Patty Hines

About Patty Hines

Patricia Hines, CTP, is a senior analyst with Celent’s Banking practice and is based in Charlotte, NC. Her areas of research include global transaction services and wholesale banking with a particular emphasis on treasury and cash management, corporate banking delivery channels, and trade and supply chain finance, along with commercial and small business lending.

The Value in Payments: Forces Driving Commercial Card Adoption

The Value in Payments: Forces Driving Commercial Card Adoption

Eighty years ago a group of major airlines implemented the first commercial cards. Since then, cards have evolved from addressing expenses for travelling employees to eliminating friction across the business-to-business (B2B) financial supply chain. Banks are collaborating with B2B fintech firms to deliver innovative procure-to-pay solutions, bringing consumer digital experiences into traditional procurement, finance, and treasury processes.

Contributing to the adoption of commercial cards are four forces: working capital optimisation, regulatory and compliance, fraud and control, and technology and innovation.

The benefits of commercial cards differ according to business need: enhance expense management, digitise the procure-to-pay process, streamline payables, and improve cash flow. Where companies once used corporate cards exclusively for employee travel expenses, those firms now rely on cards primarily for purchasing goods and services, as evidenced by purchasing card spend growing over 900% since the 1990s. However, purchasing cards only represent a sliver of all global commercial flows and have the potential to become even more of an indispensable tool in the treasury/procurement toolbox.

As corporate treasurers prioritise working capital management during challenging economic times, commercial cards can defer payments while offering early payment to suppliers. Card programmes help to standardise processes and controls, improving safeguards and standards. Cards offer a range of controls, and other protections to increase security and control. Administrative dashboards and analytics technology support detailed transaction data with merchant category codes, unlock opportunities for supplier negotiation, and promote processing cost savings.

As discussed in the new Celent report “The Value in Payments: Forces Driving Commercial Card Adoption," incorporating cards into your overall working capital and payments strategy ensures an integrated approach across payment types and digital channels. Further integration arises from detailed transaction reporting and analytics flowing into treasury, procurement, and other financial management systems. Corporates need tailored, customised card solutions, developed in collaboration with their banking partners. The right bank can deliver a full suite of payment options across a firm’s geographic footprint, adapting and customising the programme in line with your company’s objectives. This report is the seventh in an ongoing series of reports commissioned by HSBC and written by Celent as part of the HSBC Corporate Insights program.

The Expanding Role of the Corporate Treasury

The Expanding Role of the Corporate Treasury

The Association for Financial Professionals (AFP) recently published its 2017 AFP Strategic Role of Treasury Survey supported by Marsh & McLennan Companies’ Global Risk Center.  The survey confirms that treasurers’ roles in most organizations are expanding, with their departments increasingly called on to support the execution of corporate strategy. Many now serve as strategic advisors across their organizations, taking on diverse responsibilities such as long-term borrowing, investing, payments strategy and execution, and counterparty risk analysis and enterprise risk management. The key reason behind treasury’s strategic role? Senior management’s focus on liquidity and risk exposures, along with the call to improve cash management and forecasting.

The report analyses how treasury’s level of maturity impacts how well it can serve as a strategic partner to an organization, the C-suite and Board. To help organizations gauge the level of maturity of their treasury function, AFP and other treasury experts developed a treasury maturity model which defines five stages of maturity:

Technology and automation are enabling treasurers to focus on higher value-added work. But nearly half of respondents either disagree or are noncommittal about whether technology is being used effectively by their organization’s treasury to manage risk and increase its contribution to an organization overall. Organizations positioned on the farther (more mature) end of the maturity spectrum are using technology more effectively than are those at the other end.

Strategic banking partners can help companies ensure they have the treasury technology tools to accurately forecast cash positions, assess capital allocation, and manage financial risk. Banks that provide integrated liquidity and investment platforms can also help treasurers reduce borrowing costs, hit liquidity targets, and increase risk management effectiveness through automation and digitization.

The road to an advanced treasury operation is a journey and these survey results can help develop a roadmap for treasury’s continued evolution. If you are a corporate banker or treasury management professional, I highly recommend a reading of the The 2017 AFP Strategic Role of Treasury Survey.

Challenges Facing Organizations in the Current Risk Environment

Challenges Facing Organizations in the Current Risk Environment

The Association for Financial Professionals (AFP) recently published its 2017 AFP Risk Survey Report of Survey Results. The survey, supported by Marsh & McLennan Companies (Celent’s parent company), provides a snapshot of the challenges organizations face in the current risk environment. Responses from 480 senior-level corporate practitioners (primarily based in the US) formed the basis of the survey.

Corporate practitioners rank the highest risk factor impacting organization earnings in the next three years as tougher competition (40%), followed by customer satisfaction (33%), and U.S. political and regulatory uncertainty (32%.) While the three top-ranked factors are similar to those in the 2016 AFP Risk Survey, the order differs.

The survey authors made an intriguing observation on the ranking of risk factors: “It is interesting that in an election year (during which this survey was conducted), finance professionals believed competition would have a greater impact on their organizations’ earnings than would any uncertainty surrounding the U.S. political and regulatory environment.”

The report of survey results goes on to discuss risk mitigation actions in direct response to various types of risk. For example, in response to geopolitical risks, 60% of respondents are most focused on maintaining adequate liquidity, with a greater share of larger companies than smaller companies paying attention to maintaining liquidity (65% to 57%).

If you are a corporate banker or treasury management professional, I highly recommend a reading of the 2017 AFP Risk Survey results. The survey data provides valuable insights into the current and emerging threats facing US corporations of all sizes.

Celent Model Bank Awards 2017: Banking Products Innovation

Celent Model Bank Awards 2017: Banking Products Innovation

This is the next article in a weekly series highlighting trends and themes from Celent’s Model Bank submission process. For more information on how the Model Bank Awards have evolved, see the first two pieces from my colleagues, Dan Latimore and Zil Bareisis

This week’s article focuses on Model Bank entries in the Products category. Part of the criteria for this category is that the solution needs to be in production and demonstrating business benefits. The Products entries for 2017 fall broadly into four sub-categories:

  • Payments Product — for launching the best consumer or business payments product.
  • Lending Product — for the most impressive consumer or business lending or collections initiative.
  • Open Banking — for the most impressive API strategy and results so far.
  • Product Innovation — for demonstrating the ability to launch multiple innovative products.

The majority of submissions in the Products category came from banks in developing markets, with only a handful from large global banks. The Model Bank award submissions came from Argentina, Germany, India, Korea, the Philippines, Poland, Russia, Singapore, South Africa, Spain, Taiwan, Turkey, UAE, and USA.

The Products category submissions were impressive indeed:

Payments: The submissions in this area focused on modernizing existing banking and payments infrastructure. With consumer expectations growing for real-time transactions and unified information across channels, banks are layering new capabilities onto legacy frameworks. Capabilities include accelerated check clearing, enhanced mobile wallets, simplified fraud controls, and streamlined charitable donations.

Lending:  Possibly threatened by alternative lenders, banks in this sub-category are improving the speed and convenience of loans for micro and small businesses. Some entries focused on expanding application channels, both digital and physical. New digital channels include SMS/text, ATM and Facebook. Physical channels include the local coffee shop. All of the submissions featured faster loan decisions through advanced analytics and paperless (or almost paperless) loan closings.  

Open Banking: Open Banking APIs have moved beyond hackathons and proofs of concept to production implementations. While some banks are rolling out Open API development portals in response to regulations like PSD2, the Model Bank candidates in this category are using APIs to improve the customer experience. The submissions represented two approaches to Open Banking. The first is the use of open APIs to connect directly with customers and developers, enabling transactions including B2B payments, personal remittances, loan disbursements, and e-Commerce refunds. The second is the use of open APIs as the core foundation for digital-only banking models. Third-party developers then create value-added client-facing applications using the bank’s exposed API services.

Product Innovation: This sub-category features partnerships with both traditional financial technology and start-up Fintech firms to make banking more convenient, create new offerings, improve customer service, expand a bank’s digital footprint, and personalize marketing offers.  

Want to hear more about the Celent Model Bank winners for payments product, lending product, open banking, and product innovation? Join us for the 10th annual Innovation and Insight Day on April 4th in Boston. In addition to revealing the winners of all the awards, Celent analysts examine the trends that are driving innovation in Banking. I look forward to seeing you there.

Globalisation: External Forces Driving Corporate Growth and Expansion

Globalisation: External Forces Driving Corporate Growth and Expansion

Treasury management plays an important role in a corporation’s globalisation efforts especially in the areas of cash management, banking, foreign exchange risk, and investments. Treasury must address challenges with managing liquidity distributed across markets, currencies, and businesses, especially the need to keep up with regional liquidity nuances and regulatory issues.

As an outgrowth of globalisation, four key external forces impact opportunities and challenges for corporate growth and expansion: economic uncertainty, geopolitical climate, regulatory environment, and technology evolution.

Eight years on from the 2008–2009 financial crises, global economic growth remains sluggish, hovering between 3.1% and 3.4% since 2012. There are numerous examples of geopolitical events exacerbating volatility, uncertainty, and risks arising from the increasing interconnectedness of regions caused by globalization. New regulations impact treasury organizations in many ways, including in-house banking, intercompany transactions, and transfer pricing documentation.

Corporate treasury organizations continue to lean on technology to facilitate change and mitigate complexity arising from global expansion. Cloud-based treasury management systems (TMS) provide an opportunity to implement specific modules on a subscription pricing basis. Governmental agencies, banks, and fintechs are collaborating to evolve complex corporate treasury services.

As discussed in the new Celent report “Globalisation: External Forces Driving Corporate Growth and Expansion," although firms are in different stages of their globalisation journeys, they can benefit from working with their banking partners to adopt strategies and tactics that address the external factors affecting corporate growth and expansion. Universal banks understand geographic differences and nuances, and are in a unique position to advise firms seeking to expand their businesses globally. This report is the sixth in an ongoing series of reports commissioned by HSBC and written by Celent as part of the HSBC Corporate Insights program.

“Transforming the Landscape” – My learnings from SIBOS 2016

“Transforming the Landscape” – My learnings from SIBOS 2016

The fall conference season is a business time for us in the industry research business. I’ve finally recovered from a hectic week in Geneva, where I met with over 40 banks, technology companies, and consulting firms to discuss what’s happening in global transaction banking. This year’s Sibos theme was “Transforming the Landscape”, organized around four themes: Banking, Compliance, Culture, and Securities. A selection of Sibos session recordings is available on the Sibos website.

With my research focus of Corporate Banking, my discussions focused on three key topics.

  • SWIFT’s global payments innovation (gpi) initiative:  SWIFT announced that it had successfully completed the first phase of the gpi pilot, surprising some bankers with SWIFT’s ability to meet the first milestone so quickly. The initial objective of gpi is to improve the speed of cross-border payments (starting with same-day) and improve transparency with new end-to-end payment tracking. SWIFT staffers roamed the exhibition hall with iPads demonstrating the gpi’s new payment tracker. It remains for banks to integrate the new payment type into their corporate digital channels and to determine product pricing.​

SWIFT GPI

  • PSD2 and UK Open Banking:  Technology providers, especially those that offer core banking systems along with payments technology, are working closely with regulators and industry groups to enhance their product offerings to accommodate the third-party account information access and payment initiation provisions of PSD2, along with the UK’s Open Banking API Framework. Looking beyond mere compliance, both providers and banks are developing value-added services to capitalize on the significant disruption arising from opening traditional banking capabilities to third-parties.
  • Blockchain in Corporate Banking:  After publishing a Celent report on use cases for blockchain in corporate banking earlier this year, I was heartened to hear “real world” blockchain announcements from the big tech companies, touting their banking collaborations. Swiss bank UBS is working with IBM on a project to replicate the entire lifecycle of an international trade transaction. The FX settlement service, CLS, is building a payments netting service that will enable cash trades on IBM’s Fabric blockchain. Bank of America and Microsoft announced their intent to build and test blockchain applications for trade finance.   Although much progress is being made by blockchain consortia, banks, and technology providers, most people I talked to believe that significant adoption of blockchain for corporate banking use cases is still a few years in the future.

I’m off next week to attend the Annual Association for Financial Professionals (AFP) conference, hoping to bring back developments in the world of corporate treasury and treasury management.

Challenging the Status Quo: Fintechs and Corporate Treasury Services

Challenging the Status Quo:  Fintechs and Corporate Treasury Services

The rapid rise of Fintech firms offering non-bank financial services is triggering what some consider “creative destruction” in banking. Recognising that technology is a key enabler for efficient treasury operations, an increasing number of Fintech firms are creating specialized solutions for corporate financial management.

Four key external forces are supporting the rise of non-bank financial services:  Economic influences, demographic changes, regulatory environment, and technology evolution.

Non Bank Financial Services

A confluence of economic influences has lowered the barriers to entry for Fintech startups. Most significantly, global interest and investment in Fintech firms has risen dramatically over the past five years.  However, only a small percentage of Fintech investment is targeted at serving large corporations, a sector ripe for investment and innovation.

As baby boomers retire, financial management staff is getting younger reflecting the demographic changes influencing Fintech growth. Accustomed to intuitive, easy-to-use technology tools accessible from anywhere, younger staff expect more in the way of treasury technology than Excel spreadsheets to streamline, digitise, and automate financial management functions across treasury and finance. This is especially true with respect to payments, one of the hottest areas in the Fintech space.

While the regulatory environment for traditional financial services firms continues to become more complex, Fintech firms benefit from an almost complete lack of regulation. Regulators acknowledge the need to oversee the safety and soundness of Fintech firms but also recognise that excessive regulation can stifle the development of more efficient financial services. Thus, regulatory bodies are working on frameworks to strike the appropriate balance between innovation and protection.

Fintech firms excel at leveraging the technology evolution to create a differentiated customer experience. Rather than serving the breadth of corporate customers’ treasury management needs, Fintech firms can cherry-pick narrow segments for their offerings.  Newer technologies such as web, cloud, mobile, big data, and artificial intelligence allow Fintechs to develop new value propositions at a lower cost than traditional development approaches.

As discussed in the new Celent report “Challenging the Status Quo: External Forces Supporting the Rise of Non-Bank Financial Services,” Fintechs are unbundling traditional corporate banking services, leveraging emerging technologies to offer new, innovative treasury solutions. But recognizing that universal banks have unrivaled experience meeting the complex needs of corporate customers, many Fintech firms are collaborating with banks through a number of different innovation models. This report is the fifth in an ongoing series of reports commissioned by HSBC and written by Celent as part of the HSBC Corporate Insights program.

Register now for the upcoming joint HSBC and Celent webinar on this topic featuring Nadine Lagermitte, Global Head of Financial Institutions at HSBC.

Blockchain Use Cases for Corporate Banking

Blockchain Use Cases for Corporate Banking

Corporate banking has long been a relationship-based business, with large global banks having the distinct advantage of being able to provide clients with a comprehensive set of financial services delivered through integrated solutions. Distributed ledger technology, often referred to as blockchain, threatens to disrupt the sector with its potential to improve visibility, lessen friction, automate reconciliation, and shorten cycle times. In particular, corporate banking use cases focusing on traditional trade finance, supply chain finance, cross-border payments, and digital identify management have attracted significant attention and investment.

Traditional Trade Finance: Largely paper-based with extended cycle times, DLT could eliminate inefficiencies arising from connecting disparate stakeholders, risk of documentary fraud, limited transaction visibility, and extended reconciliation timeframes. DLT could finally provide the momentum needed to fully digitize trade documents and move toward an end-to-end digital process.

Supply Chain Finance: SCF is commonly applied to open account trade and is triggered by supply chain events. Similarly to traditional trade finance, the pain points in SCF arise from a lack of transparency across the entire supply chain, both physical and financial. DLT has the potential to be a key enabler for a transparent, global supply chain with stringent tracking of goods and documents throughout their lifecycle.

Cross Border Payments: The traditional cross-border payment process often involves a multi-hop, multi-day process with transaction fees charged at each stage. There are potentially several intermediaries involved in a cross-border payment, creating a lack of transparency, predictability and efficiency. DLT offers an opportunity to eliminate intermediaries, lowering transaction costs and improving liquidity.

Cross Border Payment Flows

KYC/Digital Identity Management: Managing and complying with Know Your Customer (KYC) regulations across disparate geographies remains a complex, inefficient process for both banks and their corporate banking customers. For corporate banking, the DLT opportunity is to centralize digital identity information in a standardized, accessible format including the ability to digitize, store and secure customer identity documentation for sharing across entities.

Both banks and Fintech firms alike are experimenting with DLT solutions for various corporate banking uses cases. In what seems like unprecedented collaboration between financial institutions and technology providers, consortias are working on accelerating the development and adoption of DLT by creating financial grade ledgers and exploring opportunities for commercial applications.

The maturity cycle for the various use cases depends on a number of factors, not the least of which are financial institution requirements for interoperability, confidentiality, a regulatory and legal framework, and optionality. We outline both capital markets and corporate banking uses in more detail in the Celent report, Beyond the Buzz: Exploring Distributed Ledger Technology Use Cases in Capital Markets and Corporate Banking. In addition to key use cases, the report discusses the key needs of financial institutions driving DLT architectural and organization choices, the current state of play, and the path forward for DLT in capital markets and corporate banking.

Against the Odds: Improving Euro Area Commercial Lending Indicators

Against the Odds: Improving Euro Area Commercial Lending Indicators

Over the past several months the European Union has weathered a number of challenges – Brexit, political turmoil, the migrant crisis, and sluggish GDP growth among them. But surprisingly, the latest European Central Bank (ECB) data doesn’t reflect any negative shocks on credit supply and demand.

The latest Euro Area Bank Lending Survey found that competitive pressures are the main factor behind the easing of credit standards on loans to enterprises, including a narrowing of interest rate margins. At the same time, demand for loans by enterprises is increasing, driven by merger and acquisition activities, inventories and working capital, and continued low interest rates. Although demand is strengthening, alternative financing sources dampened demand for bank financing slightly.

Euro Area Bank Lending Survey

Looking at the top half of this chart, there is no question that banks ratcheted up credit standards like pricing, covenants, cash flow, and capital during Europe’s two recessionary periods. At the same time, businesses of all sizes stopped seeking credit. There is just no appetite for companies to take on additional liabilities during a period when consumers aren’t spending and the economy is shrinking.

More recently, in early 2014 both sides of the credit standards and demand equation crossed the middle point. Since then, credit standards have leveled off while credit demand from enterprises has risen slightly, especially for small-to-medium enterprises (SME).

Despite the ups and downs in credit demand and standards, loan outstandings to non-financial corporations has been surprisingly resilient, even during euro area recessionary periods.

ECB Loans to Non-Financial Corporations

The June ECB reflected slight growth over the past quarter, at the end of which the UK voted to leave the European Union. Time will tell whether Brexit and the expected negative impact to eurozone growth will dampen demand and subsequent loan growth for euro area commercial lending.

EBAday 2016: A Brave New World for Payments

EBAday 2016: A Brave New World for Payments

EBAday 2016 LogoHosted by the European Banking Association and Finextra, EBAday attracts payments professionals from leading financial institutions and technology providers. This year’s event was held in Milan Italy with the theme, “A Brave New World for Payments.” Sessions focused on the dilemma facing the payments industry – enhancing existing payment models while preparing for alternative payments and technology.

I had the honor of moderating day two’s strategic roundtable discussing future challenges and opportunities for banks. The panelists were Paolo Cederle, CEO, UniCredit business integrated solutions; Christophe Chazot, group head of innovation, HSBC; and Damian Pettit, RBS head of payment operations.

EBAday 2016 Day Two Panel

The panelists felt that there is a disconnect between the limitations of legacy bank infrastructure and the promise of new technologies. With the majority of bank IT budgets spent on maintenance, the challenge is for banks to keep existing systems running while investing in the future. For customers, there is too much complexity, especially in cross-border payments, and customers want an easy experience at minimal cost.

Discussing Faster Payments in the UK, the panelists said the introduction eight years ago has revolutionized payments, completely changing customer behavior and paving the way for new mobile-based services such as Paym, the UK’s mobile payments service offered by seventeen banks and building societies. For countries having implemented immediate payments, real-time is the new norm and with that comes expectation and demand from customers.

With the EU PSD2 payment services provisions looming on the horizon, the discussion turned to the prospect of disintermediation of banks by third-party providers. The panelists were optimistic about the future, and feel that the regulation is helping to steer the banks toward new initiatives and innovation in services, and is a great opportunity to better service customers and push banks up the value chain.

Regarding the question of whether emerging payment models and technology represent an escalating threat, the response was that instant payments brings security challenges. But the panelists overwhelmingly agreed that convenience and speed cannot come at the cost of security–safety and security is absolutely paramount.

The discussion then moved onto the theme of disruption — are payments in a revolutionary or evolutionary phase? The panelists felt it was a bit of both. Revolutionary technologies such mobile and artificial intelligence are pushing payments along an evolutionary path. And banks have an advantage. The Fintech startups entering the market don't have the direct customer interaction and track record that banks have in safety and security. The banks are running hackathons and open to working with startups while improving legacy systems and simplifying the customer proposition.

All of the panelists’ banks are members of the R3 blockchain consortium. Blockchain is bringing a new way of working together for banks and technology providers. Each of the panelists is watching the technology closely and one area of opportunity cited was the last mile of the payments chain and in the trade finance arena.

My take-away from the roundtable was that the global payments industry is transforming. The “brave new world” is one with an imperative to be nimble, keeping your eye on all of the opportunities both for existing payment models as well as alternative technologies. Collaboration is key whether through acquisitions, consortiums, partnerships or open source projects.