A BOOTY IN TREASURY MANAGEMENT
Big banks are chasing treasury management treasure around the world, and that means lots of dollars for IT to come up with new projects and platforms to make it easier for payers and billers to access automated corporate payments.
Bank of America's payments hub, US Bank and Visa's Syncada, Citigroup, and HSBC are among those chasing a huge international market, one that totals nearly $70 trillion-and a market that also happens to be behind the automation and efficiency curve. International corporate payments are still dominated by paper despite ample evidence that Web and even mobile channels are a good and profitable fit.
"It's clear to see that the Citigroups and Bank of Americas are spending boatloads of money on cash management and treasury management offerings. That's where the growth is going to be," says Jacob Jegher, senior analyst, Celent, taking note of the movements by major institutions such as Bank of America and Citigroup, which will compel downstream banks to upgrade.
"I see other banks launching platforms, and [institutions] are spending more time with clients in getting a read on the market," says Gary Greenwald, chief innovation officer of Citigroup's global transaction services business, which has planned a number of projects for 2010 around its CitiDirect BE ("Banking Evolution) service.
These projects will include electronic account management, which is aimed at reducing paper; work on upgrades to compliance with standards such as ISO20022, as well as work on introducing social media to its treasury management operation. He says the bank's early forays into social media will include information such as payment reparations in a specific country. "We're going to figure out how to make social media work in a B2B setting."
At Bank of America, there are a number of initiatives already underway and on the docket for 2010, including the development of a payments hub that integrates all payment channels.
"The hub will push and pull data into back-end systems to provide real-time transaction information for any type of payment that's originated by a customer or received by a customer," says Cindy Murray, a global corporate banking ecommerce executive at Bank of America. She says centralizing the flow of payments information will improve reporting consistency and data integration, which in turn will help BofA communicate with partner institutions in various parts of the world.
"The front end is a massive challenge, there's multiple payment types and [the challenge of] turning that into a single user interface," Jegher says.
There's indeed a competitive impetus to BofA's spending, as Murray anticipates bank investment in treasury management technology as institutions race to ensure compatibility with corporate payments stakeholders. "Banks will need to support the latest versions of XML at the same time they need to support both local and global XML formats," she says of the direct debit formatting technology necessary to offer regional or global corporate payments.
BofA's upgrade will also allow the bank to smooth over differences in different payments applications that have been deployed over the years. "There's a huge efficiency play, there's a lot of redundancies in these applications," Murray says. "All of these capabilities are around transactional services; and certainly the services are critical and we see an opportunity on a global basis to gain market share."
BETTER I.T., BETTER INFORMATION
Data's at the heart of almost everything banks do, and future investments in IT will be designed to work in several directions-collect more data and analyze it more deeply, while using less space and reducing energy and carbon footprints; all while under greater scrutiny from the government.
"We're working with our financial institutional customers on regulatory compliance. That's the huge thing that's going to be the focus for the next 12-to-18 months," says Glen Wordekemper, vp of operations services for First Data.
Wordekemper's anticipating a move by institutions to invest heavily in IT to meet the demands of a number of new regulations that are either being worked on, or that will go into effect during the next 12 months. He's part of First Data's preparations to handle client requests to help modify statements and loan applications to comply with new disclosure rules.
Among the rules are new credit card regulations and changes to Regulation Z and RESPA that will require most financial institutions to change disclosures on billing statements, as well as accrue and provide more data to consumers in the name of greater transparency. "We're ramping up our resources to handle the modifications to statements," says Wordekemper, adding the firm is deploying about 100 staffers to work on disclosure compliance and statement modifications. Later in the year, when the scope of economic recovery is presumably more clear, First Data is also expecting a greater concentration on IT projects that leverage data for loyalty-focused marketing programs-in addition to ongoing credit risk concerns, which is leading the firm to invest in upgrades in analytics that identify accounts that are either at risk or a good bet for retention plays.
The focus on corporate payments technology will also have a heavy data component. Citigroup's Greenwald says the institution is developing its analytic capabilities to improve case management, securities processing, supply chain and liquidity management. "We'll be able to analyze information such as how payment repair rates can help a client who's running a factory, or the benefits of a shared service," he says.
Statement modifications, CRM and payments are only part of the move to data management software. A number of recent innovations in storage, such as deduplication and virtualization, will pick up steam in the coming year as a means to use investments to remove long term space and energy costs.
"When you talk about data, there's going to be attention, certainly to the storage aspect. If you take storage to the next level; what do we do with all of the data that we have?" says Jim Washburn, banking consulting practice leader for North American, for CapGemini, who says that many institutions are sitting on vast amounts of bill pay and customer data that isn't being utilized to its full potential.
Virtualization firms such as FalconStore Software, VMWare, and Microsoft are betting the enticement of a two-to-threefold improvements in data server utilization rates will be enough to lure more than the early adopters. Most experts view increasing investments in technology that reduces operating costs - which includes maintaining data online, data server upgrades and infrastructure-as an area of interest for 2010. While virtualization is still relatively new, it's emerging as a way to shave costs and to hit "green" and other corporate social responsibility targets.
"What we're seeing [from clients] is a shift in the way IT managers are looking at their operations, saying 'If I can reduce my operations costs by 30 percent, I can offset all of my capital expenditures. I can then get even more value than if I don't spend a dime on new acquisition costs,'" says Fadi Albatal, a vp at FalconStore Software, which has about 4,000 customers in the "enterprise" market, though Albatal wouldn't provide further details.
The crisis, and the regulatory response, has also given way to an environment that requires banks to manage and account for liquidity, which will lead to more attention for technology that can consolidate liquidity analysis across lines of business.
"If banks are going to be required to manage changes in liquidity risk, they're going to have to spend money to do that," says Don DeLoach, CEO of Aleria, who says his firm's liquidity risk manager product has gone into contract with two institutions and has signed two others.
THE FUTURE WILL CORRECT THE PAST
Credit risk practices received much the blame for the banking crisis, and the shortcomings have not been fixed at many institutions. That means lots of money for deployments designed to ensure lending practices, portfolios and counterparties are in better shape than in the past.
To shore up risk strategy, banks will be making investments in analytics that do a better job of identifying risky borrowers or counterparties before problems emerge.
Part of the trend involves a migration from the north, as Canadian-style credit risk software infiltrates southward to the U.S. Risk management consultant James Lam says Canadian banks use credit risk technology to automate the collection process, with the payment of loans sorted and monitored on a loan-by-loan and on an overall portfolio basis. It's a depth that gives banks more vision into the performance of loans.
Among the firms hoping to take advantage of this focus is Covarity, who's partly behind the credit risk posture of Bank of Montreal, RBC and other banks in Canada, where credit risk management is considered to be more robust than in the U.S. and other nations. "In the U.S., most banks aren't even getting borrower statements delivered to them," says Rod Foster, CEO of Covarity, who's plotting a move into the U.S. in the coming year. "You can't do a review if you don't have the statements, and because of the [lack of statements] you're really only looking at what are considered problem loans...while other loans are creeping up on banks."
Covarity's commercial loan monitoring and portfolio management product automates the collection, management and reporting of financial documents, which gives immediate visibility into credit risk.
Deloitte senior director Ranjit Bawa says there will be investments across the entire risk spectrum, including credit, operational and security.
"A lot of banks are building middleware that can connect the dots across silos," he says, adding a lot of the action will be driven by pressure from bank regulators. "If there's an anti-money laundering program, for example, the middleware can identify a huge funds transfer that might not be on the radar."