While citizens in Germany are consciously or unconsciously using new and innovative forms of payment beyond cash, mobile-only banks and other payment means driven, among other things, by Fintech’s, the use of innovative methods is stalling in other areas of banking. We are talking about the complex subject of corporate banking, here in particular with a view to payment transactions.
But why is that?
We’ll start with an example: “Please help the authorized signatory of company XY to fill out the bank transfer form and then submit the floppy disc for processing the salary payment to the back office? ” Does that look familiar to you? The cashier’s inquiry might have sounded like this or something else in the training of a bank clerk.
The training was completed years ago and (fortunately) a lot has happened in payment transactions apart from cash payments and accounts. Or isn’t the difference to the past then so great? For comparison: 10 years ago Steve Jobs presented the first iPhone. Considering the development stages the iPhone has gone through as a smartphone since then, the further development of payment transactions by corporate banking customers over the past decade has been very cautious.
Payment transaction requirements differ considerably among users (private customers or corporate customers). The thought leaders, digital natives and technology nerds attach importance to an appealing user experience and innovative features in their private environment. They now want to enjoy all facets of the banking business digitally far beyond the online account alone. However, companies pay much more attention to issues such as security, data protection, system stability and the (unfortunately) well-known “never change a running system”. Despite increased private curiosity about innovative, digital products for finance and money, progress among corporate customers is almost non-existent.
But what or who can be a driver of innovation and where is a corporate customer’s payment traffic heading?
A company has two essential requirements for its payment transactions
1.) Receipt of information in the form of an (electronic) account statement, and
2.) the execution of payment transactions (e.g. bank wire transfer)
This is usually controlled and managed via an electronic banking system. Communication is largely defined by the EBICS standard. In particular, the introduction of SEPA was and is for many corporate customers a (first) major step towards the professionalisation of payment transactions. The conscious examination of the existing path of payment transaction management showed the status quo and highlighted the strengths but above all also the weak points. SEPA provided the Cash Manager/Treasurer with a tool which, if used correctly, increased efficiency and can continue to do so. Through the introduction of SEPA, formats were defined that are identical in the SEPA area and thus make payment transactions across national borders easy.
Now, however, there are some limitations. Very often, medium-sized companies in particular use systems for payment transactions and account management that meet the minimum requirements for an electronic banking system but slow down the modernisation, automation and professionalisation of payment transactions within companies. Why is that? Habit, fear of change, personal preferences, no trust in future generations and technologies?
Quickly we end up with the ‘chicken-and-egg’ problem. Should banks set the course and impose their own digital agenda on companies and, for example, offer modern electronic banking systems with great features, if possible by use of a block chain (somewhat exaggerated) and interface-optimized? Or does this impulse also have to come from the companies? Do the banks have to make their customers much more accountable for this, or must mutual understanding first be established? Is such, almost cooperative, behaviour possible at all, or is the relationship between customer and service provider too pronounced for this?
What do companies want when it comes to payment transactions?
According to a study conducted by Commerzbank together with FH Mittelstand, companies today want to manage their liquidity and cash flows holistically at all times. In the past, it was only administered, today it used to be efficient, active and professionally managed – also through the use of software. The reasons for this are transparency, reduced transaction costs, intra-group liquidity management and automation. A cash management system/electronic banking system is now used by around 50 percent of all companies (both large corporates and SMEs).
Despite the use of an electronic banking system, only 10 percent of companies also use access via an app to a mobile device or tablet. Unlike private use, where a variety of third parties now access our financial information, companies do not want their information to be used by third parties (excluding tax advisors and auditors). This was stated by 75 percent of the respondents. A similarly high number of users of cash management systems do not expect cash management to be interconnected with other internal systems for the reasons of data protection and security mentioned above. It is astonishing when one looks at the already described curiosity for innovation in the private environment and digitisation activities in other areas of a company.
Nevertheless, many employees in finance departments make an effort and claim to gradually transform the structures that have grown over time into the modern and digital world. No quantum leaps, but adapted to the circumstances. This is where the banks come in.
What do the banks want concerning the payment traffic of the future?
The attractiveness and earnings potential of corporate customers should be a source of inspiration for domestic banks. Confidence remains high and the hurdles to switching after setting up a functioning electronic banking system including payment transactions are very high. Enough reasons to continue to act as the hub of a corporate client’s finances in the future. However, there is only limited time to rest. The banks find themselves in a competitive crowded-out market and are attacked by large foreign banking institutions and above all technology groups.
Banks often offer their customers cooperations with partners or set up platforms that provide the customers with supposed added value without responding to the concrete wishes of the customers. Fintech’s many good ideas and in-house approaches are made available to the customer as unfinished piecework without (felt to be) a clear strategy. Whether there is a concrete need is often only questioned in the next step. The developments within the banks are thus developed independently of the customer and, in many cases, are not in line with the customer.
Banks want to make their services appealing to customers through their advisory strength and expertise. The Transaction Banking departments advise their clients with experts on all topics and information relating to the transaction business. More complex issues in particular, such as the sale and payment of a machine or the provision of a service abroad, are complex, cross-border and cross-currency and require the bank’s expertise or correspondent banking network. Here the banks currently still have a very large asset to defend. Many new players on the market, such as Transferwise in foreign payments, portray things that were originally a traditional banking domain (see also Michel Hilker’s blog article “Quo vadis AZV“).
In addition, banks not only want to make their corporate customers happy, they also want to drive their own processes forward. Because in order to offer a customer an innovative product, you have to be an innovative bank that can also provide and execute these products. Often a break in the thought process between the wishful thinking of “modern bank” and reality.
We see that a professionalization and a certain rethinking has begun in the finance departments of companies. The desire for changes is there, but from the point of view of the respective departments often resembles an open-heart surgery at the payment transaction processes. An adaptation is only possible step by step. The bank must create system-side conditions in order to be able to implement new systems, processes and requirements and not remain stuck on its “legacy”. The often cited “thinking from the customer’s point of view” must also remain a strong focus in corporate banking. The banks should avoid going it alone.
Companies must initiate and closely accompany the change of their systems, and there must be a strong commitment by the employees conducting the change and the responsible management. The active involvement with the topic of payment transactions must be an essential part of the job profile.
The majority of medium-sized companies should give the coming technical and personnel generations in the finance departments the chance to implement new approaches and to trust these approaches as well as the executors. Otherwise, the desire for progress remains only a wishful thought – and not only with regard to payment transactions.