B2Bank Bullishness

Doug Kern

2010 is looking to be a better year for banks than 2009, right? Liquidity is back. TARP funds are paid back (mostly). While the new decade’s outlook is still a bit fuzzy, one thing is crystal clear: the basis for banking competition has changed and the status quo won’t work. So how will banks gear up differently given the changed landscape? For many, the answer is in improving their B2Bank “supply chain” connections and simplifying their framework for electronic connections outside their four walls with fee-based corporate customers and trading partners. This article looks at the macro issues facing technology teams at banks and a few ways you can leverage your trading partner connections to improve competitiveness.

Banks Take it on the Chin.

It's old news that most industries around the globe felt the impact of the economic meltdown, if only in terms of lower demand. Companies in real estate, consumer goods, automotive (!) and travel had to adjust to lower sales volume, squeezing costs to stay above water.  But the impact was much deeper for banks, fundamentally changing competition.  Sure, banking's basic purpose has remained the same -- to provide a safe haven for investing, lending and credit.  But banks face a trio of issues -- company consolidation, rising compliance mandates, and degraded customer trust - that require new strategies, placing both a challenge and opportunity at the feet of enterprise architects, data transmission managers and CIOs.

Banking consolidation adds to IT's already full plate:

Since 2007, the economic crisis has radically changed the banking landscape and shuffled many of the leading groups.  6 of the top 20 global banks are new since 2007.  And the shift to Asia is significant: 3 of the top 4 global banks are now Chinese and 9 of the top 20 banks are in Asia-Pacific.  Many standalone banks have disappeared and some have consolidated, reassembling under new names.  In the U.S., JPMorgan Chase took over Washington Mutual (WaMu).  In the U.K., Lloyds acquired HBOS.  While these corporate combinations often create fiscally stronger entities, they also place a significant burden at the feet of technology teams who are forced to weave together new data connections across organizations and product offerings and migrate customers and partners to new or legacy file transfer systems.  And since data and transactions are a bank's "supply chain", these underlying "B2Bank" data connections (the arteries and veins inside and outside the company) play a key role in a bank's service delivery, cost structure and competitiveness.  And to add to the challenge, the rewiring must be done with limited budgets, provide audit-friendly transparency and be built on top of fragile legacy systems.   An optimist would say this is both a challenge and an opportunity. 

Compliance mandates require new data transparency capabilities:

Many banks are feeling the impact of new compliance rules as the pendulum continues its swing from free markets to more government control.  In the U.S., the strings attached to the initial wave of TARP funds and government bailout programs were the most visible sign of intervention.  While most of the big banks have repaid TARP money, a first step in easing government's grip, the intervention will likely continue in other areas. For example, in December 2009, the U.S. Treasury Department became the majority owner of GMAC after providing $3.8 billion in third-round government financing. How will this impact the need for transparency in data governance, file transfers and security?  Compliance mandates are popping up in other regions, creating ongoing requirements for IT teams.  Two examples include the Financial Services Authority in the U.K and the Markets in Financial Instruments Directive (MiFID) in the EU.   Globally, broader compliance requirements are likely to continue, with many forecasting more of a transparent, "utility-style" relationship between financial providers and governments, similar to water and electricity utilities.  At the heart of these mandates are visibility to the flows of information and files sent to and from internal departments, trading partners and customers. 

Lack of trust puts pressure on customer service delivery:

Many banks are feeling a one-two punch relating to achieving ongoing growth, forcing them to reinvent how they deliver and differentiate services.  The first punch was the fundamental drop in demand and liquidity during the depths of the 2008-09 global recession and banking crisis.  The second hit, and perhaps more sustained, is the slower recovery due to the decline in public trust in financial institutions driven by the magnitude of the financial meltdown and aggravated by the perception of extravagant executive bonuses.  This sense of trust and confidence we have in the economic system, and our willingness to invest, hire and spend, was tagged decades ago as "animal spirits" by John Maynard Keynes in the 1930s and is back in vogue today.

Digging Out.  Three Imperatives for B2Bank Connectivity.

On the bright side, dealing with the massive issues of bank consolidation, compliance mandates and public trust create enormous opportunities to create unfair advantages in the market.  As the macro landscape shifts, technology teams at banks, insurance companies and other financial service providers have a unique opportunity to turn trading partner transaction efficiencies into a true corporate advantage.

Here are a few ways that banking IT teams should consider mapping out plans for 2010 and the new decade.

1. Accelerate Partner Provisioning:  For some banks, setting up a new connection with a customer, partner or division to exchange files can take weeks or even months.   Most of the delays are attributed to manual or inefficient processes in setting up stable and secure connections between a bank's back-office system and a trading partner.  Using automation to shorten these cycle times from weeks to days creates value in two ways.  First, fewer people are needed to support the task, freeing them up for more valuable use.  Second, revenue and cash-to-cash cycles are accelerated, since the flow of funds for fee-based services typically don't start until the flow of data files begin.  Faster partner provisioning processes make even more sense as banks look to shift the markets they serve and the accompanying portfolio of customers, agencies and third-parties.         
2. Automate Data Transparency:  Providing clear, audit-friendly visibility into file transfers as they move inside and outside the organization is a must-have capability in order to support compliance mandates.  This need for a single repository for data related to governance, risk and compliance (GRC) is gaining steam across all industries. "As companies start looking at managing risk across the enterprise, they want to pull all of that information into one place for reporting and analytics," says Forrester Research Analyst Chris McClean.  Banks must not only have a centralized view of the status of files exchanged, but also a way to manage governance and control around file permissions, roles and security.  But smart IT groups also realize that an infrastructure for compliance visibility is a strategic weapon for delivering compelling customer services and improving customer loyalty.  To differentiate in a low-growth, more restricted banking environment, many teams are looking for ways to tighten customer connections.  Providing common web-accessible dashboards, automating web-based workflows and delivering transparent reports are sure-fire ways of differentiating services.
3. Turn to Cloud-Based Cost Savings:  For banking IT teams, and technology groups in most other markets, the "do-more-with-less" mantra will persist well into the current decade.  It's clear that as businesses recover from the recession, they are taking a fresh look at technology costs and not simply rehiring staff and re-starting dormant projects.  The new competitive environment and the opportunities from low-cost cloud computing services are opening many eyes for cost savings. Many IT groups are taking advantage of cloud integration platforms not only as a way to switch from costly legacy file transfer tools, but also as an answer to speeding integration processes and dealing with the challenges of bank consolidation and compliance mandates. 

How are you reinventing your B2Bank connections?  

About the author

Doug Kern is Director of Marketing at Inovis (www.inovis.com), a provider of B2B integration software and services for banks, manufacturers and retailers.  When he's not teaching capsize drills to four-year-old sailors, Doug can be reached at doug.kern@inovis.com and www.twitter.com/doug_kern.