On-boarding and Electronic Bank Account Management for Corporate Treasuries

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1 On-boarding and Electronic Bank Account Management for Corporate Treasuries Sponsored by:

2 Background Practices for account opening and management, at both corporates and banks, are still very manual and paper-based, creating an inefficient, error-prone environment. SWIFT and a small group of leading banks, corporates and IT vendors have been working to help address the problem through the development of electronic bank account management (EBAM) standards. In July and August 2009, Finextra and Pegasystems surveyed corporate treasuries and banks worldwide to establish what the current pain points are around account management, what awareness there is of EBAM, what hurdles there are to greater standardisation and improvement, and what benefits are up for grabs. We received 43 survey responses from 39 banks, and 53 responses from 51 corporates, for a total of 96 respondents. Among the corporates, 60% of respondents have an annual turnover higher than US$500m. 41% currently maintain more than 500 bank accounts and 44% deal with 11 different banks or more. Among the banks, 40% of banks operated in 11 countries or more, 63% had more than 1,000 corporate customers, and 51% managed more than 800,000 corporate customer accounts. Pegasystems in the financial services industry Pegasystems has been providing business solutions to the financial services industry for over 23 years. Leading banks and financial services institutions work with Pegasystems to provide solutions for payment investigations and SWIFT E&I, client on-boarding and electronic bank account management (EBAM), know your customer (KYC) and sanctions management. Pegasystems solutions are used by seven of the top ten global banks, and seven of the top ten credit card issuers. Pegasystems technology also supports 60% of the world s payment investigations. Headquartered in Cambridge, MA, Pegasystems has offices in North America, Europe and Asia. Visit us at About Finextra Finextra Research is the leading newswire and online community for the global financial technology industry, with 3 million page views and 110,000 unique visitors per month. More than 26,000 financial technology professionals worldwide receive our free daily and weekly newsletters. Finextra additionally operates its own conferences and exhibitions on a range of topics under the Finexpo brand, and collaborates with the Euro Banking Association to produce the annual pan- European payments conference EBAday. Finextra is also the official online news vendor for Swift s annual financial technology conference Sibos. Finextra additionally hosts an online professional networking and blogging service for the global financial technology industry 2

3 Executive summary Industry initiatives to improve the customer experience and drive out cost from account opening and maintenance are still at a relatively early stage. Specifically, incorporating an easy to use EBAM standard to streamline these activities is lagging. But there is plentiful pent-up demand among corporate treasurers to streamline these processes and add new channels by which they can engage their banking provider. Banks that move quickly to build EBAM capability while aligning themselves with developing industry standards will have a short-term competitive differentiator in the market. National regulatory compliance issues will continue to complicate efforts to streamline processes for companies that operate across borders. But effective investment in IT process improvement and standardisation can help banks simplify requirements for corporate customers while also delivering the speed of service they desperately require. Key findings from the survey were: Account management is slow and inefficient, and corporates are demanding a better service 60% of corporates say it currently takes them more than one week to open a new bank account. Even large multinationals are still largely reliant on manual processes when dealing with their banks, and are under-resourced. 44% of corporates would switch banks for better service around account opening, maintenance and closing. In this competitive environment banks are at risk of losing customers or customer share of wallet to banks that can meet the corporates needs. A growing number (15%) of corporates expect all of their bank providers to offer EBAM services in the short term and are adding it to all of their new RFPs. Process automation and standardisation around EBAM are challenging 60% of corporate respondents said that legal differences and lack of standardisation were their biggest or second biggest challenge in streamlining the processes around bank account management. Those that chose this as their biggest challenge were almost exclusively corporates that have moved from having treasury operations in each country they operate to having several regional centres or a single global treasury centre. Most banks saw the lack of IT resources and technologies as the biggest obstacle to them being able to deliver timely EBAM services to their corporates. 60% saw this as the biggest or second biggest challenge. This is becoming an even bigger issue for banks as more and more corporates are demanding service level agreements (SLAs) for account management activities. Already 57% of corporates have negotiated such SLAs. 47% of banks believe that it would take more than a year to undertake the necessary process and system re-engineering to enable EBAM. Corporates will obviously benefit, but banks will also see a return on their investment Banks recognise that delivering EBAM services is a great opportunity to win new clients and maintain existing ones. 63% of banks believe it will help them win new clients. Banks also believe they can reduce their operational costs associated with account management by an average of 21%. 3

4 Account management is slow and inefficient, and corporates are demanding a better service Opening new bank accounts and maintaining their lifecycles are all still very manual processes for corporate treasuries. Particularly when a company is operating across borders and dealing with multiple banks, it finds that the multitude of different legal and process requirements are placing a high burden on the few staff resources they have allocated to account management functions. Chart 1: Corporates - How many staff focus on account management? 14% The majority (52%) of corporate survey respondents had less than four staff in such roles (Chart 1). Not surprisingly the few well staffed companies with more than 21 staff on board all had turnovers of more than $1 billion. But among those with less than four staff, there were also many such large companies. 46% of companies operating with less than four staff had annual revenues greater than $1 billion, and on average companies with this staffing level had around 500 accounts open at any one time. In today s online world, individual customers have come to expect rapid application and account opening from financial services firms. Many online direct savings banks, for example, are able to open new customer accounts in less than 10 minutes. In the world of corporate banking, there are, of course, more complex requirements for account opening. But even still, it is somewhat surprising that for 60% of corporates it takes more than a week to open a new account (Chart 2). And for 40%, it takes a similar length of time to make a simple change such as adding a new authorised person to the account. 10% 24% % Chart 2: Elapsed average time to open/maintain/close a bank account Open Corp. Bank 10% 6% 24% 29% 31% 21% 28% 30% 14% 7% Maintain Corp. Bank 31% 14% 15% 25% 15% 40% 32% 26% 2% Close Corp. Bank 12% 12% 42% 13% 21% 21% 30% 28% 7% 14% hrs <2 days <1 week <2 weeks 2 weeks+

5 Interestingly, when asked the same question, banks were much more optimistic in their time frame estimates (Chart 2). It is likely that most were only taking into account the required activities taking place at the bank, and not the information gathering and form filling required by the customer as part of the total process. Even still, the majority (51%) of banks said it took them more than two days to open an account. The biggest disconnect between banks and corporates was the time it takes for a maintenance activity. 40% of corporates said this took them more than a week, compared to just 2% of banks. As a result of the complex environment they re operating in, and lack of resources, the survey revealed that corporates are increasingly turning to their banks for help. Such is their current pain that 44% of corporates said they would be willing to switch banks to get better service, standardisation and automation for account management processes (Chart 3). Switching may not mean cutting off a bank completely, but even if a corporate shifts just some of their business elsewhere for better service, banks can risk losing share of wallet among customers and even market share in an increasingly competitive environment. Chart 3: Corporates - Would you consider switching to a different bank for better account management capabilities? 56% 44% yes no The propensity to switch is despite the fact that stringent know your customer (KYC) compliance requirements and other new client procedures are themselves a significant barrier to switching to a new bank. 5

6 Awareness and demand for EBAM While there are challenges in automating processes in such a complex environment, the majority of corporates have started to adopt some level of systemised support for account management. Only 30% of respondents said that they are still operating in a completely manual environment (Chart 5). For this particular question respondents were free to select any or no statements to agree with. Most corporates have some understanding and awareness of EBAM, whether it s from media and trade associations, SWIFT s outreach about its standardisation efforts, or sales teams from some of the leading banks. Only 21% claimed no awareness. And a growing number (15%) are beginning to expect such services from all their banks. In fact, when banks were asked about RFPs, 79% of them said they have seen EBAM requirements in RFPs from potential customers at least 44 sometimes, with 32% of all banks saying that this has become a frequent request (Chart 4). This demonstrates that as the corporate transaction banking environment becomes increasingly competitive, with top corporates more likely to cherry pick and switch banks, that EBAM capabilities are gradually becoming a standard industry requirement. Chart 4: Banks - How often do you see automated on-boarding and management services in RFPs? 21% Not at all Sometimes Frequently 47% 32% Chart 5: Corporate approach to automated electronic bank account management (EBAM) We've done some internal work to automate account management, but are missing the link with our banks 9% We've heard about some of the work being done to improve standardisation and automation in account management, and are interested in finding out more 13% We view it as an optional extra, and are hoping to see it offered by some of our bank providers 15% We expect all of our bank providers to offer EBAM services in the short term and are adding it to all new RFPs 15% We're not aware of any EBAM initiatives 21% Our account management processes are still fully manual 30%

7 Process automation and standardisation around EBAM are challenging Having established that account management activities take much longer than corporates would like, we investigated the wider challenges they face to find some reasons why. The number one reason was the lack of standardisation. Currently, account management processes are handled differently by every bank, and are tailored to specific legal requirements in each country or region. Faced with this duplication of often incompatible processes, it can be a challenge to implement best practices for streamlined operation, and it is also a challenge to increase automation through the use of information technology. 60% of corporate respondents said that legal differences and lack of standardisation were their biggest or second biggest challenge (Chart 6). Those that chose this as their biggest challenge were almost exclusively corporates that have moved from having treasury operations in each country they operate to having several regional centres or a single global treasury centre. Mandate management, keeping track of who has the mandate to do what on which account, was collectively seen as another pressing issue, with 54% viewing this is the biggest or second biggest challenge they face. This figure maps well with the 55% of corporates who said that a single account maintenance action (e.g. amending a mandate) with their banks took more than two days on average (Chart 2). Chart 6: Corporate challenges in bank account management Multiple legal jurisdictions make governance and standardisation of processes difficult 47% 13% 8% 16% 16% Mandate management 16% 38% 17% 13% 16% Cost of staff required to manually maintain accounts 15% 18% 19% 24% 24% Digital identity management/authentication 13% 13% 22% 10% 42% Inefficient processes increase our exposure to fraud 9% 25% 25% 19% 22% biggest challenge least challenge 7

8 Investment and hurdles to implementation and adoption Given the demand from corporates for EBAM services it is interesting to take a look at how banks are currently positioned and how many are currently involved in projects to improve their capabilities and industry standardisation. Around 13 banks worldwide have already been participating in the EBAM working group and pilot program with SWIFT on the new EBAM standard, and six of these participated in the survey. Across all bank participants, 47% have made plans to invest in improving client on-boarding of new accounts and maintenance (Chart 7). But given the level of demand from corporates, it is perhaps surprising that 53% have not yet made any plans to invest in IT and automation. Those that did plan to invest tended to be larger and included many of the survey participants from the US, UK and the Netherlands. Those without plans to invest spanned a wide range of sizes of banks and countries. This is important especially in light of the fact that 57% of corporates said they have negotiated service-level agreements (SLAs) with their banks. To be able to respond to these SLAs banks simply must automate these processes and make their customer service highly efficient. Chart 7: Banks - When will you invest in IT to improve and automate on-boarding and account management? 53% % 21% no concrete plans yet Chart 8: Corporate roadblocks to simplifying/automating bank account management Country regulations still impose too much use of paper based documentation 44% 16% 12% 12% 16% Different practices in each financial institution 32% 29% 16% 10% 13% Lack of bank appetite due to compliance and risk concerns 19% 16% 37% 19% 9% Integration issues with our HR, GL and treasury management systems 6% 9% 19% 41% 25% Unfamiliarity with SWIFT and standards 9% 3% 19% 25% 44% biggest roadblock least roadblock 8

9 Some investment will obviously be required, and in fact most banks saw the lack of IT resources and technologies as the biggest obstacle to them being able to deliver EBAM services to their corporate customers. 60% saw this as the biggest or second biggest challenge (Chart 10). Chart 9: Banks - How long will it take to re-engineer processes and systems to offer EBAM to clients? But for both banks and corporates, national and regional legal differences and requirements for paper-based processes are a significant barrier (Chart 8). Any industry efforts to streamline and standardise EBAM will have to continue to address this challenge through dialogue with regulators. 18% 12% A contributing factor to IT resources being identified as the biggest hurdle to delivering EBAM services is that almost half of banks (47%) believe that it would take more than a year to undertake the necessary process and system re-engineering (Chart 9). Those that have already begun investing in EBAM delivery, however, tended to expect a shorter time frame of 7-12 months, with several quite large banks even saying it could be done in as little as 3-6 months. 29% 18 months months 41% 7-12 months 3-6 months Chart 10: Bank hurdles to embracing electronic onboarding and account management Availability of IT resources and technologies to create service offering (e.g digital identity), integrate with internal processes and systems, and support clients 33% 27% 20% 13% 7% Country regulations still impose too much use of paper based documentation 27% 53% 13% 7% Predicting ROI and getting budget for process re-engineering project 13% 33% 21% 13% 20% Getting buy-in from all relevant entities in global financial group 13% 33% 40% 7% 7% Lack of corporate appetite for removing paper-based processes 40% 33% 7% 20% biggest least 9

10 Benefits to banks of EBAM When asked what potential benefits they could gain from offering EBAM services, winning new corporate clients was seen as the most important (Chart 12). Given the growing frequency of requests in RFPs (Chart 5), it seems that this is a ripe opportunity right now, even though not many institutions are well progressed in being able to deliver. Improving customer loyalty and reducing churn is the flipside of the same driver to maintain and grow the transaction banking business. But another consideration for banks is the cost associated with serving thousands, or even tens of thousands, of clients each with multiple accounts in anything other than a fully automated environment. Chart 11: Banks - With better account management automation, by how much could you reduce associated operational costs? 31% 7% 31% This will obviously be reduced if EBAM can deliver to a bank similar processing efficiencies to those it is passing on to its clients. Estimates on operational cost savings varied quite widely. But, on average, banks expected to reduce costs directly associated with account opening, maintaining and closing by 21% (Chart 11). 41%+ 31% 10-20% 31-40% <10% 21-30% Chart 12: Bank benefits of automated and improved on-boarding and account management Winning new corporate clients 38% 25% 12% 19% 6% Improving satisfaction/loyalty and reducing churn 38% 13% 11% 38% Reduced operational costs 25% 25% 31% 6% 13% Standardising on best practice across global operations 25% 19% 12% 31% 13% Easier to demonstrate compliance 19% 25% 24% 13% 19% most important least important 10

11 Summary Corporates have a lot to gain if their banks can provide effective EBAM services. Banks too stand to boost their competitiveness and market share if they can build and market their capabilities around on-boarding and account management. Banks that are investing in this area in 2009 and 2010 will be well placed to benefit rapidly from developing industry standards and burgeoning corporate demand. But with the right approach to process re-engineering, other banks should also be able relatively quickly to add EBAM to their service portfolio as the market matures. When we re evaluating our banking relationships, we absolutely give preference to banks that can meet SLAs for account management activity. Treasurer at IT company We haven t really heard much about EBAM. And we re still pretty much manual in our processes. But we would consider switching business to a bank that can address our problems in this area, as long as it also meets our other requirements. Senior financial consultant, food and beverage company Some of our banks have made efforts to streamline account management. And it helps. But we deal with a lot of banks. Until EBAM services are more widespread, and there are industry standards for processes and messages, we won t really see the true benefit. Cash manager at pharmaceutical company 11

12 About Pegasystems Pegasystems, the leader in Business Process Management, provides software to drive revenue growth, productivity and agility for the world s most sophisticated organizations. Customers use our award-winning SmartBPM suite to improve customer service, reach new markets and boost operational effectiveness. Our patented SmartBPM technology makes enterprise applications easy to build and change by directly capturing business objectives and eliminating manual programming. SmartBPM unifies business rules and processes into composite applications that leverage existing systems empowering businesspeople and IT staff to Build for Change, deliver value quickly and outperform their competitors. Pegasystems suite is complemented by best-practice frameworks designed for leaders in financial services, insurance, healthcare, government, life sciences, communications, manufacturing and other industries. Headquartered in Cambridge, MA, Pegasystems has offices in North America, Europe and Asia. Visit us at