From spend management tools to SWIFT network integration, money-center banks are quickly evolving into the one-stop corporate payments shop that their treasury clients have long demanded.
Last month, Bank of Montreal (BMO) announced a significant upgrade to its corporate procurement-card offerings that expanded its widely used p-card division into an overall spend management unit. The deeper suite of e-services will provide a single-view bank interface where treasurers can perform more areas of procurement, from corporate settlement to supply-chain invoicing, as well as internal T&E tracking of employees.
BMO adopted the payments and spend-management technology via Sunnyvale, CA-based Ariba; last June Citigroup deployed a new automated payments system that connects to Ariba’s network of more than 160,000 suppliers.
“P-card, T&E, and fleet only consume 10-to-20 percent of total spend” with clients, says Terry Wellesley, managing director of BMO’s spend & payment solutions division. “But it is the second- or third-largest controlled expense.”
BMO, which is a top 10 corporate-card provider in North America, already runs an extensive network of more than 30 partner banks, all MasterCard issuers, to share data enabling corporate treasuries to track and analyze spending across borders and their multiple bank relationships. The alliance is a competitive throwdown against American Express, which dominates the p-card space and two years ago made its own electronic integration foray by forming its S2S (source-to-settlement) e-invoice and payments service after purchasing Harbor Payments. “We saw the marketplace and what we were doing,” says Wellesley. “We felt if we’re not getting into that space, it puts in jeopardy our p-card business in the U.S., where we have almost 25 to 30 percent of our [procurement] business.”
The integration trend involves a “true convergence” of cash management, commercial cards and trade finance areas that “the banks have [traditionally] managed quite separately,” says Susan Feinberg, a TowerGroup senior analyst in the wholesale banking group. “What’s apparent to me is that their efforts to bring these different product areas together are starting to pay dividends.”
Banks have done this consolidation with different strokes. JPMorgan Chase acquired supply-chain finance firm Xign Corp. in 2007 to build out its corporate network of e-invoice connections, and later added procurement functionality. BMO, meanwhile, is choosing to white-label the technology from Ariba so it won’t need to work on in-house upgrades and development of new releases.
These single-view, real-time visibility systems for cash and payments have been on corporate wish lists for years, but there were no technology solutions to handle the cornucopia of proprietary connections and formats from vendors. That’s changing. Thanks to XML and ISO 20022 standards— which have created universal financial messaging schemes—banks, vendors and networks no longer feed off the exclusivity of their EDIs as a profit center. They are focused more on bringing more value-added services, says Bank of America’s Susan Colles, an svp and senior product manager in the global corporate investment bank unit. “We really do not see the format or the message construct itself as being a competitive area.”
“I always laugh when I talk to corporates who said to us banks, ‘Why can’t you all do the same thing’” in payments infrastructure, says Linda Haddad, svp and SWIFT corporate access manager for the global corporate investment bank unit of Bank of America. “Obviously they don’t use all the same ERP systems, yet they want us all to directly integrate into their ERP systems.”
“This is the first time I’ve seen this collaboration between channel, languages, and all the users—from originator down to receiver—making agreements on how to communicate with each other,” says Haddad.
With ERP vendors planning out-of-the-box interoperability with payment messaging standards, Bank of America’s corporate services area can concentrate on value-added services to clients, such as differentiating payments by urgency and schedule. Instead of the high-value/low-value metrics that were used to measure the speed and cost of payments, says Haddad, the emphasis is trending toward what supply-vendor-payment discounts can be tripped depending on timeliness or bulk packaging. “They’re less concerned that we send them via wire, via ACH or via EFT,” she says. “They’re more concerned with getting it there when [or how] I want it. If it’s an urgent payment, they’re willing to pay for it; if not, they will bulk it up into a file and send it to us.”
BofA mirrors that service along the lines of the international SWIFT-coded corporate payments network’s thin-message (urgent) and File Act bulk service. That’s not a bad direction to take: SWIFT now links up more than 8,300 institutions in 208 countries to create a seamless interbank payment messaging and remittance system for multi-nationals.
In a recent report on the cash management integration trend, Feinberg notes that “most major U.S. financial institutions are beginning to execute on a vision of a unified corporate banking portal,” including eye-catching Web 2.0 toolsets. Feinberg cites BofA’s CashPro Web portal site (which originated with ABN AMRO’s LaSalle Bank, prior to BofA’s acquisition) and Wells Fargo’s CEO Portal as the models from which many of these initiatives take shape.
But, she writes, a “vast majority” of banks’ universal cash management efforts are at early stages of maturity. Often, these corporate portals still require the launch of separate applications, and in some cases exclude products from units that want to protect turf from other services that might poach their divisional clients.
“The most highly evolved corporate banking portals aim to reinvent the front-office applications of the past by offering solutions that mirror clients’ daily workflows across multiple bank product lines,” she writes. An example: if an investment client finds excess liquidity in a current-day position report, a portal could pop up an option to invest those balances. Today, that treasury official would be required to log out of most bank cash management systems and shift over to a separate investment portal.
“I think the drivers are pretty straightforward,” says Feinberg. “I think corporate clients have always been frustrated by banks’ siloed nature, and the inability to get a complete, consistent picture of banking relationship, and for banks to pull together a set of solutions that make sense from the customer point of view rather than the bank’s point of view.”
Corporate treasurers are also working leaner than ever and are dealing with fewer people and fewer resources. “They’re looking for third parties to help them pull a lot of data together, put a lot of capabilities together that they frankly they don’t have the capacity to do themselves,” Feinberg says.