Corporates turning to non-bank treasury solutions

By Alex Hamilton | 8 July 2019

Banks that offer treasury services are losing market share to third parties and technology firms, according to new research.

Data from a Finastra survey this month show that 70% of corporate treasurers believe there will be a shift from bank to non-bank services within their companies in the next two to five years.

“Banks have become occupied with complying with legislation like Open Banking and PSD2,” says Anders Olofsson, head of payments at Finastra. “That compliance focus hasn’t enabled the banks to proactively educate corporate treasurers about new technology. Treasurers have had to adopt a sort of self-learning.

“Corporate treasurers have spent the past 20 years streamlining back office processing to be cost efficient. They have done their homework on cost driving, increasing straight-through processing (STP) and more,” says Olofsson. “Now they are looking at initiatives like Open Banking and thinking, ‘what if I can view my cash positions in an Open Banking scheme, instead of using expensive infrastructure or relying on banks?’”

Yet a majority of banks are either sitting on their hands and waiting for proper standards to be delivered for application programming interfaces (APIs) in the treasury space, or still believe that their channels will always be the dominant channels for interaction, adds Olofsson. “There is a 5% of the banks that are saying, ‘we’re not going to sit around and wait for a standardization body to come around and dictate standards, we’ll promote the APIs we have. We’re going to lead.’”.

According to a June survey from the Association for Financial Professionals (AFP), 93% of corporate treasury and finance professionals consider the relationship with their bank a key driver when it comes to where they place their organizations’ cash and investments.

Banks must reconsider the way they approach their treasury offerings says Olofsson. “There is this phrase that ‘data is the new oil’, which I think shows there is a lack of competence in banks when it comes to understanding things, rather than a lack of the proper technology.

“You can have a pipeline but not know whether what is inside it is oil or water. Some banks just assume that whatever data they have is valuable. They look for generic APIs whilst corporates look for specialised ones which can contain specific data they need – like geolocation. Corporations are now seeking other providers for their data needs.”

Specialist treasury providers have emerged to offer solutions banks don’t, says Olofsson. “Banks have two options at that point. They could keep providing standardized APIs, and creating these stupid pipes of data, or they can excel and create bespoke services that are tailored to their customers. If they go the latter way they end up as more of a service company, and the impact of being a service company is that you can have scale. If you don’t have scale you’re not going to maintain your profit margins.

“When the enterprise resource planning (ERP) vendors and the treasury management systems (TMS) vendors get their acts together and even start to get banking licences there is going to be a tremendous change in the industry. If you think about accounts payable and accounts receivable, all of that data sits in an ERP system and the bank does not have access to that data. This means that Oracle or SAP or other local, regional or key vendors have a unique position to be advising the corporates on their financing needs and being the platform to do that financing.

“If you take accounts receivable, theoretically a bank could have an API into any ERP system being able to offer factoring in real-time based on the invoices they want to finance. That would be a very flexible real-time offering to manage cash flow. But banks right now don’t have the capability or don’t have the negotiating power with the ERP vendors to implement such services. These vendors will be disrupting treasury more so than the fintechs out there. There is an existing challenge of scaleability for fintechs, but ERP vendors are sitting on a gold mine of data and existent trust with the corporates.”

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