How embedded finance will change transaction banking within the digital experience and for operational efficiencies

Corporates are demanding more from their banks to address working capital needs and are turning their attention to embedded finance. Oracle’s head business development for corporate banking, Parag Ekbote and Sanjay Mathew, senior director for financial services industry strategy, shares how Oracle’s unique approach to embedded finance will help banks better prepare themselves for the future of transaction banking.

by and | January 11, 2022 | Oracle Financial Services

Corporates are demanding more value from their banks, as they struggle with getting access to real-time banking services, making faster payments, and managing liquidity holistically to address the demands on working-capital needs. They are seeking a partner which can help streamline the complexities of running and growing a business while delivering the timely intelligence needed to make more-informed financial decisions.

In this environment, corporates and their banking partners are turning attention to embedded finance – an ecosystem designed to streamline financial processes for consumers and businesses, making it easier for them to access the services they need when they need them. Embedded finance is a new, ecosystem-based innovation which allows the delivery of financial and non-financial services directly into non-financial websites, mobile applications, and business processes.

Embedded finance is an evolution of how open banking is delivered. Open banking forced banks to open APIs so customers and partners can access their data to empower their customers. Then came BaaS, where banks decided to leverage the same open APIs, but they could use it to innovate and distribute these services to other partners who, in turn, could expand the bank’s own distribution potential.  Embedded finance is the next stage in this journey to deliver banking services as seamless and as integrated as possible. Within embedded finance banks now deliver banking directly where the customer is, which fundamentally changes the playing field and separates the leaders from the followers.

Corporate banking services represent a bank’s lion share of profits—and banks need to deepen the value of their corporate relationships by delivering a game-changing transaction banking experience. Momentum is growing quickly, with more than 37 percent of corporate banking clients looking to their banks for the ability to embed financial products into their business services, compared to less than 25 percent the previous year, according to the 2020 Global Treasurer’s Banking Transaction Survey. Corporate banks must innovate to stay competitive.

While embedded finance was thought to be something which applies to retail customers only, the large value propositions and opportunity size for banks is in the corporate banking arena where large transactions and processes are still very manual, disconnected, and dependent on relationship banking.

Forces combine to fuel desire for embedded finance

We see the convergence of three important factors driving an appetite for embedded finance:

  • Improving broken experiences and delivering banking services seamlessly in the context of the customers journey: Corporates often face fragmented systems and disconnected experiences. For example, they may be required to login to a different banking portal not connected to the enterprise resource planning (ERP) system. Further, connectivity is complex. There is often a different view between bank and corporate systems, and onboarding to the ERP system is laborious. Due to this complexity and disconnection, banks cannot offer personalised advice or offers due to lack of client visibility, corporates have no real-time view of cash, and routine functions require tedious navigations to get simple answers because there are no intelligent agents and data is often unreconciled providing different views of the same.
  • Driving down payment inefficiencies with intelligent and faster payments: Payment processing mostly happens in batches, rarely in real-time. Because of this, corporates struggle to get a real-time view of payment status and rejections—and without good visibility into underlying payment analytics, fees, and volumes. Often, compliance validation and payment failures result in back-office overheads in understanding the source of error and performing corrections. To modernise payments, banks need support for newer, real-time ISO 20020 and Society for Worldwide Interbank Financial Telecommunication (SWIFT) Global Payments Innovation message formats with metadata.
  • Streamline disparate liquidity management by proactively managing working capital needs with real time treasury: Due to control and reconciliation requirements, corporates have multiple accounts with their banks. This often leads to high operational and reconciliation costs and liquidity fragmentation which creates ineffective working capital management. Cash forecasting is often incomplete due to a lack of a consolidated view, no real-time view of cash positions, and difficult 360-degree forecasting. These realities create challenges for reconciling the bank view of account transactions and balances with a corporate’s ERP environment. Corporates seek solutions to drive cash concentration and access payments on behalf of (POBO) and collections on behalf of (COBO) programs to reduce cash processing complexity.

It’s time for corporate banks to dramatically uptick service and relevance by embedding finance services where the customer is doing business.

Imagining the future of transaction banking

Corporates today are seeking a connected and integrated experience—and they need solutions which allow them to experience banking inside the channels where they do business. While traditionally banking was delivered in banking portals and other bank-owned channels, Oracle believes the future banking will be delivered and seamlessly integrated into the customer business process allowing banks to provide completely new experiences.

Finance embedded at the point of transaction provides real-time visibility of cash. It provides a complete, aggregated view of banking cash across banks and a fully reconciled view with ERP. It reduces the number of payment rejections and intelligently routes payments with the best pricing and speed based on context. It also provides real-time payments visibility of payment execution status with the ability to pay beneficiaries faster.

Corporates also want to pay and settle instantly, reduce fraud, and get transparency into status. They also need a complete, transparent view of cash/liquidity with access to virtual account management for flexibility in managing their business and to leverage the power of the digital banker to deliver seamless, real-time advice to scale their business.

Corporates need their banks to understand their business and send timely and precise offers. Embedded finance enables corporates to purchase products seamlessly inside their channels with contextual offers. It also provides automated financial advice—delivering insights on the state of a balance sheet, optimising working capital, and automatically factoring in receivables to meet working capital.

Embedded finance enables corporates to understand risk on their balance sheet and helps banks manage said risk for customers. Banks can send proactive actions to hedge corporates’ balance sheets. In addition, corporates can seamlessly get information on how to grow their business. Banks can also share information on what actions to take due to economic uncertainties, how to avoid new and uncertain markets, how to scale products in new markets, and ways to connect with new customers.

Oracle’s approach to embedded finance

Oracle’s embedded finance for transaction banking solution enables banks to provide a personalised, digital-banking experience—with seamless payments, collections, holistic working-capital management recommendations, and virtual account management—built on a modern, data-rich cloud foundation which is delivered seamlessly inside corporates’ ERP systems.

With over 40 years of dynamic innovation in a variety of industries, Oracle offers a variety of industry applications where customers conduct their business of Financial Management (ERP), Treasury Management (ERP), Trade Management (Supply Chain), Payments and many other processes globally. The deep portfolio of applications owned by Oracle allows us to innovate and deliver value to our clients and banks in unimaginable ways while delivering embedded finance directly inside Oracle-owned applications.

Banks which can reimagine their value proposition to help corporates win at every stage of the corporate banking lifecycle—from securing and optimising capital to facilitating trade―are well-positioned to grow profitable partnerships for years to come. As a leader in ERP and banking technology solutions, Oracle helps corporates innovate and deliver value directly to customers globally.

For more information on Oracle’s Corporate & Transaction Banking solutions, feel free to contact us, or click here.

Categories:

Resources

Escrow Solution for Banks

Brochure / Fact Sheet | Banking Escrow Solution for Banks

Cashfac

Escrow Solution for Banks

Cashfac’s escrow accounts solution helps banks to offer a full self-service solution to their clients who themselves need to offer… Continue Reading

View resource
2022 predictions: the future of banking

White Paper | Banking 2022 predictions: the future of banking

Auriga

2022 predictions: the future of banking

The banking industry has seen many changes in 2021, both in Europe and around the globe. We witnessed cases of… Continue Reading

View resource
CyberBytes Email Newsletter From ThreatAdvice

Brochure / Fact Sheet | Banking CyberBytes Email Newsletter From ThreatAdvice

NXTsoft

CyberBytes Email Newsletter From ThreatAdvice

Cybersecurity News + The Latest Episode of The Cyber Show! Find this content in our CyberBytes email newsletter. You can… Continue Reading

View resource
API Connectivity Powering Digital Strategy, by NXTsoft

White Paper | Banking API Connectivity Powering Digital Strategy, by NXTsoft

NXTsoft

API Connectivity Powering Digital Strategy, by NXTsoft

Application programming interfaces (APIs) now serve as the critical device linking innovative technologies with fintech and core banking systems. This… Continue Reading

View resource