasury ecosystem?
To help answer this question Finastra brought together a panel of experts at Sibos 2021, held virtually from 11-14 October. The panellists included: Mark Williamson (MW), HSBC, responsible for the bank’s FX Everywhere initiative; Andy Hirst (AH), SAP Financial Services, an expert in banking transformation and modernisation; Valli Ardalan (VA), who leads Visa Direct’s global network expansion; and Finastra’s Chief Product and Technology Officer Eli Rosner (ER). Angus Ross (AR), Global Head of Banking as a Service and Technology Alliances, Finastra, was the moderator for this session.
AR: What are you seeing today in terms of market shifts, innovation and the role of technology, and how can this benefit clients?
MW: We’re looking to embed finance into our clients’ journeys, into the tools and distribution channels they use today. Whether it’s an enterprise resource planning [ERP] system, a treasury management system [TMS], or a client’s mobile phone, we’re looking to ensure that we’re putting finance at the right place, at the right time, for our customers.
VA: Customers are looking for ways to improve cash flow, liquidity, security, and to use the data that accompanies those payments to optimise their operations. We’re bringing to market a digital-first, easy and transparent way for our clients to enable their business customers to send and receive money in the way that works for them.
AH: Many corporate customers are connected through our business networks to their banking partners, so how can we help make their journey as easy and as frictionless as possible? Embedding financing applications deeply within the SAP application can help that digital journey for our clients, making it easier and frictionless.
AR: It’s great to hear three different perspectives here: from the banks or financial services providers; the retail brands and platforms that own the relevant point of context; and the providers connecting these supply-and-demand channels. Each will take different roles to influence and drive BaaS demand, but who holds the keys to success?
ER: There’s no single player who holds the key. It’s going to be a push-pull game. The chain starts with the consumer or corporation – paying money to conduct business with a brand. Banks like HSBC, and companies like Visa, are stepping forward to provide new capabilities. And companies such as Finastra are helping bring the different sides of the network (regulated entities and embedders) together in an open finance ecosystem. It’s a very interesting dynamic.
MW: It’s really important that everyone has clear roles and responsibilities within this new ecosystem. Banks have the licence to pay. We’re regulated. And for our clients that use SAP and other services, we need to ensure that we’re providing that final mile in that payment supply chain and that we’re part of our clients’ journey. For example, [providing a solution] that means they don’t have to come out of their SAP system to access embedded FX [foreign exchange] payments and financing that’s attributed to their supply chains and the invoices being created.
VA: Businesses want to pay and get paid in the quickest and most efficient way possible. Our job is to secure that capability. This is where Visa’s network of networks strategy comes in. We look to be a single connection point for our clients to move value, whether that be on Visa’s network or beyond.
AH: We want to empower our banking partners to enhance the customer journey for the corporates we serve. Uptake is best when it’s a natural part of a client’s normal action, when they’re in their application to request financing or FX.
AR: From what you’ve all said, it seems like retail and corporate customers are demanding embedded finance, and they’re demanding it now. So, the question is how can we achieve tangible benefits, incrementally, at pace?
ER: None of us can complete the whole mission on our own. The notion of collaboration and working together in a wider ecosystem is critical. Next comes experimentation. An agile and ‘fail fast’ mindset is critical. You need to be able to experiment and test the market quickly.
At Finastra we run a 90-day challenge – working in collaboration with a customer, or members of the wider value chain, to develop a working proof of concept in just 90 days. From there we decide if we want to productise it.
You’ve got to move quickly. And sometimes you have to make some sacrifices and change your commercialisation or monetisation strategy in favour of market adoption to achieve traction in the marketplace.
AH: How can we find new value? A lot of the time it’s through data. Within our large business networks, like Ariba, where billions of B2B [business-to-business] transactions happen every day, we have many points of performance between buyers and sellers along their procurement journey. If we can unlock the data, and all parties give their permission, then you can look at things in granular detail and see, for instance, what’s happening right now during the Covid-19 pandemic.
If you have a better view, you can offer better optimised supply chain financing. If you’re a corporate, sharing that data gives you a real-time picture of the situation right now. Clearly, both the bank and the corporate have got to be able to connect almost ERP-to-ERP to exchange that information, to make the most optimised products.
We’re helping corporate customers connect to their banking partner through APIs [application programming interfaces] – to connect to multiple banks on the back end, to exchange data or work on new value-added use cases.
MH: When you look at new digital money and supply chains, you will see that they go outside many of the traditional distribution channels that bankers and treasurers see on a daily basis. So, for example, you’ll have supply chains that have been moved to new distributed ledger technology.
Our clients are saying: ‘This is great because I’m able to see the provenance of my goods and where they are. I’m able to understand when they’ve hit port and when they’re going to be delivered.’
If we’re able to then extend this into the SAPs of this world, and we’re able to embed FX payments and financing at the time that delivery versus payment occurs, then we can also take away some of the FX risk and improve working capital, then I think we start to win.
Typically, each participant thinks just about the one piece of the puzzle they’re responsible for, rather than trying to understand the bigger picture.
From talking to many treasuries, it’s clear they have the same challenge. They’re usually the last ones to know that there’s a really cool bit of innovation that’s going on within their broader company, for example digitisation of the supply chain. But somehow, they’ve got to work out how do they improve managing their working capital, using the transparency enabled through adoption of newer-world technology.
ER: When you come together and leverage one another’s distribution channels, then you can achieve exponential growth. Recognising the new dynamics in the marketplace is a process we’re all going through. I’m very encouraged to see that in the market and hear each of the panellists talking about becoming more open and collaborating more.
MH: I think the old saying of ‘know what you’re good at, and be good at what you know’ is really relevant. Understand your value within the new digital supply chain and the value that you bring to your clients.
Collaboration is also really important. If you’re going to build a network of networks, then you need to understand your roles and responsibilities in that network, and how you can start to daisy-chain some of these solutions together to provide the best outcomes for clients.
AR: Any final thoughts?
VA: Metcalfe’s law says that the value of a network is proportional to the square of the total nodes in the network, so as you add a single node to a network, the effect is significantly greater than the addition of that node alone. It’s a change in the way that we’re all operating. When we look at Visa’s role in shaping what we see as the future of B2B2C [business-to-business-to-consumer] payments, we’re looking at a transformation of money movement globally. It’s about being aware of what the customer needs and building solutions to solve the problems they have.
MW: The transition from heritage to digital is going to provide us with a whole bunch of opportunities and challenges. We’re going to listen to our clients [about] the tools and channels that they consume our data and services from. How we connect that, and whom we choose to partner with, to provide those solutions to our clients at the right place at the right time, is going to be really important.
AH: We have a vision of building a huge business network, interconnecting all 400,000 ERP customers with ourselves. That will give our banking partners, and others, a business opportunity to build a customer journey offering embedded capabilities such as financing, FX or cash management.
ER: If the future of finance is open, then everything needs to be delivered as-a-service. All of us on the panel recognise that it can’t be done alone.
AR: “To build a network of networks, drive adoption and do what’s relevant for the customer, it must be done in collaboration. I think we’re all energised and excited about the opportunity ahead.”