Speed. And more speed.
It is what corporate treasurers want most from their banks these days, including faster account opening, quicker transaction settlement and more timely access to information, according to attendees of an international banking conference this week.
But technology hurdles make this wish list hard to deliver.
"The problem today is the [account] onboarding process is very complex," Falk Rieker, global industry business unit head for banking at SAP, said in an interview at the Sibos conference in Boston. "I was just in a roundtable discussion, and one guy was saying it takes three to six months to onboard a corporate customer. Another said, 'How did you get it down to six months?' "
Many banks still have manual processes and proprietary software that are beneficial in the short run because they make it harder for customers to switch banks. But Rieker says banks are trying for more standardization, realizing that their current situation is unsustainable.
"If you want to ramp up more than one corporation every six months, you need another model," he pointed out. Corporate clients would like standards that allow them to work with more than one bank. This is especially true for companies that are active in several countries because they need multiple banks to handle cross-border payments.
The need for speedier account opening is one of the drivers behind a four-year project at Bank of America to streamline its corporate treasury technology.
"Onboarding is very intimate," said Bill Pappas, who is the chief information officer for global wholesale banking at the Charlotte, N.C., bank. "It's all about the client experience the first line of defense after you've bought a treasury product is the onboarding process. For us it's revenue; we need to bring them in as fast as we can."
Clients want to be able to provide information for the account opening in its current format, rather than having to reconfigure their files. Pappas declined to say how long the typical setup process takes at the bank, saying that it varies by product and geography.
The Push for Faster Payments
Corporate clients want to see their balances in "real time," said Alastair Brown, who is head of e-channels for Royal Bank of Scotland's global transaction services unit. (He was until very recently the CIO for international banking at RBS.) "But during the global business day, what does it mean to be real-time when you have batches [of transactions] running in different countries? I think those are questions we haven't understood."
He also believes real-time settlement will be the key to helping treasurers unlock the value in "the exhaust trail of data they're collecting," he said.
"I think there's value to be had to analyzing what you're doing. Not being real-time will become an issue," he said.
Rieker believes strongly that U.S. banks need to move to real-time payments.
"If you want to stay in business and scale your business, you need a real-time system rather than a batch-oriented system from the '80s," he said. He has a vested interest in this point of view SAP offers a real-time product called Payment Engine that is used by Deutsche Bank and others.
"I would like to see a world-leading country like the U.S. get to the point where real-time payments are less exotic," Rieker said.
Craig Ramsey, who is solutions lead at ACI, is from the U.K., which has already gone through a "faster payments" initiative.
Asked about faster payments initiatives in the U.S., he says: "What are you waiting for? Just do it." Ramsey was scheduled to give a speech on Thursday at Sibos entitled, "Oh No, I've Implemented a Batch System in a Real-Time World."
"I came up with the title and [conference host] Swift loved it," he said.
Part of the impetus behind faster corporate payments, Ramsey said, is the fact that "the 19- to 22-year-olds who expect everything immediately are tomorrow's treasurers. Twenty years ago you'd get cool new technology at work. Now, it's the other way around: you go to work and you downgrade your expectations."
Faster payments have changed the way people think about money in the U.K., too, he said. People expect funds such as expense reimbursements to be available immediately.
Legacy System Problems
A major holdup has been the fact that it is costly and time-consuming for banks to modernize their legacy systems to accommodate real-time transactions.
Indeed, the biggest cost in the U.K. of going to faster payments was core-banking upgrades; British banks spent about $1.8 billion on such projects, according to Ramsey. "Big core upgrades are scary for any bank because they're the heart of the bank," Ramsey said. "You can't change those easily."
"When you look at the infrastructure needed to go to real-time, it's significant," Pappas said. And the transaction fees banks charge their corporate clients are too small to make up for the added expense.
But while it is hard for individual banks to make a business case, they might do better if they combined forces, said Robert Flynn, managing director at Accenture.
"The question is: could the industry collectively make a business case?" he said.
The Fed's faster payments initiative is a start, he pointed out. But even the Fed acknowledges that for banks the payment system upgrades will be breakeven at best, he said.
"A lot of people would say there's latent demand in the model: if you build it they will come," Flynn said. "But with a large financial institution, that doesn't fly. You run an organization based on business case and business drivers."
However, Pappas also acknowledged the inevitability of real-time payments. "I don't think it's something we'll be able to avoid forever," he said.