New Prospects for Corporate Customers: Banks That Lead Use Web 2.0 to Optimize the Financial Supply Chain

TL;DR: The early transition to the web held the promise of simplifying distribution of services, cutting costs, and reaching out to a broader base of customers, but it was more the myth of the web than the reality as discussed by the authors.

Abstract: [ILLUSTRATION OMITTED] In cash management services, banks invested heavily in the web to better serve corporate and middle market customers. Although they spent a lot of money in the period between 2002 and 2005, notes Maggie Scarborough, research manager of corporate banking at Financial Insights, Framingham, Mass., most didn't receive commensurate revenues. And yet, the transitional upgrades kept them current in the middle years of this decade and set them up to take their cash management and treasury services beyond the transaction. In general terms, new services involve using web, business process management and other technologies to pull together data and analytic functions traditionally segregated between treasury and payment systems to provide corporate customers with consolidated, easily consumed information about working capital and daily cash positions. Put a bit differently, banks will be valued and build better relationships, based on their ability to help their clients improve business process or by offering other value-added services that simplify forecasting, purchasing, sales, and trading. What's driving an analytics-based approach is the commoditized transaction. While it used to be enough for banks to offer a transaction engine--supporting ACH transactions such as preauthorized debits or direct deposits--that business line has thin margins and doesn't have the same loyalty potential. "The early transition to the web held the promise of simplifying distribution of services, cutting costs, and reaching out to a broader base of customers--although it was more the myth of the web than the reality," says Scarborough. "In many ways, the delivery of simple information reporting and basic transactions through the web alone is a commodity that has occurred in just ten short years." Using Web 2.0, however, can bring a graphics edge that transforms basic financial reporting into actionable, useful--and sticky--capability. Providing information about payments--especially forecasting and risk data on projected scenarios--is something corporate customers want, whether they generate $30 million in revenues or $3 billion. In a recent survey as part of the Financial Insights' 2007 North American Commercial Payments Study, Scarborough notes that suppliers, for example, faced cases where 43% of receivables were outstanding for longer than 40 days. An inability to easily get a read on their cash position was making it tougher to offer discount incentives, run supplier-financing programs, and overall, tended to translate into a higher cost of capital. Buyers likewise, were hampered by a lack of "cash visibility" that affected their opportunity cost of capital. How might the transition play out? First, top 20 banks will continue to expand--via the web--on service opportunities posed by broader business trends such as international trade or more efficient back office processing among corporate customers. These services enable "corporates" to more effectively leverage cash on hand. Over time, all tiers of the market will get in on the act and consolidated information about cash flows will be accessible online. Supply chain re-engineering Some experts are referring to such services as "optimizing the financial supply chain." Broadly this means giving corporate customers better awareness of working capital and a grip on their accounting processes without the manual input, guesswork, and adjustments. First mentioned at the Sibos conference in Sydney and a much discussed at this fall's conference in Boston, the idea comes at a time when more in payments is automated, but much of the automation--large large international corporate sites in particular--is as fragmented as in any large bank operation. Think of it as the ability to evaluate accounts receivables, payables, and what's on hand as intuitively as you might scan a checkbook or an Excel report. …