Top 10 Technology Initiatives for Wholesale Banking in 2011
Susan FeinbergSr Research Director, Wholesale Banking, TowerGroup
Patty HinesDir, Financial Services Industry Marketing, GXS
© 2011 The Tower Group, Inc. May not be reproduced by any means without express permission. All rights reserved.
Top 10 Technology Initiatives for Wholesale Banking in 2011
Susan FeinbergSenior Research DirectorWholesale Banking
February 2, 2011
Priming the Engine for Long Term Growth
© 2011 The Tower Group, Inc. 2
Agenda
2011 Business Drivers
Strategic Responses
Top Technology Initiatives
Conclusions
Source: TowerGroup
© 2011 The Tower Group, Inc. 3
Top 10 Technology Initiatives for Wholesale Banking
Source: TowerGroup
Top 10 Technology Initiatives for Wholesale Banking (2011)
Consolidate commercial lending platforms
Deploy mobile corporate banking solutions
Enhance small and medium enterprise (SME) payment solutions
Execute on payments convergence to increase client value
Implement comprehensive life-cycle management solutions
Implement multibank digital identity management
Modernize core banking platforms to support a global branch network
Optimize use of business intelligence
Provide deeper integration to client enterprise resource planning (ERP)/ treasury solutions
Update and integrate trade finance platforms
Business Drivers
Major regulatory changes
Prolonged, uneven economic recovery
Client demand for convenience/ease of use
Reputational risk as a result of growth in
cybercrime
Globalization
Strategic Responses
Lower the overall technology cost base
Focus on ease of doing business
Minimize fraud and security risk
Invest in less capital-intensive businesses
Build capabilities targeted at high-growth
regions, industries
© 2011 The Tower Group, Inc. 4
Business Drivers
© 2011 The Tower Group, Inc. 5
Strategic and Tactical Impact of Regulation on Wholesale Banking in 2011
Global, regional, national
• Basel III –banks will start to make strategic decisions about long term composition of the business based on new capital requirements. Significant impact on Trade Finance
• SEPA Migration end dates – Banks and corporates will need to respond to the newly proposed end dates for legacy payment systems
• Dodd-Frank – Wholesale could be the beneficiary of the new regulatory burdens for retail but how will banks respond to the repeal of Reg Q? And nobody knows what impact might the new Office of Financial Research will have.
© 2011 The Tower Group, Inc. 6
EC Technical Requirements for SEPA andCompliance per European Payments Council
EC Regulation’s Essential Technical Requirements European Payments Council Schemes
Must use International Bank Account Number (IBAN) and Bank Identifier Code (BIC)
✔
Must use ISO 20022 XML standards ✔
Users submitting bundled transactions must use ISO 20022 XML standards
EPC recommends but does not require these standards for customer/bank communication
Minimum 140 characters for remittance data, no clipping ✔
All messages must be transmitted electronically ✔
No minimum amount, schemes not required to process transactions of >€100 million
No minimum or maximum amounts
Interbank credit transfers must include a code to identify the payment scheme and a transaction reference number
✔
Direct debit (DD) only: Mandate reference number and date of signature
✔
DD only: Original mandate reference number for assigned mandates
✔
DD only: Identifier for type of mandate ✔
Source: European Commission, European Payments Council, TowerGroup
© 2011 The Tower Group, Inc. 7
80
2007 2008 2009 2010
World Advanced Economies Emerging Economies
Emerging Economies Are Leading the Recovery
Source: Haver Analytics, International Monetary Fund
Merchandise Exports Index (2007–10)January 2007 = 100
Retail Sales Index (2007–10)January 2007 = 100
90
100
110
120
130
140
150
160
2007 2008 2009 2010
80
90
100
110
120
130
140
150
160
2007 2008 2009 2010
© 2011 The Tower Group, Inc. 8
-65
-50
-35
-20
-5
10
25
40
55
70
85%
4Q05 4Q06 4Q07 4Q08 4Q09 4Q10
Small C&I Loan Demand Small C&I Loan Standards
Large and Medium C&I Loan Demand Large and Medium C&I Loan Standards
Trends in US C&I Lending Standards and Demand (2005-2010)
Source: July 2010 Federal Reserve Board Senior Loan Officer Opinion Survey, TowerGroup
Net percentage reporting tightening standards for C&I loans from previous quarter
Net percentage reporting stronger demand for C&I loans from previous quarter
© 2011 The Tower Group, Inc. 9
Ease of Doing Business: A Multifaceted Approach
Source: TowerGroup
Onboarding and Account Mgmt. Centralized Support
One Size Does Not Fit All Multichannel Environment
Ease of Integration
eBAM
© 2011 The Tower Group, Inc. 10
Top Reasons Cited by Banks for Lost Corporate Business (2010)
Inadequate Products & Services
Interest rates and fees
Ease of access to services & information (channels)
Insufficient turnaround time
Insufficient geographic coverage & reach
Financial weakness
62%
57%
57%
62%
56%
56%
25%
% of Banks Responding
Source: Finextra/Pegasystems Corporate Banking Customer Satisfaction Survey 2010
© 2011 The Tower Group, Inc. 11
Top Reasons Cited by Corporates for Reducing Business with a Bank (2010)
Ease of access to services & information (channels)
Inconsistent customer service
Financial weakness
Interest rates and fees
Insufficient turnaround time
Insufficient geographic reach
Inadequate products & services
46%
46%
23%
56%
56%
25%
23%
15%
0%
0%
% of Corporates Responding
Source: Finextra/Pegasystems Corporate Banking Customer Satisfaction Survey 2010
© 2011 The Tower Group, Inc. 12
Reputational Risk as a Result of Growth in Cybercrime
Banks are struggling to keep up with evolving cybercrime techniques, especially those targeting SMEs
Authentication methods once thought to be highly secure have been compromised
Most banks are adopting a layered security approach with a heavy focus on client education
Large global banks are starting to issue multibank digital certs with signing functionality to corporate clients, driven by eBAM
In US, FFIEC is expected to issue new guidance on authentication and security for online banking
© 2011 The Tower Group, Inc. 13
Globalization of Clients and Competition
Deutsche Bank is rolling out core technology from Tata Consultancy Services
(TCS) across its Global Transaction Banking (GTB) business in more than 30
countries
© 2011 The Tower Group, Inc. 14
Globalization of Clients and Competition
Deutsche Bank is rolling out core technology from Tata Consultancy Services
(TCS) across its Global Transaction Banking (GTB) business in more than 30
countries
Deals Likely to Flow in Just One Direction: South
Reaction to BMO acquisition of M&I
© 2011 The Tower Group, Inc. 15
Globalization of Clients and Competition
Deutsche Bank is rolling out core technology from Tata Consultancy Services
(TCS) across its Global Transaction Banking (GTB) business in more than 30
countries
Deals Likely to Flow in Just One Direction: South
The Bank of Tokyo–Mitsubishi UFJ and Union Bank Establish Joint Deposit and
Cash Management Strategy
Reaction to BMO acquisition of M&I
© 2011 The Tower Group, Inc. 16
Value of Exports (USD in Billions)
Quarterly World Merchandise Exports (2007– Third Q 2010)
14%21%
24%28%
23%
-12%
-31% -33%
-26%
4%
27% 26%
18%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3
Value of Exports Year-to-year percentage change
Source: World Trade Organization, TowerGroup
Year-to-year Percentage Change in Value of Exports
© 2011 The Tower Group, Inc. 17
Strategic Responses
© 2011 The Tower Group, Inc. 18
2011 Strategic Responses Will Probably Sound Familiar
Lower the overall cost base
Focus on ease of doing business
Minimize fraud risk
Invest in less capital intensive businesses
Build out capabilities targeted at high growth regions and industries
© 2011 The Tower Group, Inc. 19
Top 10 Technology Initiatives
© 2011 The Tower Group, Inc. 20
Deploy Mobile Corporate Banking Solutions
Many announcements at SIBOS and AFP in 2010
Many different approaches being adopted
Debate over whether clients will/should pay for the mobile channel
Emerging consensus on first gen corporate banking mobile as a distinct channel with a different set of functionality than online, designed for a senior treasury user
Focus on what is most important to that senior treasury user: alerts, approvals and exception management
© 2011 The Tower Group, Inc. 21
Enhance SME Payment Solutions
A huge opportunity to Cross Sell Electronic Payment Services
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
2.5 - 4.99M 5 - 9.99M 10 - 51M
Intl Services
Payments (ACH, wire, Int Payables, DD)
Info Reporting
Collection Services
Source: Corporate Executive Board Business Owner Survey, TowerGroup
© 2011 The Tower Group, Inc. 22
Execute on Payment Convergence: Integrated B2B Payment Solutions for the Buyer
Buyer’s Procurement
andAccounts Payable
Processes
Standardizes processes for initiation, approval, and information retrieval
Consistency
Multiple payment options to meet supplier preferences, transaction cost, and risk profiles
Flexibility
Controls in ERP/Accounting systems augmented by business rules and limits in solution
Control
Single window into status of payments with enhanced capabilities for research, exception resolution, and reconciliation
Visibility
Source: TowerGroup
© 2011 The Tower Group, Inc. 23
Source: TowerGroup
RFP
Cross-sell
Negotiate
Close
Contract
Document-
ation
Key information
input
KYC
IT project
mgmt
File protocols
APIs
Training
Launch
Problem
resolution
Transaction
tracking
Exception
management
Onboarding/Implementation Ongoing ServicingSales Process
Relationship Management
Implement Comprehensive Client Lifecycle Management Solutions
eBAM is a component of this lifecycle
© 2011 The Tower Group, Inc. 24
Optimizing Use of Business Intelligence
Source: TowerGroup
Service-Oriented Architecture, Data Warehouses, and Legacy Updates
Pro
duct
Syste
ms
Deposits TradingTrade
FinanceMortgages
InsuranceCards
Corporate
Finance
Consumer
LoansAsset
ManagementPayments
Information Integration
Busin
ess
Module
s Sales
Automation
Customer
Profitability
Marketing
Management
Collections
Customer
Information
Sales
Planning
Customer
Segmentation
Prospect
Management
Static
Surveys
Dynamic
Surveys
BRANCH/
AGENT
ADJUSTER BROKER CALL
CENTER
ATM INTERNET MOBILE BACK
OFFICE
NEW
CHANNELS
SERVICE
PROVIDERS
EXTERNAL
DATA
SOURCES
ALLIANCE
PARTNERS
Bu
sin
es
s P
roc
es
s M
an
ag
em
en
t
Da
ta A
cc
es
s M
an
ag
em
en
t
Se
cu
rity
Pre
dic
tive A
naly
tics:
Ris
k,
Mo
nit
ori
ng
, M
an
ag
ing
, G
row
ing
Business Intelligence: Analytics for Next Steps Strategy
Knowledge Management: Analytics for Operational Excellence
Customer Intelligence/Management: Analytics for Marketing
Predictive Analytics for Risk, Monitoring, Managing, and Growing
Analytics traverse the spectrum of systems, channels, and applications in a cross-dimensional value chain
© 2011 The Tower Group, Inc. 25
Heavy use of specialized treasury technology and ERP solutions
Use of intraday bank feeds for cash position, liquidity management
Multibank payment initiation files and use of online for exceptions
Emerging need for frequent status updates
Increasing use of integration for trade finance activity
Large Corporate
Use of statements/ online banking reports to reconcile with accounting system
Initiation of payments online or through service bureau
Heavy reliance on spreadsheets
Minimal use of bank data files to update accounting package
Basic Cash
Management
Operations (SMEs) Growing adoption of
technology for cash management and forecasting (SaaS)
Use of daily bank feeds for reconciliation (online and/or B2Bank connectivity)
Initiate payments (online and/or B2Bank)
Reliance on lead bank for multibank reporting
Middle-Market Treasury
with Primarily Domestic
Operations
Multibank integration
Many banking relationships across multiple regions
Focus on managing global liquidity positions
Demand for consistent use of global standards
Reliance on treasury system for controls, workflow, and “single source of truth”
Demand for eBAM
Integration for more complex services (e.g., trade confirmations)
Complex Global
Treasury
Offering Deeper B2Bank Integration to Multiple Client Segments
Source: TowerGroup
Note: SaaS = software as a service; eBAM = electronic bank account management.
Customers’ Increasing Sophistication and Needs
© 2011 The Tower Group, Inc. 26
Upgrade and Integration Trade Finance Platforms
Treasury taking the
lead on risk
management and
enhanced visibility
Changing
Trade
Patterns
Demand
for
Traditional
and Open
Account
New Business
Models for
Banks
Growing
Role of
Treasury in
Trade
Focus on
Supply
Chain
Efficiency
Key to improving
working capital
and liquidity
mgmt
Regional shifts,
counterparty risk,
later financing
decisions
Partnerships, 3rd
party integration,
white labeling
New open account
tools and
instruments (TSU,
BPO)Client
Sophistication
© 2011 The Tower Group, Inc. 27
Conclusions
2011 business dynamics will not be radically different than 2010 dynamics
© 2011 The Tower Group, Inc. 28
Conclusions
2011 business dynamics will not be radically different than 2010 dynamics
Bigger emphasis in 2011 on business intelligence, mobile, and eBAM
© 2011 The Tower Group, Inc. 29
Conclusions
2011 business dynamics will not be radically different than 2010 dynamics
Bigger emphasis in 2011 on business intelligence, mobile, and eBAM
Given the continuing economic challenges and the impact on revenue growth, reducing the overall cost of technology will be a major goal of most banks – leading to consolidation, elimination of duplicate functionality, more use of SaaS
© 2011 The Tower Group, Inc. 30
Conclusions
2011 business dynamics will not be radically different than 2010 dynamics
Bigger emphasis in 2011 on business intelligence, mobile, and eBAM
Given the continuing economic challenges and the impact on revenue growth, reducing the overall cost of technology will be a major goal of most banks – leading to consolidation, elimination of duplicate functionality, more use of SaaS
The lines between Cash and Trade will continue to blur to the point that they are indistinguishable within five years
Delivering on Your 2011
Technology InitiativesPatty Hines
Director, Financial Services Industry Marketing
Slide 32 ©2011 GXS, Inc.
Solving Business Challenges
Exchange
Electronic
Transactions
Manage Your
e-Commerce
Operations
Connect to Your
Trading PartnersGet Visibility and
Control
• Optimize Working Capital
• Launch New Fee-Based Products & Services
• Enable the Global Financial Supply Chain
• Integrate Accounts Payable/Receivable
• Enable B2Bank Connectivity
• Accelerate Client-Side ERP Integration
• Improve Straight-Through Processing
• Augment and Extend Client Delivery
Services
• Manage Cost Variables
• Future-Proof Operations
• Increase Competitive Advantage
• Extend Global Reach and Delivery
• Adapt for Regulatory & Legislative Risks
Slide 33 ©2011 GXS, Inc.
B2Bank Integration
Electronic Data
InterchangeExpert
On-Boarding
ERP Integration
Dealer Floor Plan
Trade Finance
Client Information
Mgmt
Supply Chain
Finance
SWIFT Service Bureau
System Migration
Managed File
Transfer
GXS Financial Services Solutions
Slide 34 ©2011 GXS, Inc.
Enhance Small and Medium Enterprise (SME) Payment Solutions
Need to support upload of payment files and
download of information reporting files for small to medium enterprises
(SMEs)
Implemented GXS Trading Grid Online with Intelligent Web Forms,
Microsoft Excel and accounting package integration options
Slide 35 ©2011 GXS, Inc.
Global treasury unit running multiple SAP versions wanted to rationalize systems while centralizing
treasury operations and consolidating
banking relationships
Implemented GXS Active Payments, with centralized cash flow management, ERP
integration and conversion of paper to electronic payments
Execute on Payments Convergence to Increase Client Value
OpCo 5 OpCo 6
OpCo 7 OpCo 8
OpCo 1 OpCo 2 OpCo 3
OpCo 4
Citigroup Chase
BNP Paribas
HSBC
ABN AMRO BMO
Commerzbank
ANZ
Slide 36 ©2011 GXS, Inc.
Implement Comprehensive Lifecycle Management Solutions
Merchant acquirer currently on-boarding
its merchants manually and remitting
settlement payments via paper check
Proposed GXS Community Intelligence
solution to collect merchant information including electronic
remittance data
Slide 37 ©2011 GXS, Inc.
Provide Deeper Integration to Client ERP / Treasury Solutions
A global bank is extending its cash
management offerings to clients of a newly
acquired entity but does not have sufficient
implementation resources
GXS is providing the ERP consulting and
integration expertise to accelerate client on-boarding and ERP
integration
Slide 38 ©2011 GXS, Inc.
Take-Aways
• Lower your technology cost base
• Modernize business-to-bank
platforms
• Extend capabilities for high-growth
segments
• Deliver local solutions for global
customers
• Meet client demand for
convenience and ease of use
Slide 39 ©2011 GXS, Inc.
Thank You
North America | gxs.com EMEA | gxs.eu ASPAC | gxs.asia.com
Susan FeinbergSenior Research Director,
Wholesale Banking
Work +1.617.488.1940
E-Mail: [email protected]
Patty HinesDirector, Financial Services
Industry Marketing
Work +1.704.969.0763
E-Mail: [email protected]