Megavendors and transaction banking: reinvesting in digital corporate banking

Earlier this month, Fiserv announced that it is acquiring Online Banking Solutions (OBS), a privately held provider of niche treasury management capabilities. OBS has seen a great deal of success in enabling community banks, credit unions and some regional banks with the digital capabilities needed to meet the emerging needs of more sophisticated business and corporate clients for treasury management services.  As a long-time observer and participant in this space, I think it is fair to say that most of the largest providers of financial services technology (megavendors) have underinvested in corporate banking, especially in modern, digital treasury solutions.  From a back-office processing perspective, Fiserv has a key collection of assets (e.g. PEP+, ARP/SMS) on which large banks in the US heavily depend to deliver their treasury management services.  The acquisition brings a suite of first-class front-office digital channel solutions to Fiserv that should allow it to be competitive in offering omnichannel solutions specifically designed for corporate treasury users and that consider the multitude of ways that corporates consume bank information and generate transactions. Celent believes that the winners in this space will have a broad transaction banking strategy that includes international services (cross border payments, foreign exchange, trade finance) bringing all commercial banking assets into a coherent go-forward strategy, if not a single organizational unit.  Partnerships to extend transaction banking functionality is a great step toward that end but they need to be well-defined and well-executed to benefit the providers’ clients.  In 2017, we think that other technology providers will follow suit and broaden their transaction banking solutions.  FIS has certainly made a mark with its 2015 acquisitions of SunGard and Clear2Pay.  Bringing these assets together and delivering on a next generation digital platform will be critical for FIS to meet the growing needs of corporate clients for global banking services.  Other providers of digital channel solutions such as ACI Worldwide, Bottomline Technologies, D+H, Q2 Software and others will be looking at these developments closely to understand the impact on their competitive positions. With the acquisition of OBS, there are no more niche providers of corporate digital channels left in North America.  Almost ten years after the great financial crisis when income from fee-based solutions was the salvation of the industry, reinvestment in the transaction banking business is finally happening.  

SCF is dead. Long live GTS

Two years ago at SIBOS most of my interactions were around the topic of what was SCF (Supply Chain Finance). Banks were truly interested to know more about it.

Last year, at SIBOS in Vienna, the conversation was on what banks had ready (or almost so) to go to market with their SCF products and services. The questions were about pricing and what technology was best.

This year, at SIBOS Hong Kong, SCF was “missing in action”.

Apparently the term is not so “catchy” any longer. Major cause, in my opinion, is because SCF has been always confused with Supplier Finance (i.e., invoice-centric, post-shipment, payables financing). This has relegated the entire area to a subset of Trade Finance, at the very best at the same level as LC’s (letters of credit).

When I was almost there to surrender to frustration (SCF is one of my preferred areas of coverage – read my reports Supply Chain Management: A Source of Corporate Liquidity and Business Models for Supply Chain Finance Services) to my rescue came the panel with the heads of Global Transaction Services (GTS) from Citi, HSBC, BofA, Deutsche Bank.

Well, what they were taking about as the “next big thing” was, guess what?, Supply Chain Finance services. They just used a different tag: GTS.

This is not to say that GTS is a new invention. What is new, I feel, is that the services under the GTS “umbrella” (cash, trade finance, payments, FX) will be ever more offered in bundle, to cover the financial supply chain needs of corporate clients.

Bottom line for banks

  1. SCF is not (only) supplier finance
  2. GTS is the name of the game
  3. Internal organization, knowledge of business processes, and technology investments are the pillars

Bottom line for corporations

Start comparing banking offers under the light of their ability to cover the larger spectrum of the procure-to-pay and order-to-cash processes