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 pre-authorized 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—at 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.

Bank standouts in the field have been conducting such ahead-of-the-market services. Wells Fargo recently enhanced its 2002 portal offering, The Commercial Electronic Office (called CEO although it isn’t necessarily aimed at chief executive officers), with the CEO Workstation, which provides a global view of cash positioning, forecasting, and trends. JPMorgan Chase, has offered Receivables Edge since 2005, which is a single sign-on browser that enables secure, consolidated payment and remittance information from any of the bank’s 15 image-based processing locations, as well as the bank’s ACH, wire transfer, and Financial EDI payment platforms. Using imaging and data capture, the solution delivers a unified view for more effective cash management.

As the systems adopted by the banking industry have grown more sophisticated, so too, have the back offices of many corporate customers. The most advanced of these have tried to link enterprise resource planning and accounting systems to treasury management systems to garner better intraday, daily, weekly, and monthly reports.

Help to pull it together
Despite all this onsite re-engineering, many corporate customers still need help from bank and IT partners to pull information and programs together, or somehow provide information that closes the gaps created by disjunctive systems and helps corporate customers make better purchasing and payment decisions.

Financial Insight’s commercial payment study shows that businesses believe that banks are the primary source for services related to a more integrated supply chain. “It’s the bank’s game to lose,” says Scarborough.

And at Wells, taking a partnership role in supply chain management is paying dividends. Michelle Young, vice-president and senior product manager in the wholesale internet and Treasury Solutions group, notes that in talks with over 500 corporate customers starting in 2005, the idea of providing a real-time, accurate picture of finances as well as the ability to have faith in projections was a theme that came up again and again.

“Typically, these are companies where the treasury, receivable, and other accounting departments may not be communicating or working off of common records. Or the company may have multiple bank relationships,” says Young. “We have the data and we built in the solution to support feeds from other banks. Users can also input and save transactions that aren’t, for whatever reason, included in the automatic feed. Every time they log in to the CEO portal, the information is refreshed.”

David Robertson, partner and head of the financial institution practice for Treasury Strategies, Inc., who is based in the Chicago office, says the Wells Fargo offering is likely set up to meet the needs of mid-market customers that have light staffing when it comes to handling accounting, working capital management, and cash management. Essentially, what Well has done is combine a treasury and cash management workstation that will appeal to corporates of a broader size range. “It’s a good offering,” he notes. Generally, top 20 banks have brought back the treasury workstation in some capacity to service large corporate customers who have big staffs in distinct departments for derivatives trading, say, or trade finance or cash management. “Banks in the ’70s and ’80s had treasury workstations for big corporates, but got out of that business. In recent years, they’ve returned with web versions of those products.” He cites PNC PINACLE as one example. Corporates, he agrees with Well Fargo’s Young, often deal with multiple banks and a combination of in-house and bank-offered solutions to move money, invest, pay bills, and get data into their general ledger. This makes it hard, at the top tier of the company, to get a snapshot net cash assessment on any given day. Supply chain management, in part, touches on bringing some order to all these links between corporates and banks to give that snapshot view so that smarter decisions can be made and capital “unlocked.”

In the midst of research on the subject of optimizing the financial supply chain when she chatted at length with ABA BJ, Scarborough said improving receivables and payables cycles will make new types of financing viable.

“In recent research corporate customers indicated that liquidity and better reporting were among the top five requirements,” Scarborough says. “The solutions need to be business process oriented so that exceptions and customer service interactions are easier to manage, and everything about the transactions tracks back to accounts receivable and accounts payable systems.”

One scenario she offers is the case of a very large buyer that has a cluster of small suppliers as trading partners and has partnered with the bank for supply-chain finance. If suppliers use the bank to get information about approved invoices they can be offered early payment at a cheaper cost of capital.

The analyst cites other examples such as receiving forecast information inside of Excel spreadsheets that are stored on their desktops and connected to their bank. Cell formulas, provided by the bank in industry standard financial calculations, let a company move information to other spreadsheets or ERP systems for further analysis. “Business users would click on a cell and get updated information, which allows for daily and dynamic positioning,” she says. But you need not look at such keen collaboration schemes to be convinced. “In 2005, the average administrative cost to businesses and organizations of paying for goods and services was $89 per transaction,” says Scarborough.

Transactions good, insight better
Matt Ribbens, a payments analyst at Global Concepts, Inc., and forum manager of The Cash Management Forum, a regular meeting of bankers, vendors, and payment specialists, agrees that the idea of improving the supply chain is of interest to those providing corporate banking services, as is improving all types of reporting for customer compliance and accounting purposes.

“Information reporting generally is driving a lot of the technical development in the cash management space,” says Ribbens.

Increasingly at all levels of market, he agrees, generating payments transactions is viewed as commodity work with thin margins. This last phase of becoming a commodity service was only accelerated with the advent of the web.

Depending upon sophistication level, corporate customers rely on a single web-based platform to automate checking accounts, pay bills and salaries, transfer funds, or research whether a bill has been paid, as well as transactional basics such as initiating wire and ACH transfers, setting up automatic payments, and doing stop-payment transactions or account reconciliations. Banks support positive pay and other fraud detection capabilities as well as controlled disbursement, cash concentration, and lockbox services.

“The last few years, many banks have gone from a very siloed cash management operation to a more integrated approach,” says Jim Gillespie, Fiserv BankLink’s vice-president of product strategy. “The next wave of integration will occur in supporting better straight through processing front-to-back office and direct to clients.”

Other vendors, such as Metavante, which launched a treasury management division last year, promote services such as billing, collections, controlled invoice accounts, and end-of-day surveys as well as traditional transaction services. BJ

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