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Check use drops, but still plenty of room for efficiency gains

checks

Check use drops, but still plenty of room for efficiency gains

AFP, the Association for Financial Professionals released the 2022 Payments Cost Benchmarking Survey underwritten by Corpay. The survey looks at external costs such as bank/payment provider fees, reporting, interchange for credit cards, etc., and internal costs such as personnel, technical equipment, IT support.

Treasury and other financial professionals can now compare their costs of making and receiving seven types of payments–check, ACH credits and debits; wires; credit and debit cards; real-time payments, and virtual cards–against benchmarks for similarly sized companies. This is useful information for identifying areas for optimization and in making the business case for further automation.

This time around, the cost of incoming payments has also been segmented by tender type, a recognition of the fact that impact to vendors should be part of the equation when implementing a new payment strategy.

Survey Says…

This survey was completed about 18 months after COVID-19 began and reflects the acceleration of electronic payment adoption driven by work from home policies. The typical organization now reports processing between 500 to 999 checks per month and 1,000-1,999 outgoing payments via ACH Credit. In 2015, the median number of checks processed per month was 1,000-1,999 while the ACH Credit median was 500-999 per month.

Data collected from nearly 350 accounts payable professionals confirms that paper checks are considerably more expensive than all electronic payment methods except for wires. Even though the survey found high awareness of the cost of checks compared to electronic methods, 92% of organizations continue to accept them.

Survey results indicate that despite lower overall check processing median transaction cost for issuing a paper check range between $2.01-$4.00 per check

Increased efficiency was the primary reason cited for transitioning to electronic payments (92% of respondents), compared to 82% of respondents that cited cost reduction. This marks a shift in focus; according to the 2019 AFP Electronic Payments Survey—released well before the pandemic hit—the top three drivers were cost savings, fraud controls and better supplier/customer relations. Efficiency in terms of speed and ease of reconciliation were ranked 4th and 5th respectively in 2019.

Fraud remains a top concern, with 67% citing fraud concerns as a primary driver for electronic payment adoption. Fifty five percent of organizations with revenue greater than $5 billion said the move was part of a larger workflow automation project.

Despite the new focus on efficiency, results from this year’s survey suggest that paper checks are not going away anytime soon. Despite nearly two thirds of organizations saying they would replace paper checks with electronic payments if there was a cost benefit, 37% of all respondents said they would continue to use paper checks regardless of costs.

The report cites the ubiquitous nature of checks, tradition, the challenges of converting vendors to electronic payment methods, and longstanding systems and routines as enduring obstacles to change. This thinking, along with other internal Corpay market research, suggests that many organizations remain unaware of changes in the payments market that could help them achieve greater efficiencies, cut costs and better prevent fraud.

Our take:

-Card payments remain underutilized. Procurement, T&E and virtual card processing can be easier to automate as vendors often have systems in place to capture data from ERP and procurement systems. As treasury and payments professionals continue to focus on tightly managing working capital , credit cards can be a very valuable tool. Organizations should evaluate their average cost of capital, cost of credit, and credit terms, and the opportunity cost of accepting/not accepting cards when evaluating them as part of an overall larger payments strategy.

-The adoption of virtual cards in particular is still relatively low—23% across all respondents. Virtual cards offer all the working capital benefits–including rebates–associated with traditional credit cards. But since these single use cards can only be used by the specified payee in the specified amount, they offer unparalleled protection against fraud. Considering the focus on fraud prevention, virtual cards warrant a more prominent place in organizations’ vendor payment strategy.

-The 2019 AFP Electronic Payments Survey reported that the cost to convert customers from paper checks to electronic payments was the number one drawback to conversion. This cost was not considered in the Benchmark survey, but treasury and finance professionals are well aware of the ongoing manual labor involved in enabling vendors for electronic payment. What they may not be aware of is that Fintechs such as Corpay have large, cloud-based acceptance networks and take on that effort on behalf of their customers.

-The study looked at seven different payment methods. The majority of companies are using at least three but some may be using all seven. That means they are likely running several discrete payment workflows. Where that is the case, they could achieve further efficiencies with a payment automation solution that consolidates all payment methods into a single workflow.

-Companies with annual revenue between $1-$4.9 billion are the heaviest users of wire payments, which can cost up to 12 times as much as a check. This is likely due to an organization with a global footprint that is sending more wires to vendors overseas. Companies this size may not yet have a global operations infrastructure and access to local payment systems and banking partners. These companies could benefit from a payments partner specializing in cross-border payments.

As the Benchmark survey notes, the cost to receive a check is typically half of what it is to issue one, and large AR departments have efficient, often touchless processes in place for processing them. Prior to the pandemic, that meant vendors often did not feel the same sense of urgency to digitize payments.

During the pandemic, convincing vendors to accept digital payments became a much easier discussion as both parties were motivated to move to an electronic format while their teams were working remotely. That created a tailwind for the move off paper checks, which has been far slower than anticipated in North America. Streamlining your payment process and migrating to less expensive, more efficient payment methods should be your priority for 2022.

By Corpay, a FLEETCOR company.

fintech

Is Saudi Arabia Leading the Race for FinTech Financial Inclusion?

It can be hard to keep up with Fintech. Just as the sector appears to be settling into some form of pattern in the UK and USA, where the next notable round of innovation is widely expected to be the automation that is changing the industry, new markets and new centers are emerging. 

One of these – and one that was thought to be rather unlikely until fairly recently – is Saudi Arabia. Though the Middle East has long had a promising fintech sector, this has largely been confined to Saudi’s smaller neighbor, UAE. 

Now, a range of Saudi startups have raised large sums in seed capital, and seem poised to make a major impact on the industry. In this article, we’ll look at these recent success stories, and explore when they mean for Saudi’s nascent fintech sector. 

Saudi Arabia: A New Frontier?

First, let’s take a look at those recent headlines. Back in April, a promising but relatively small Saudi fintech startup, Tamara, announced that it had raised $110 million for its Series A funding. This came as a real shock to industry, and with good reasons – not only was this the largest level of Series A funding ever raised by a Saudi startup, but it was the largest Series A ever raised by a middle eastern startup.

Perhaps the news shouldn’t have come as much of a surprise, though. Observant investors noted that the Saudi fintech sector has been growing steadily over the past few years – from just 10 startups registered under the Fintech Saudi initiative in 2018, to a total of 155 in 2020. And with extra companies comes extra funding – from January to May this year, fintech startups based in Saudi Arabia raised almost $130 million, a whopping jump compared to the $23 million raised by the sector from 2015-2020.

This growth is also likely to continue in the medium term. This level of investment is proving to be an incentive for Western fintech startups, as well, who are now looking to the Middle East as a potential new market for their services. Whether they will be able to take advantage of the size of the market in the region will, however, depend on a number of factors.

As we will see, the biggest problem standing in the way of creating a dynamic Fintech sector in Saudi is not the demand for innovative banking services – that is certainly strong enough. Rather, it is a somewhat traditional banking sector that may be reluctant to open up to technology companies.

Growth Across the Region

Saudi certainly has some well-established models to follow when it comes to catalyzing fintech growth. Bahrain, for instance, is widely regarded as having some of the most fintech-friendly banking regulations in the world, and the sector in that company is growing rapidly. Similarly, Egypt is seen as a real growth market for the sector, given the country’s huge population and a government that seems to be supportive of novel approaches to small business finance.

In both of these countries, government support has been key to encouraging the fintech sector, and Saudi Arabia appears to have recognized this. The Fintech Saudi initiative is the flag bearer for this support, and was launched back in 2018 by the Saudi Central Bank. The bank partnered with the Capital Markets Authority (CMA) in the kingdom, which has played a pivotal role in providing investment funding for fintech startups. 

The goals of these investments are certainly ambitious. The mission statement of the CMA states that it is tasked with “transforming Saudi Arabia into an innovative fintech hub with a thriving and responsible fintech ecosystem”. As part of this wide mandate, Fintech Saudi facilitates the licensing process for startups, connects entrepreneurs with investors, service providers, and banks, and has an accelerator program run by Flat6Labs.

This government support is, in turn, part of a broader change across the region, in which governments who were previously averse to change are embracing new ways of doing business. Just as the oil industry is changing, and becoming more transparent, so is the financial sector. And that will have impacts far beyond investors and bank staff because fintech might just be able to make banking truly inclusive.

Open Banking and Inclusion

If, as seems likely, Saudi Arabia becomes a leader in the fintech space, it will act not just as a catalyst for the development of fintech solutions across the region. It will also be the biggest test run yet of one of the central promises of fintech – that this technology can open up banking in a way never seen before.

On the one hand, Saudi Arabia seems like an unlikely place to be at the forefront of inclusive banking. The country is still very conservative and has some of the most secretive banking practices in the world. However, there are signs that the kingdom is open to change – both socially and in regard to the way it does business.

This has been overtly stated by Fintech Saudi, which is developing an open baking framework for the kingdom. Their aim, they say, is to force Saudi banks to be more open, and to share data about their activities more widely. This, in turn, will likely make it easier for under-represented groups in the country – women, most of all – to access banking services. 

At the moment, many guest workers and women in the country are under-served by financial institutions, and by allowing them to open accounts it is hoped that the country can become more open generally. In addition, fintech can help these workers to make international payments more easily, sending money back home and sharing the benefits of the strident Saudi economy.

The Challenges

Of course, changing the way in which a conservative country runs its banking system is not going to be easy. The Fintech sector in the country, while attracting a lot of funding, will have to overcome some real challenges if it is going to succeed.

One of these is a skills gap. A recent report from Fintech Saudi, for instance, shows that hiring qualified talent was the primary challenge for 40% of startups in the fintech space. Without qualified workers to power the work of startups, it’s likely that these will either stall or be forced to move their activities (and their profits) elsewhere.

Secondly, there is the issue of cybersecurity. Saudi has been a major target of cyberattacks in recent years, many of which appear to have originated in Iran. While the average fintech startup might not be a target of global cyber-weapons, the sheer number of common cybersecurity risks that the average Saudi company experiences every year could be enough to deter some startups and investors from working in the country.

The Bottom Line

That’s not to say that these challenges don’t have solutions, of course.  Open banking has progressed in two ways around the globe in recent years, either via regulators forcing traditional banks to embrace it and work with fintech startups (as is the case in the European Union) or (as we see in the US) incumbent banks opting to partner with open banking providers to keep pace with innovation.

If Saudi Arabia can do the same, while also recognizing that both talent acquisition and customer service are key to success in Fintech, there is no reason why it cannot emulate the success of its neighbors, and become the next global fintech hub.

mobile wallet

Mobile Wallet Market: Top Emerging Trends Fostering the Industry Growth through 2026

The mobile wallet market is set to register significant growth during the forecast period. Mobile wallets and mobile banking have gained a lot of importance in the past few years due to the increased internet penetration in various industries across the world. There are many benefits associated with using mobile wallets like convenience in making payments, higher safety while keeping all card-related information at one place. The youth population across the world prefers to use these wallets instead of carrying physical ones as they can have easier and safer access to their money.

The banking industry in developed regions like North America and Europe has undergone tremendous transformation with the introduction of mobile banking transactions. Banks and other financial institutions today are introducing their own mobile wallets to enhance customer experience and increase their customer base as well. They are targeting the millennial generation as they are the largest users of digital banking services.

Online shopping and other e-commerce activities have witnessed robust growth, especially during the COVID-19 pandemic. The lockdown restrictions imposed by various governments across the globe has led to increased dependence on these online platforms to make their daily purchases and carry out other transactions. This has led to a sharp spike in the demand for mobile wallets to help customers conduct their transactions with ease.

The trends that will foster global mobile wallet market size are listed below:

Open mobile wallets will witness hike in demand in Europe:

Europe mobile wallet market is reported to be worth a whopping $60 billion by the end of 2026. Open mobile wallets will see robust demand among the regional population. In fact, this segment is expected to grow at a CAGR of 15% during this time period. Open mobile wallet is a type of virtual wallet with the help of which one can make payments, withdraw money and conduct several other transactions.

Europe is known to have one of the most advanced digital banking infrastructures in the world. Banks in the region use state-of-the-art technologies to make everyday banking convenient for customers. The traditional banking system is facing some serious competition from fresh fintech start-ups, resulting in the introduction of open mobile wallets and other modern banking technologies to retain customers and expand their business.

European device manufacturers adopt mobile wallets:

Banks, tech companies, telecom operators and device manufacturers constitute the users of mobile wallets in Europe. Out of these, the device manufacturers will increasingly adopt mobile wallets in the region. This segment is reported to grow at 20% CAGR through 2026. One of the main reasons cited for this is the rapid increase in demand for smartphones among the young population.

This demand has skyrocketed to such an extent that countries like France, Italy and Germany had almost 150 million smartphone users in 2019 alone. It is even being reported that 80% of the transactions will be done via internet-backed devices by the year 2025. There are several smartphone manufacturers that are introducing mobile wallet technologies by creating in-built apps to cash in on the growing demand.

Scope of the U.K. mobile wallet market:

Among the several countries in Europe engaged in providing digital banking services, the U.K. is reported to showcase promising growth by 2026. The country even held a market share of more than 20% in 2019 and this figure is projected to go even higher in the future. One of the main reasons for this is the rising awareness among customers about the concept and benefits of mobile banking.

These include higher convenience and transparency in operations, a wide variety of channels to make payments from, and many others. Key factors have prompted several traditional banks to revamp their offerings and introduce user-friendly mobile wallets to increase their customer base.

The use of closed mobile wallets will increase in North America:

Mobile wallet market size in North America is reported to exceed a staggering $80 billion by 2026. The closed mobile wallet segment is projected to show robust growth trends in the coming years in the region and will grow at a CAGR of 20% between 2020-2026.

One of the major reasons for this is the security issues arising from conducting online cash transactions. The risk of cyber-attacks is always present, and a major chunk of the creators of mobile wallets are not well equipped to handle these attacks, leading to heavy financial losses for the company and loss of customer confidence as well. This is why more customers prefer to use closed mobile wallets to keep their money safe.

Banks will be the largest owners of mobile wallets in North America:

Banks are reported to be the largest owners of mobile wallets in North America. In fact, this segment will capture a growth rate of 15% by 2026. One of the major reasons for this is attributed to the rising focus of banks to enhance customer experience by introducing them to convenient and transparent banking procedures.

There are several banking and financial institutions that are replacing their traditional ways of doing business with digital processes. Banks and customers enjoy several benefits like improved customer relations, increase in customer base, exponential market growth and increased customer confidence. All these advantages have made several banks to offer mobile wallet services in North America.

Mobile wallet use in emerging economies of Asia Pacific:

Asia Pacific mobile wallet market size will be more than $200 billion by 2026. Economies like India, Singapore, South Korea and China are going through a period of economic transition. This has caused increased demand for digitization in these countries, leading to creation of advanced technologies in the banking sector to foster economic growth. Since the regional population has become quite aware about the benefits of using mobile wallets, there is a substantial growth being seen in their demand.

There are many banks in Asia Pacific that are increasing their funding on research and development processes to introduce their own mobile wallets to provide convenience to customers in their transactions. All these factors will accelerate demand for mobile wallets in Asia Pacific.

Increase in NFC technology use in Asia Pacific:

Among several technologies being incorporated while creating mobile wallets, the Near Field Communication (NFC) technology will attract a high demand among consumers in Asia Pacific. In fact, this technology is set to witness more than 20% growth rate by 2026. One of the main reasons for this is that mobile wallets that are equipped with NFC technology have additional security and prevent unauthorized data transfer from one device to the other.

It even creates an encrypted and secure channel of communication between a POS system and the device and has message authentication system in place. The security features of this technology can be customized according to end-user requirements as well, leading to increased demand for mobile wallets with NFC.

Some of the reputed companies engaged in providing mobile wallet services across the world are American Express Company, Amazon.com Inc., Mastercard Incorporated, PayPal Holdings Inc., Wells Fargo & Company, Tencent Holdings Ltd., Google LLC and some others.

payments

What is Happening in the B2B Payment World in 2021?

2020 was such an unexpected year. Even if you saw the pandemic coming, I doubt anyone would have guessed in March that we’d still be talking about it in 2021. Or grasped how much it would change pretty much everything. With that mindset, it almost seems ironic to make predictions. Still, some clear trends in B2B payments have emerged from the year’s events and are likely to unfold in the next twelve months. These are some of the trends that I see taking the driver’s seat in payment automation this year:

Checks Payments are Losing their Luster

The payment automation business case has largely focused on cost savings and AP efficiency. COVID-19 and remote work bolstered that business case—for safety purposes, many companies still hesitate to send employees to the office to cut checks. But what we’re hearing even more is that their suppliers don’t want to receive checks, and they’re asking buyers to start making payments by ACH. With suppliers adopting digital payments at a more significant rate, it feels like we’ve reached the tipping point where checks are becoming obsolete on a broader scale.

ACH Pain Hits Home

As organizations pay more suppliers by ACH credit, they realize the true cost of ACH payments and the risks around them. At $.25-.50 per transaction, ACH looks cheap, but when you consider the time, expense, and liability of supplier enablement, the real cost ends somewhere between $1.40 and $3.79—similar to what it costs to process a check. And that doesn’t include the cost of fraud prevention. ACH payment fraud is on the rise—particularly Vendor Email Compromise (VEC) schemes, where scammers pose as vendors and convince AP teams to send ACHs to fraudulent bank accounts.

Most enterprises have mature controls around check processes, and banks offer controls via Positive Pay and Positive Payee. However, those controls don’t always exist for ACH, and banks often struggle to offer fraud protection for this payment type simply because check fraud was the main focus for so long. But now ACH fraud is rising, and the risk is greater than with checks because the ACH payment process is worlds faster. It’s almost impossible to recover stolen funds if you don’t recognize the problem before the funds reach the bad actors. All these challenges are likely to push more organizations toward outsourcing their payment process to alleviate their overworked teams.

Digital Transformation Ripple Effects

We’re likely to see businesses sorting through some ripple effects in 2021. Organizations had to move forward urgently, and there wasn’t time to plan for some of the changes that would normally take time to implement.

There may also be impacts on external stakeholders. I think we’ll see similar ripple effects from rapid, tactical digitization across departments and industries. That will lead to a second, more strategic wave of transformation and automation with solution providers addressing emerging needs.

Electronic Data Speeds AR Processes

One of the hidden reasons checks held onto their popularity for so long is that they’re easy for AR to reconcile. The funds and data appear simultaneously, with the remittance data right on the check stub. From there, AR knows exactly how to apply the funds against their invoices. If they have a lockbox service with their bank, they don’t even have to key in the check details.

Until recently, that simplicity didn’t translate to ACH payments. AP staff would see ACH deposits in their account, but they wouldn’t necessarily be told how to apply them, because the data didn’t travel with the payment. NACHA (National Automated Clearing House Association) and the RTP (Real-Time Payments) network have improved ACH remittance data transfer. Although the number of fields and characters are limited, it’s a big step in the right direction.

Digitization Unlocks Supply Chain Financing

When it comes to supply chain financing, the U.S. is behind the times when compared to Europe, which has had electronic invoicing in place for a while. There’s a massive opportunity in the U.S. to create more fluidity and working capital for suppliers and buyers alike by using data to accomplish a faster and more dynamic kind of underwriting.

Smarter systems with access to the whole data stream—from PO issuing to payment transacting—can support pre-approved discount and financing options. This wasn’t possible in a paper-based environment, but we’ll see more of these offerings as businesses digitize their data.

A Transactional Social Network for Business

It’s becoming old-fashioned to think of buyers and suppliers—and AP and AR—as separate and independent organizations. Every AP team has a corresponding AR team. All companies are both buyers and suppliers. By looking at all connections between them, you start to see the huge social network of finance professionals behind the constant exchange of funds, POs, invoices, contracts, and other documents. However, for all the highly sensitive data, businesses are not equipped to handle these as securely as they should.

Some financial companies are using the B2B social networking concept to build proto versions of a “Facebook for Business” into their product. Still, we have yet to see any with broader functionality or mass adoption.

Whether a collection of technology firms share their vast network, or a single company creates and markets the right solution, the market is ready for a new business standard. Somebody is going to create a platform that brings businesses out of the virtual Dark Age and into a Renaissance—and it will be very successful when they do.

________________________________________________________________________

Josh Cyphers is the President of Nvoicepay, a FLEETCOR Company.  For the past 20 years, Josh has managed successful growth for a variety of companies, from start-ups to Fortune 100 companies.  Prior to Nvoicepay, Josh held leadership roles at Microsoft, Nike, Fiserv, and several growth-stage technology companies.  Josh is a lapsed CPA and has a BS in Economics from Eastern Oregon University.

legislation

The European Legislation That’s Giving Businesses a Better Deal with Banks

New legislation has been rolled out across Europe with the aim of increasing competition in the financial services market – and America is taking note.

Open Banking’ legislation forces the big financial institutions who dominated the market place to share data belonging to businesses and individuals with their competitors. This happens only when the customer has requested it – and is designed to help the customer to get a better deal when managing their money.

Using these Open Banking provisions, third-party financial institutions can access things such as balances, transaction information, spending details, borrowing and overdraft use. It means those institutions can then analyze the data and use it to offer linked services and offers. Only specific data that is required to enable a particular service is shared and only when the customer has consented. That consent can be withdrawn at any time.

Across Europe, legislation – in the form of the Second Payment Services Directive (PSD2) – is now in place to require banks to engage with Open Banking and enable customers to consent to the sharing of their data in this way and sign up for services that require it.

Though the concept of financial firms sharing customer data to enable products has been around for a while in Europe and the US, the European Union’s PSD2 legislation has arguably been a driver in making the way it is done more secure and raising the profile of the opportunities it creates across the globe.

Open Banking is certainly allowing individuals and businesses to access a wider variety of financial services.

Mastercard firm Finicity, with corporate headquarters in Utah, is an established Open Banking provider and recently announced a data access agreement with Brex, a finance management system for businesses.

Finicity CEO and co-founder Steve Smith said: “Finicity has been collaborating in earnest with financial institutions in signing data access agreements with banks and other traditional financial institutions.

“With our agreement with Brex, we are now extending our approach to fintechs. We look forward to working with Brex in pioneering the way financial data is utilized to help businesses grow and achieve their goals.”

The growth of Open Banking is undeniable.

In the UK alone, more than two million customers were said to be accessing Open Banking services by September 2020, according to the Open Banking Implementation Entity (OBIE).

Apps and services using Open Banking have made a wide variety of business banking services easier or more affordable.

Open Banking makes it feasible for a service provider to create an app that links directly to a business account to assess how much tax is payable and to move those funds into a tax account, for example.

In one of its simplest forms, Open Banking allows accountants, financial personnel, and business managers to set up and access a dashboard where accounts held across a multitude of different institutions can be viewed and managed in one place.

Disrupter services are also forcing intensified competition on things like fees and charges for overseas spending and transaction costs.

One aspect of Open Banking allows merchants to tap into new streamlined options for accepting payments and making refunds directly between customer accounts without the need for credit or debit cards.

Kieran Hines, Senior Banking Analyst at financial services technology research, advisory and consulting firm Celent, said: “Open Banking on the face of it is a quite alien concept. If you say to people ‘there is this great new concept where third parties can access your bank account information’, people are naturally quite hesitant and tend to reject the concept.

“What we will see happening, and to some extent is already happening, is that people will engage with Open Banking services because they provide value. Customers will be less and less aware of the realities of what happens to power these services and more interested in taking advantage of what they can offer.

“In the same way that people don’t need to know how an ATM works in order to use it. What we need to know with Open Banking is ‘if I provide consent to this mobile app to see my data, they can give me something better than I have now’.

“Over time, Open Banking will become something that is just part of the experience customers have and they’ll be aware of how that can be used to improve the services they receive.”

banks

THESE ARE THE U.S. BANKS YOU SHOULD BE TRUSTING WITH TRADE FINANCE AND CASH MANAGEMENT

Global Finance editors, with input from industry analysts, corporate executives and technology experts selected the best trade finance banks in 97 countries and eight regions.

In addition, Global Finance selected the best banks for trade by U.S. region, a list that was based on various service categories, such as document management and export finance.

This year’s winners were revealed during Global Finance’s 20th annual World’s Best Trade Finance Providers awards luncheon on Jan. 15 in Frankfurt, Germany, during the BAFT Global Annual Meeting.

The American winners were:

New England: Webster Bank
Mid-Atlantic: M&T Bank
Great Lakes: KeyCorp
Plains: Commerce Bank
Southeast: SunTrust Bank
Southwest: Comerica
Rocky Mountains: Zions Bancorp
Far West: U.S. Bancorp 

Globally, HSBC took the top spot in Euromoney’s Trade Finance Survey for the third year running, with Deutsche Bank in second place and UniCredit in third. Citi fell out of the top three to take fourth position. One of the biggest upsets was JPMorgan, which fell to 17th after reaching ninth place in 2018.

“Many of the American banks have enough trade business in their home market,” explains Eric Li, research director at Coalition. “So it’s no surprise that when it comes to a global survey, European banks will thrive.”

Global Finance editors say the winners are those banks and providers that best serve the specialized needs of corporations as they engage in cross-border trade. The winners are not always the biggest institutions, but rather the best—those with qualities that companies should look for when choosing a provider.

A proprietary algorithm with criteria—such as knowledge of local conditions and customer needs, financial strength and safety, strategic relationships and governance, competitive pricing, capital investment and innovation in products and services—weighted for relative importance was employed by Global Finance.

A DIFFERENT TAKE FROM GREENWICH ASSOCIATES

As of press time, the most recent Greenwich Share and Quality Leaders in U.S. Large Corporate Banking was released during the fourth quarter of 2019.

“For a business that is generally considered stable and rather slow to evolve, large corporate banking is changing fast,” notes a statement from Greenwich Associates. “The globalization of U.S. corporate business coupled with a disruptive trade war, the proliferation of digital technology, the rise of fintech providers, and the strategic retreat of certain global banks are just some of the variables shaking up the corporate banking industry and putting more corporate clients and business up for grabs.”

From April through September 2019, Greenwich Associates conducted interviews at U.S.-based companies with $2 billion or more in annual revenue with 422 chief financial officers, treasurers and assistant treasurers, 441 cash managers and other financial professionals in cash management, and 136 corporate trade finance professionals.

Participants were asked about market trends and their relationships with their banks. Trade finance interview topics included product demand, quality of coverage and capabilities in specific product areas.

THE WINNER’S CIRCLE

The 2019 share list is topped by J.P. Morgan, followed by Bank of America, Wells Fargo, Citi and HSBC—in that order.

The order of the top two changes when it comes to U.S. Large Corporate Cash Management: Bank of America; J.P. Morgan; Wells Fargo; Citi; and HSBC.

“Despite the trade war between the United States and China, the ongoing Brexit saga and other signs suggesting that globalization might have temporarily peaked, U.S. companies actually increased their exposure to overseas markets last year—at least in terms of their banking needs,” according to Greenwich. “For example, the share of large U.S. companies using at least one bank for payments/receivables and/or cash management in Western Europe increased to approximately two-thirds in 2019 from just 58 percent in 2018. The uptick was equally impressive in Latin America, Central and Eastern Europe, and the Middle East and Africa.”

BANKS CHARGE INTO CASH MANAGEMENT

The biggest U.S. banks are placing a new strategic focus on the cash management business. In part, this new emphasis comes from a desire to capture the cash deposits of large companies, which provide a much-needed source of balance sheet stability.

However, banks are also looking to capitalize on an inefficiency in corporate treasury management by creating new client values. International payments, receivables transactions and even corporate cash transfers often trigger a corresponding foreign exchange trade. Some companies put those trades out to bid—but many don’t.

Even for trades up to $20 million in size, many companies simply pass the trade on to their cash management providers. For that reason, margins for FX transactions on the back-end of international cash management transactions can be especially attractive.

U.S. TRADE FINANCE AMONG LARGE CORPORATES

Trade finance is an area of renewed interest by the major banks. Citi, Bank of America and J.P. Morgan all vie aggressively to be the lead trade finance provider among U.S. large corporates, with each bank doing business with just under half of the market. Wells Fargo and HSBC round out the top five banks. Bank of America, Citi, HSBC, J.P. Morgan, and Wells Fargo are all recognized for distinctive quality and share the title of Greenwich Quality Leader.

GREENWICH EXCELLENCE AWARDS

The accompanying table presents the complete list of 2019 Greenwich Excellence Awards in U.S. Large Corporate Banking and Cash Management.

Greenwich consultants John Colon, Don Raftery and Chris McDonnell specialize in corporate banking, cash management and trade finance services in North America. Consultant Chris McDonnell also specializes in digital banking.

banks

OUT WITH THE OLD: WHY BANKS MUST ADOPT FINANCE TECHNOLOGY TO REMAIN RELEVANT

The term “FinTech” continues to saturate the news and financial institution reporting in recent years. It’s not surprising that streamlining financial services in the age of automation is something traditional banks struggle with adopting as global markets capitalize on technology. The trade sector on a high level is already purging antiquated, traditional processes involving paper, phone calls, Excel spreadsheets and tedious, unreliable methods of tracking and invoicing.

Now that FinTech is part of the bigger financial picture, it only makes sense that more companies in the global trade market are adopting FinTech as the norm rather than an option. This presents its own set of challenges for banks to overcome as much as it presents opportunities in optimization and risk mitigation. FinTech has its own challenges to overcome as well before it can successfully replace the traditional financial processes currently in place.

To understand exactly how FinTech fits into the bigger picture, we must break it down and evaluate all angles. To start, trends in emerging finance technology include variables from governments and dominating players to emerging acquisitions positioning big tech as a disruptor and solution to trade finance. So, what are some of the top emerging trends currently found in the financial technology space? According to experts at Azlo, a no-fee digital banking platform, government regulation will weed out fly-by-night FinTech while ownership of a self-sovereign identity will become more prevalent for risk modeling. Additionally, FAANG companies are currently positioned to become major players in the FinTech space as they continue to raise the bar for consumers and businesses alike.

Azlo also maintains that banks must adopt FinTech and emerging tech to remain a relevant part of the financial industry, warning that if they don’t, European, African and Asian markets, which possess less regulation and oversight, will own the space very soon. Additionally, optics, trust and inevitable obsolescence will ultimately serve as supporting reasons behind the adoption of emerging tech in the banking space in the near future.

From a safety and risk mitigation point of view, cybersecurity requires a sophisticated and advanced system to combat various strategies hackers utilize to disrupt the financial industry. Cybersecurity goes hand-in-hand with the recent surge in FinTech and will present itself as a challenge for financial companies to mitigate. How will this risk impact banks from a cost perspective? Think of it in terms of compliance and regulation. Circling back to Azlo’s expert point that once the government starts implementing harsher regulations, the days of FinTech will take a different stance in the financial industry. An example of this is found in Mexico’s FinTech law that took full effect this year and in the Latin America markets. As noted in a November Nasdaq article: “The goal of the FinTech law was to help bring more people into the formal economy. Additionally, it would help to reduce the amount of cash in circulation, which would cut down on money laundering and corruption as well.”

Nasdaq experts also point out the significant progress FinTech has made within the Mexico and Latin America markets. “In January 2019, Albo raised $7.4 million, sparking a surge in investor interest in Mexican neobanks,” states the article. “In March 2019, Mexican neobank, Fondeadora, announced a $1.5 million round of investment, and in May 2019, Nubank, Brazil’s largest neobank with over 15 million users, announced its plans to expand into Mexico.”

Considering the reputation for cash dependency in Mexico paired with the more than 273 FinTech ventures operating in the country, it’s no surprise that FinTech is disrupting and recreating opportunities for global markets while changing the way cash flow is approached.

FinTech will not necessarily hurt the traditional banking model, as it does offer an automated and sustainable approach for customers while keeping up with what is expected of companies on a cultural scale. To remain relevant, banks should consider what customer generations are emerging while maintaining the changing ecosystem supporting efficiency, sustainability and cost-savings.

Furthermore, FinTech is changing the way investments and lending are assessed. FinTech allows for much larger sets of data, providing a new level of visibility. Possessing the ability to manage multiple information streams that reflect the health of a company is found as an unmatched solution provided by FinTech, according to Azlo. With this information, companies can further evaluate next-step approaches and what actions in place need to be revisited, revamped or completely eliminated. The name of the game is data visibility, folks, and that is exactly what FinTech is doing to redefine how finances are approached.

“FinTechs are relying on different information when underwriting consumers, looking at things traditional banks have never considered and providing more people with access to personal and business capital,” explains Donna Fuscaldo in her blog, “The Rise of Fintech: What You Need to Know & Financial Services Now Offered.”

“Traditional financial institutions may be late to the FinTech party, but they haven’t missed it altogether,” Fuscaldo writes. “Many of them are creating their own services or partnering with established FinTechs to bring services to their clients. It’s happening in every aspect of FinTech from robo advisors with Charles Schwab’s Schwab Intelligent Portfolios to digital payments with Visa’s Visa Pay digital payment service. Even heavy hitters like JPMorgan are turning to FinTech’s data to evaluate applications for loans, and Quicken Loans, the online mortgage lender, launched its Rocket Mortgage app that can churn out mortgage approvals and rejections in minutes. All of this action on the part of the traditional financial services industry make for more choices beyond just the startups.”

With cybersecurity and automation consistently creating new ways for companies to optimize their payments while maximizing data and integration, only time will tell how much regulation global governments will impose and whether that reshapes the FinTech marketplace. One thing is certain: Traditional banking will continue to be challenged to redefine how customers are served, transactions are protected and how the investment and lending sectors approach opportunities throughout the international and domestic markets.