- Web 2.0 is finally arriving to the business online banking space. Almost all the vendors I met with either talked about or showed me fresh GUIs with better navigation and layout. This is long overdue. A couple of the vendors have been working on this for a little while, and their advances made it into my upcoming online cash management vendor evaluation report (the report is complete. It’s now time for it to be edited and for the vendors to review their profiles prior to publication). Bank of America had an interesting but basic presentation on next generation Web 2.0 cash management solutions. I was quoted in the presentation, and it’s nice to see a bank thinking about the next generation of solutions.
- Dashboards are a key component of next generation online banking solutions. This was definitely the buzzword. I discussed this at length in my report, Web 2.0: A Quantum Leap for Wholesale Banking .
- Banks still don’t get the importance of PFM for small business. I seemed to be the one asking the questions about this. I would have liked to see greater emphasis on PFM, particularly with the Web 2.0 demos and discussions.
Islamic banking has become a major global industry with a growth of 10% to 15% per year over the last decade, to reach between USD 700 and 750 billion of assets worldwide nowadays. Currently, Islamic Banking is particularly developed in the Middle East, is definitively on the rise in the Asia-Pacific region, and is currently in an infancy stage in North Africa and in Europe.
North Africa represents a large and still untapped market of nearly 200 million people, with 95% Muslims, except in Sudan where Muslims represent 70% of the population. Furthermore, with an average GDP per capita of US$2,334 in 2007, the North African region is richer than the African average (US$1,137). Islamic banking is still a niche market in North Africa. This could be explained by the fact that North African consumers are traditionally less conservative than Middle East consumers and are used to conventional banking products and services. Furthermore, governments have not particularly encouraged Islamic banking development in their countries. However, things have recently begun to change with:
– New Islamic banks entering these markets; for instance, the UAE Noor Islamic bank which opened an office in Tunisia in June 2008
– Governments creating new regulations; for instance, in 2007, the Moroccan Central Bank decided to authorize certain kinds of Islamic financial products, called alternative financial products, in response to consumers’ demand.
The demand for Islamic Banking product exists in North Africa but also in Europe, where Muslims population is estimated at nearly 15 million people, and is particularly significant in France, the Netherlands, Germany, Belgium, Sweden, and UK. UK has taken the European leadership in Islamic Banking since 2004, when the FSA authorized the Islamic Bank of Britain, the first Shariah compliant retail bank in Europe. In 2006, the European Islamic Investment Bank, the EIIB, also obtained a license from the FSA. In France, the government recently expressed its wish to change the regulation to allow Islamic banking, and the first Islamic banks should appear in 2009. In the meantime, two Islamic banking products have already been launched in 2008 in a French overseas department, La Réunion, by BFCOI, a subsidiary of Société Générale.
In addition to the large and untapped Muslim population, Islamic banking is currently beginning to attract non-Muslim customers, who are interested in this alternative way of banking. Indeed, a growing number of non-Muslims are turning to Islamic banking as customers, spooked by turmoil in the Western banking system increasingly see the sector as safe and more connected to the real economy. In my opinion, Islamic banking will benefit from this new consumers’ interest and grow even more quickly than it recently did.
Liquidity and cash management are the paradigms to measure current enterprise performance. Corporations strive for a holistic approach from their strategic banking partners made of “end-to-end” solutions and services that cross the traditional silos. Financial forecasting and planning are absolute prerequisites for a corporate treasurer. Under the current conditions of inadequate liquidity, invoice discounting is becoming a best practice: vendors offer discounts on the invoice’s face value if they receive immediate payment.
From an income statement perspective, this brings value to the buyer because it reduces the cost of goods sold (COGS).But the treasurer must question whether it does the same for the balance sheet. Can the buyer’s company increase its debit level to benefit from the discounted invoices? What was to be paid after 60 days must be paid now, if the discount is to be taken. The first action would then be to ask for an increase in the credit line. The financial institution would immediately ask for a projection of future flows, and therefore for a better forecast. A reliable and timely forecast of cash flows before embarking on any initiative is mandatory for corporate treasurers. The sources of the financial flows are, principally, payables and receivables. Their dynamics, managed within the corporate ERP, must be constantly reflected in the treasury management system (TMS). This is, usually, a separate add-on suite of applications. Especially today, under credit restrictions and Basel II directives, banks are cleaning up their portfolios. A corporation that scores poorly on the financial institution’s credit scoring would suffer from an immediate write-off. The treasurer must be able to anticipate the financial consequences of operative decisions and duly report them to the banking counterpart. Therefore, the integration between operational and treasury management systems must be properly secured. Technology can now play a significant role in making the concept of financial collaboration a reality by correlating the functions of treasury, payments, and receivables.